Chinese pharmaceutical momentum is inevitably growing, where multi-national pharmaceutical companies would be silly to let this opportunity pass without joining in in some shape or form. Government support aims to propel China to become a formidable homegrown competitor, by offering tax and other incentives to develop drugs ‘Made for China’ and the world. This includes government-supported and pharma industry-sponsored innovation hubs, academic alliances & venture funds to harness this innovation with differing levels of risk and reward.
International pharma companies have dived headfirst by establishing an assortment of these initiatives – though now we wait for them to bear fruit.
It’s a tale as old as time; China as a renowned copycat, a leader in manufacturing me-too’s or generics. However that story is being re-written, as China forge their own way within the pharmaceutical sector by emerging as a key geography poised to establish their own novel therapies.
Historically, China’s pharma industry was held back due to lengthy regulatory processes and dispersed talent, hence they took advantage of the manufacturing gaps between western markets and China by licensing in novel assets. Now, China is set to become a key growth space and the second-largest pharma market globally, with 2017’s sales of $122.6bn projected to reach $175bn by 2022. This shift stems from both improved government backing and their aging demographic, as aside from sheer patient volume where the number of people over 65 years old will increase by 60% to 143 million in 2027, China is an attractive space due to increasing prevalence of unique diseases, cancers, cardiovascular diseases, and diabetes.
The government support was driven by changing regulations but also two initiatives, namely ‘Made in China 2025’ and ‘Healthy China 2030’, which together aim to propel China to become a formidable homegrown competitor, by offering tax and other financial incentives to develop drugs ‘Made for China’ and the world.
Science and research parks present a cornucopia for innovation, providing optimal conditions for nurturing young biotech’s
A key example of Chinese government support is the establishment of science parks for innovation by offering an array of incentives, such as land on attractive terms (discounted or free office, laboratory and production space) and research grants. This support has resulted in $1.45 billion spent on 22 biomedicine parks by 2020. These parks developed inclusters can effectively reduce risk and cost, whilst promoting collaboration of top Chinese & relocated talent.
Western pharma has turned their attention to China, acknowledging these systematic shifts as avenues for their own Chinese footprint
As the Chinese pharma market matures, international pharmaceutical industry giants aim to become local enabling partners, providing exit models for innovators and feeding their own pipelines. We have seen that this partnership is formed through the development of sponsored innovation hubs, academic alliances & venture funds to harness this innovation with differing levels of risk and reward:
- Academic alliances are considered a low-risk, low-reward entry-level model, where academic institutes often lack a commercially driven mindset but also want little hand-holding. These at-arms-length partnerships allow the institute development autonomy and IP part-ownership, where pharma commit limited resources & infrastructure but provide funding and access to expertise.
- Venture funds are another partnership option on the menu, for the more trepidatious pharma partner. This model is often light-touch, where mentoring and level of involvement can depend on the size of the opportunity. The venture fund motive centre around a commercial exit, where pharma can bring the innovation in-house with a guarantee of shareholding in exchange for funding.
- Innovation hubs/accelerators strive to internalize innovation, but to do so require greater pharma commitment. These hubs offer residents the space & infrastructure to develop their ideas as often located in existing science parks, as well as consistent mentoring and support throughout the start-up journey to get on their feet. However, there is no guarantee of investment by pharma in the start-ups they helped foster once they graduate-out of the programme.
One doesn’t have to choose just one of these models to establish a Chinese presence, international pharma’s are piloting a variety to maximize headline coverage and long-term opportunity
The spectrum of partnership options allows for altricial or precocial footprint growth within China. We see that the prioritisation of models and weight given to each depends on pharma’s long-term strategy for China. This strategy evolves from contemplating key questions such as;
i. What do pharma ultimately want to get out of it and over what time period?
ii. What therapeutic areas they see as value drivers for the Chinese population which
complement their own existing expertise?
iii. Which platform technologies will boost their Chinese and wider global portfolios?
iv. To what extent can they provide supporting resources to these programmes?
Once these aims are clear, pharma can ascertain the balance of hands-on or at-arms-length partnering strategies that work for them.
Take AstraZeneca for example, who in 2019 announced three large-scale initiatives to build on the company’s long-standing commitment to China. The new global R&D centre in Shanghai will double their R&D headcount and focus on R&D for diseases that are prevalent in China. Their AI Innovation Centre also in Shanghai, will leverage the latest digital advancements in manufacturing, operations and commercialisation to accelerate the delivery of novel medicines to Chinese & global patients. Finally, their joint investment fund with China International Capital Corporation Limited (CICC), which has $1bn to support domestic companies based within their existing I·Campus accelerator (the Wuxi International Life Science Innovation Campus) and other global companies who wish to enter the Chinese market. This shows AstraZeneca utilising a diverse array of models to de-risk Chinese innovation; there are varying levels of control with partners who are able to deliver results across the short-medium-long term timeframe. Though AstraZeneca’s experience and footprint in China is relatively juvenile, where the majority of their Chinese partnering models kicked-off in 2019, they have gone gung-ho with numerous projects to prove their seriousness to committing to China as a key growth pillar for their business.
Johnson & Johnson on the other hand, started off with establishing progressive long-term collaborations with Chinese universities as announced in 2014, and then moved on to bringing their established, tried-and-tested JLABs accelerator model to Shanghai in 2019, the first of its kind in Asia-Pacific. Their academic alliances include one with China Pharmaceutical University to work on novel antibody-drug conjugates to treat solid tumours and a R&D collaboration with Peking University to identify agonists and antagonists for G protein-coupled receptors to help develop novel CNS medicines. JLABS are a global network of open innovation ecosystems and are touted as “no-strings-attached life science incubators enabling innovators to accelerate the delivery of healthcare solutions”. This successful model has been rolled out in Belgium, Canada and multiple sites across the US, where now both local and international entrepreneurs are provided with the operational tools needed to break into the Chinese environment. JLABs@Shanghai is based within Zhangjiang Hi-Tech Park and can accommodate more
than 50 pharmaceutical, medical device and consumer goods start-ups.
These are just two examples where multinational pharma companies are establishing an assortment of partnerships in China, which are likely to bear fruit for them across the near and long term. Sanofi, Eli Lilly, Novo Nordisk, Novartis, Merck KGaA and as of more recently, Boehringer Ingelheim, are also some of the few to have set up shop in China.
Though Chinese healthcare innovation is gaining momentum, it’s too soon to see any tangible returns as these ethods build relationships with Chinese innovators to position pharma as the preferred partner
Multinational pharmaceutical firms would be silly to not join in and support the inevitable growth of China as an emerging centre of innovation. Thus, we are likely to see more and more companies establish themselves in China by building a reputation as trusted partners, in the hope of gaining early visibility into new discoveries. These strategies demand higher responsibility compared to traditional licensing or co-development partnerships. They also do not guarantee ownership but aim to strengthen development of local networks and foster cementing a long-term position within the market.