Pfizer Looks To Ramp Up Branded Generics Via MOU With China's Hisun

Pfizer Inc. and Shanghai-based Zhejiang Hisun Pharmaceuticals announced June 2 a memorandum of understanding to potentially establish a joint venture to develop, manufacture and sell branded generics in China and other markets.

Under the MOU, both parties could contribute "select existing products and other relevant assets and capabilities" to the JV, but Pfizer told PharmAsia News that it is too early to discuss products, ownership stake or other specifics about the venture. Pfizer said it is not working under a specific timeline to ink the JV, but rather that the MOU represents a "first step for moving forward."

That approach is similar to an MOU Pfizer signed recently with Shanghai Pharmaceuticals Holdings Co. Ltd, China's second largest drug distributor. Like the Hisun MOU, the Shanghai Pharma MOU contained few specifics, but emphasized that the parties would explore various business opportunities, including the potential to jointly commercialize an innovative product in China. For that MOU, however, Shanghai Pharma ended up disclosing additional color - identifying the product as a Pfizer urology drug, for example - in the prospectus for its recent blockbuster IPO in Hong Kong (Also see "With Pfizer As Cornerstone Investor, Will Shanghai Pharmaceutical Be Largest Pharma IPO Ever?" - Scrip, 10 May, 2011.).

The Hisun MOU would focus on manufacturing as well as "broader commercialization of medicines through local and global sales and marketing infrastructure and research and development of off-patent medicines," the companies said in a release.

One reason Pfizer may be announcing an MOU to explore a JV, rather than waiting until a JV is signed, is to boost its positioning in China, where the government looks kindly on demonstrations of support for China healthcare, particularly as it implements massive reforms to extend basic and affordable medical coverage to all.

In announcing the latest MOU, Pfizer President of Emerging Markets and Established Products David Simmons tipped his hat in that direction, saying that the agreement with Hisun "demonstrates Pfizer's commitment to China's ongoing healthcare reforms."

Simmons also highlighted another priority of China's government - boosting local innovation - saying the potential JV would "help support Chinese industry."

Branded Generics Play

Branded generics account for 60% of the Chinese market, and are one of the fastest growing segments in the global pharmaceutical market, particularly in emerging markets where cost and access drive use of off-patent medications, according to Pfizer.

However, some analysts have started to question that strategy, positing that utilization of branded generics is primarily driven by safety concerns related to domestic manufacturers. As governments like China look to boost local standards and reign in drug costs, the theory goes, branded generics will be first on the chopping block for price cuts (Also see "Will Innovation Replace Branded Generics As Dominant Strategy For Big Pharma In Emerging Markets? (Part 2 of 2)" - Scrip, 7 Mar, 2011.).

Nevertheless, Pfizer - along with several competitors like AstraZeneca PLC, Abbott Laboratories and Sanofi - has pursued an aggressive strategy to partner on branded generics with companies based in emerging markets. For instance, Pfizer has inked several deals with Indian pharma companies, including Aurobindo Pharma, Claris Lifesciences and Strides Arcolab, to gain access to a wider portfolio of branded generics that Pfizer will market in both emerging markets and established markets like the U.S.

A potential risk to this approach, however, was revealed recently after Pfizer issued a voluntary drug recall in the U.S. following a labeling mishap at Aurobindo (Also see "Outsourcing Your Way Into Trouble: Pfizer Issues Recall After Indian Aurobindo Mislabels Bottles" - Scrip, 29 Mar, 2011.).

In China, Pfizer is now the top pharma following its Wyeth acquisition. But it is a highly fragmented market with Pfizer commanding less than 2.5% of the market, according to IMS Health. To boost sales, Pfizer and other leading players are scrambling to hire more sales reps and ramp up commercial efforts.

Importantly, a JV with Hisun, could help Pfizer better penetrate China's second-tier markets, which are growing faster now than the Eastern seaboard, where Big Pharma has traditionally focused its efforts. Given the complexity of the China market, many believe that companies like Pfizer will need to partner with local companies that have commercial infrastructure in place and connections with reimbursement authorities and healthcare professionals (Also see "Expansion Into China's Lower-tier Cities Could Be Growth Driver For Big Pharma" - Scrip, 24 Feb, 2011.).

According to its website, Hisun has a sales network that extends to roughly 100 cities in 26 Chinese provinces. On staff, the Chinese pharma has 400 sales reps who work with more than 2,300 hospitals, all ranked second-class or above.

A JV with Hisun could also provide Pfizer with a larger mix of generic products to market in the U.S. It is also interesting to note that Pfizer would contribute some if its own products to the potential JV and collaborate with Hisun on the development of branded generics, which would appear to represent a larger commitment by Pfizer than in its previous deals with India pharmas.

Still unclear is whether the JV would have any impact on what's most weighing on investors' minds right now, whether Pfizer will spin out part or all of its non-core business, including its established products/emerging markets business unit (Also see "Pfizer Weighs Options For Future Of Established Products Business Unit As Revenues Show Strong Trends: Emerging Markets Earnings Roundup (Part 3)" - Scrip, 9 May, 2011.).

Hisun - A Rising Global Player?

Unlike many Chinese pharma, Hisun, which is publicly listed in Shanghai, has had its eyes on both the domestic and global markets. The company manufacturers a range of active pharmaceutical ingredients, which are sold in roughly 30 countries, including the U.S. and Europe, which together make up 75% of Hisun's global sales, according to the company's website.

Its product mix includes oncology, anti-infectives, cardiovascular and veterinary medications. Hisun generated most of its income in 2010 from anti-neoplastics (30%), followed by anti-infectives (25%) and cardiovascular medicine (15%), according to a recent note to investors from SWS Research.

Pfizer recently signed an API supply agreement with Hisun for an animal health product and has a "history of working" with the Chinese pharma, a Pfizer spokeswoman said.

Interestingly, Hisun manufactures several statin APIs, including simvastatin, pravastatin, lovastatin and mevastatin. Pfizer declined to comment when asked if a JV with Hisun could include manufacturing a branded generic of Lipitor, which is about to lose patent protection in the U.S.

In addition to manufacturing, Hisun is also focusing on R&D, including the development of antibody-based biologics at a lab in Beijing that is jointly run with the Chinese Academy of Sciences' Institute of Microbiology.

Hisun also has inked several deals of note with other multinationals. Last year, for instance, Eli Lilly & Co. agreed to a free transfer of its tuberculosis drug capreomycin to Hisun to manufacture in China under the Hisun brand as part of an effort to treat TB in developing countries. At the time, Lilly also said it would look to expand its collaboration with Hisun into other manufacturing areas (Also see "Lilly And China's Hisun Complete Technology Transfer For Antibiotic Capreomycin For TB" - Scrip, 29 Mar, 2010.).

Also of note, Hisun has invested in at least two U.S. start ups, a rare development for a Chinese pharma, but one that some investors believe is a sign of things to come given funding challenges in the U.S. and a robust IPO market in China (Also see "How Much Risk Should Big Pharma Accept To Close Deals In China? (Part 2 of 2)" - Scrip, 18 Jan, 2011.).

Last year, for instance, Hisun invested $10 million in a Series B financing of Sagent Pharmaceuticals, which is based in Schaumburg, Illinois. Sagent has several deals in place with Chinese pharmaceutical companies to bring finished products to the U.S. market, and some have speculated that Hisun would look to cut a similar deal with Sagent (Also see "Chinese API Manufacturer Expands International Presence, Provides Funding For U.S. Startup" - Scrip, 19 Apr, 2010.).

In March, Hisun also inked a deal with Buffalo, NY-based biotech Photolitec to develop medical imaging technology for cancer identification, including a joint venture to be established in China ('China's Hisun, Photolitec Of U.S. In Cancer-Imaging Drugs Pact,' PharmAsia News, March 28, 2011).

- Joshua Berlin ([email protected])