China – a huge opportunity but where to start?
In our R&,D innovation focus month, Flic Gabbay takes a look at the pharmaceutical business opportunities in the emerging market, China. Flic explores the challenges Western pharma faces, with regards to language and cultural differences, and how best to overcome them.
“Everybody knows they must be in China – but few know why they must be in China,”
Dr Jingwu Zang, Senior Vice President, Head R&,D China, GSK.
This is a quote that was made during a recent UK Trade Mission to China and sums up the complexity that surrounds the many opportunities facing the Western business community when visiting the country.
In 2011, China represented a little over 5% of the $880bn world pharmaceutical market and is growing at 25-27% per year. However, in some parts of the industry, China is already a world leader as it is the biggest exporter of Active Pharmaceutical Ingredients (APIs) to the European pharmaceutical market.
The Chinese government is working on a plan to introduce 30 novel drugs to the market by 2020. Potentially this is a challenge but, considering the FDA and EMA register more than 30 drugs per year, it is possible. This objective creates big opportunities for Western pharma and its supporting services.
“The Chinese government is working on a plan to introduce 30 novel drugs to the market by 2020.”
China has the advantage of being relatively new into the global pharma products area. It is not hampered with the old fashioned, monolithic R&,D management structures that the West is struggling to shed as we move into a new, collaborative environment. The disadvantage of this lack of such integrated approach is this leads to a world of smaller, more hectic collaborations which, whilst productive, are difficult to harness. There are really creative organisations in China, such as Simcere, that are mentoring up to a hundred small companies in an “incubator” arrangement that allows both sides to partner with them in longer term relationships when the technology matures, these are somewhat similar to the arrangements that GSK has in Stevenage in the UK.
So how is the pharmaceutical organisation grouped?
There are many big pharma companies that have extended their reach to trading in China and, in the case of MSD, GSK, AZ and several others, they also have very successful and productive R&,D facilities in China. There are also large, established Chinese pharma companies wishing to globalise and license technology (both in and out) and then small Chinese dedicated R&,D biotechs with products that they want to develop globally.
Chinese service companies also abound and have lots of useful offerings such as non-clinical and clinical CROs, CMOs, business development functions and access to venture funding.
“There is an extraordinarily successful mix of private and public partnership in China.”
State involvement in pharma in China
There is an extraordinarily successful mix of private and public partnership in China. Many Chinese pharma companies have strong links with, or are part or wholly owned by the state. Links with the national and local arms of SFDA (the Chinese regulatory authority) are also important and no visit to China is complete without understanding the importance of the Chinese regulatory authority.
Doing business in China
Understanding Chinese business culture is, of course, essential to success in China. This can range from not getting lost (taxi drivers are unlikely to be able to read an address in English) to having meetings with a Chinese delegation of 20 plus businessmen and translators. Prolonged banquets are common as are meetings that do not follow our more “working hours” approach. Language is a challenge and European companies with Mandarin speakers have a definite advantage. Chinese pharma is also on a learning curve internationally with little expansion into Europe compared to the US where most consider having an office is a must.
Challenges faced by pharma in China
There are challenges still to be faced in China by pharma in clinical development, both Western and Chinese. Getting a clinical trial application (IND) takes 10-14 months on average, leading to companies doing their phase I outside China.
“Understanding Chinese business culture is, of course, essential to success in China.”
There are more than 100 science parks in widely varying geographic regions, generating many products now within non-clinical and phase I development but there are few companies with experience in long-term clinical development. Many of the Chinese returnees from overseas (who are financially incentivised to return) are currently working in early research. However, the techniques of global drug development in phase II / III and global registration are skills, as yet, rare in China. It is perhaps not a big issue because many of the products are still in early development. The Western pharma industry has an excess of talent in the phase II / III and global registration (after pharma downsizing). This talent pool working in these disciplines may well be able to provide support to Chinese companies with products in late stage drug development generating substantial and valuable business for the UK.
Where to start?
Most Western governments have departments who deal with exporting to China and several European countries such as UK and Germany have been very successful in establishing business in China, as has the US. The government facilitators will support companies wanting to license products out to China or in from China. The support can include training in culture and other aspects of doing business. There are also returnees who can help although they are sought after in China and often very busy and not necessarily motivated to support other people’s business challenges. Companies such as legal and financial companies are also a good port of call and are familiar with the challenging aspects of getting paid outside China for your product or services. However, beware! Establishing business in China takes time and many banquets. Possibly because of the major cultural differences, many Western companies form alliances first before setting up themselves and this may be an appropriate first step.
Whatever the challenges, however, the speed and enthusiasm of the Chinese, their long working hours, their inherent entrepreneurial skills, willingness to collaborate, combined with state support means China is indeed a force to be reckoned with. It is a rapidly growing market and there are substantial opportunities for both pharma and pharma service companies, but don’t underestimate the time and planning involved.
About the author:
Flic Gabbay is a pharmaceutical physician and Managing Partner of TranScrip Partners, a global organisation which supports the pharmaceutical industry in drug development, registration and post-licensing activities.
TranScrip works for more than 50 companies across four continents. Flic has worked in the industry for more than 30 years and has held a number of senior and CEO positions in both pharma and CRO companies in Europe and North America on a range of projects including NCEs and biologicals. As well as being a founder partner of TranScrip partners, she founded Gabbay Group, a CRO acquired by PPD where she became Global VP for Regulatory and Clinical Research, and she has also been CEO of two small biotech companies. She also was founder Chairman of the Society of Pharmaceutical Medicine in the UK and was Chairman of the steering group that set-up the UK Faculty of Pharmaceutical Medicine (FPM).
Flic has been an active member of many expert international working parties on research and regulatory guidelines particularly in the area of anti-infectives and respiratory.
What opportunities are there for pharma in China?