China Firms Eye Alliances, Global Markets To Become ‘Next Takeda’

Alliances and expansion into international markets, helped by M&A, are seen by many growing and research-focused Chinese pharma companies as essential to their business development aspirations, although a recent industry forum in Changzhou also heard that such firms should keep a firm footing at home to become an attractive partner.

On a recent Saturday, more than three hundred people packed a hotel ballroom in a remote industry park in Changzhou. No one seemed to mind the inconvenience and listened intently to a talk on how to conduct business overseas.

Welcome to the booming world of China healthcare business development, which one speaker at the forum compared to the early days of the internet bubble.

Calling his company’s development a model "rooted in science", Jiangsu Hengrui Medicine Co. Ltd. VP Cao Guoqing saw the time as ripe for Chinese domestic drug makers to actively pursue hot tech deals. Citing data showing that over 70% of big pharma's best-selling blockbusters are actually in-licensed from other, often smaller, biopharma sources, Cao drew particular attention to opportunities such as post-genomic technologies.

The Jiangsu firm could be seen as a good example of the far-reaching ambitions of Chinese pharma firms. It currently has over 20 chemical compounds in its pipeline and each year six to eight programs are in clinical development, meaning that an operation of its size is effectively “running on all cylinders”.

So why should its business development team, led by Cao himself, have to actively look for more outside deals? The underlying reason, according to the executive, lies in Hengrui’s ambition to build a truly global presence.

Hengrui is embarking on a journey to become the “Takeda of China”, transforming itself from a generics-focused maker to rely more on innovative products and expand overseas, attracting many partners to come knocking on its doors in the process. They are looking for something that Hengrui can do better through its good clinical team and regulatory affairs professionals, Cao noted.

However, global ambition requires more and Hengrui has to proactively scout for co-development and licensing opportunities, he told the meeting.

In July, subsidiary Hengrui Therapeutics Inc. took a step in this direction by completing what is believed to be its Series A round, involving HR Bio Holdings, a joint venture created by Hengrui and an undisclosed US blue chip investment firm, and which will focus on endocrinology and diabetes/weight loss (Also see "Hengrui Pursues Innovation Through New $100m US Spinoff" - Scrip, 10 Jul, 2016.).

M&A Route

For another Chinese company, Luye Pharma Group Ltd., overseas mergers and acquisitions are seen as the main focus. The Yantai, Shandong-based manufacturer recently acquired Swiss firm Acino Holding AG's transdermal business, marking another step towards becoming one of the top 100 pharma firms in China.

Developing clear strategic goals and keeping acquisition targets in mind are key to succees in overseas business development, emphasized Sammy Jiang, Luye’s vice president for international M&A and investor relations, pointing to a recent report from the Boston Consulting Group (BCG).

In the report, BCG authors say that a new crop of outbound M&A deals from China aims to "access new profit pools, capture new markets, and tap the skills of globally competitive leaders. Acquirers also view outbound M&A as a way to obtain cutting-edge technology as well as brand and management experience in overseas markets."

However, an unclear M&A strategy and incomplete due diligence also present major challenges to this approach, and may cause failures in achieving post-merger objectives. Additionally, knowledge of overseas regulations and legal requirements is critical, Jiang told forum participants, and good communication skills are vital for business development professionals to effectively negotiate deals.

Asian Role Models

With Takeda Pharmaceutical Co. Ltd. in mind, Jiang sees a proven path towards the world stage via targeted M&A. After fixing its sights on becoming a truly global pharma company, Takeda launched a series of transformational deals, bagging Millennium Pharmaceuticals Ltd. and Nycomed SPA along the way before naming a non-Japanese executive, former GlaxoSmithKline PLC SVP and senior director for Asia-Pacific Christophe Weber, as CEO. Weber has since continued to drastically reshape the company.

But Takeda is not the only Asian role model that is being studied closely by expanding Chinese pharma companies. Hanmi Pharmaceutical Co. Ltd. of South Korea provides another example of successful international deal-making, Jiang said.

The Seoul-based firm has signed a string of major alliances over the past few years, out-licensing its anticancer asset poziotinib to Luye in 2014, and then in 2015 inking several out-licensing megadeals with companies including Boehringer Ingelheim GMBH, Eli Lilly & Co. and Sanofi totaling $6.2bn in potential value.

"Hanmi has a very clear vision and is squarely focused on only two markets, its home market and China," Jiang observed. In China, Hanmi markets mainly over-the-counter pediatric and nutrition products, and prefers out-licensing its innovative drugs.

Hengrui is also looking to Hanmi for tips on best practice. Cao said that while the Jiangsu firm’s business development team is roughly a tenth the size of Hanmi’s 40-strong department, Hengrui does employ an “all-hands-on-deck” policy, with senior executives including the VP getting involved in deal-making.

Hungry Newcomers

Although many participants at the Changzhou forum were from domestic firms little known outside China, the goal to go abroad goal was equally and strongly shared.

"We want to compete with multinational companies, really showing our strength," Enwei Xie, director of investment at Konvoy Pharmaceutical Co. Ltd, told Scrip. Based in Kunming, Yunnan province, the company in April set up a North American R&D center in the outskirts of Chicago.

The goal is to collaborate with US-based academics and multinational drug firms, exploring opportunities to treat chronic diseases including diabetes and cardiovascular conditions, the company said in a statement.

On Sept. 1, Konvoy, the parent of Kunming Baker Norton Pharmaceutical Co. Ltd., announced a plan to invest CNY70m ($10.5m) to acquire the patent and clinical trial approvals to artemisinin, an established antimalarial, from the China TCM Research Institute. The target research was led by China's first winner of the Nobel Prize in Physiology or Medicine, Tu Youyou, for lupus erythematosus, an autoimmune condition.

In July, the Chinese firm also established a collaboration with the Israeli company GM Group to set up innovation incubators.

“We must not forget the home market that is still lucrative. Although it's complex for the management of overseas companies, China remains very alluring.” – Sammy Jiang, Luye VP

Meanwhile, Luye is in the process of establishing a subsidiary in Japan, and is seeking regulatory approval for its microsphere goserelin for prostate cancer, after having obtained clinical trial approvals from both the US FDA and China FDA.

Despite all the attention being given by Chinese companies to overseas opportunities, Luye's Jiang was of the view that such firms must still set foot firmly in their home market to increase their own attractiveness to potential foreign partners.

"We must not forget the home market that is still lucrative. Although it's complex for the management of overseas companies, China remains very alluring."

From the editors of PharmAsia News.