China’s Pharm Infrastructure

We’ve all heard the famous axiom that the three most important attributes in buying and selling real estate are location, location, and location. In today’s global pharmaceutical market that location seems to be China, China, and China. Hardly a day goes by absent of news regarding China’s emerging role in the global healthcare industry. Just last week Merck announced they are entering into a substantial partnership with China-based Simcere Pharmaceutical Group. According to the press release, the joint venture will “combine the extensive resources and expertise of a global healthcare company and a leading Chinese pharmaceutical company in support of Merck and Simcere's goal of building a strategic partnership with development, registration, manufacturing, and sales capabilities. The initial focus of the partnership will be branded pharmaceutical products for cardiovascular and metabolic diseases.”

Industry Standard Research has recently compiled a substantial report that profiles 18 domestic Chinese pharmaceutical companies, one of which is the aforementioned Simcere. With over 200 pages of analysis, this report offers a head start to pharmaceutical companies or pharmaceutical service providers looking for growth in China. Whether you are a pharmaceutical or biotech company; a service provider; a healthcare distribution company; or a technology company, China has to be on your radar as one of your major growth initiatives.

One interesting finding from the report is the identification of the therapeutic areas these Chinese companies are focusing on. The Merck-Simcere joint venture is focusing on cardiovascular and metabolic diseases and, obviously, matching existing or desired pipelines is crucial for product development or commercialization partnerships. Many domestic Chinese companies focus on cardiovascular, anti-infectives, antibiotics, and of course, Traditional Chinese Medicines. However, not all domestic Chinese companies are created equal when it comes to research and development. There is certainly not the level of investment in these areas that would rival Western pharma and it creates an area of opportunity for Western pharma. 

What should be interesting to watch is how many future partnerships will involve western companies buying minority or majority stakes in domestic Chinese pharma companies. Over the past five years, almost all of the companies profiled have far out-paced their respective financial indices, with many up over 400% over the time period. So what’s next? I believe we will continue to see more and more deep partnerships, like the Merck-Simcere one. The risk-reward scenarios simply favor these types of partnerships; the risk of not doing something far outweighs the risks of entering into a partnership in China. If even half of the growth projections in China turn out to be true, healthcare companies looking for growth options must do more than just consider China and there is definitely a first-mover advantage to consider.