Rumors of mass exodus from China were just that

HONG KONG – Claims last year that the Chinese market was due for a massive exodus, particularly in the biotech space, may have been somewhat premature. Both international and domestic investors are actively betting on the country’s pharmaceutical sector.

A large population, a middle class that continues to grow, wider health care coverage and a growing focus on innovation by the government (with incentives that range from free lab space to multiyear research grants and tax breaks) continue to make China attractive for established multinationals and new start-ups.

With much fanfare, generics maker Actavis plc, of Dublin, announced at the beginning of 2014 that it was leaving China. It led to speculation that an exodus was imminent. So far, however, nothing like that has happened. In fact, the government has poured more resources into the spaces and companies, both domestic and international, have inked new deals and expanded their presence in the market.

The biopharmaceutical space is singled out in multiple government development policy plans or schemes announced over the past few years. The Chinese government is also pushing the development of China-made pharmaceuticals and medical devices and calling for more technology exchanges between domestic and foreign companies. The 2025 Made in China plan, released by the State Council in May, lists biopharmaceuticals including antibody, polypeptide drugs, novel vaccines and novel traditional Chinese medicine as key targets for technology innovation.

“The 2025 Made in China plan emphasizes the exchange of international technologies,” said Xiao Ting, an associate who specializes in IP issues of China’s health care industry from law firm Hogan Lovells. “This is not a one-way street; it encourages domestic technologies to go out and welcomes foreign technologies to come in.”

“This is also about technology import and export,” said Xiao. “If the government releases a general direction plan, we expect the cross-border technology transfer to increase and the types of enterprises will be more diversified.”

Xiao said the advanced technology and mature IP protection system make some foreign companies very attractive in both medical device and biopharmaceutical space.

“Cross-boarder technology import and export can in the form of IP transfer and licensing or as foreign investments,” said Xiao. “We had foreign companies expressing their concerns about the discriminatory treatment between foreign invested domestic and purely domestic companies.

“The 2015 [Made in China] plan is clearly leaning towards domestic companies,” Xiao added. “Foreign companies may take this into account before investing in China.”

A SEISMIC SHIFT

According to global M&A advisory IMAP, 2014 deal activity was consistently higher in terms of value in all regions (+130 percent higher sum of total transaction values), though not in terms of number of deals (flat at about 600). And IPO boom continued, with 91 companies going public, raising $6.4 billion. It was also a key year for mega-mergers: 11 transactions were greater than $5 billion (up from four in 2013).

Importantly, IMAP reported that, of 32 in-licensing deals, 20 involved a Chinese partner, “not just to commercialize the drugs, but also to invest actively in some sort, either in R&D, co-development, and/or clinical trials in China. This is a seismic shift from earlier years where Chinese companies were focused on licensing products which could be commercialized in China within two years,” according to the report.

And the momentum continues into 2015. For example, Johnson & Johnson just signed 17 deals linked to their four innovation centers around the world, one of which is in Shanghai. One of those deals is with China’s leading contract research organization Wuxi Apptec. The partnership will result in the creation of a biotech incubator that will back up entrepreneurs who have new asset-driven products to offer. The therapeutic areas they will focus on are oncology, immunology, neuroscience, infectious diseases and vaccines. (See BioWorld Today, June 15, 2015.)

“We saw a lot of good innovation in the universities but the translation into commercial products is lagging in Asia Pacific compared with the U.S. and Europe,” said Jimmy Zhang, vice president of transactions at J&J Innovation Asia Pacific at the Asia Biotech Invest conference in Hong Kong in May. “So how we promote that ecosystem is . . .- the strategic collaboration with Wuxi Apptec.”

The J&J investment is only one of a series of relatively high-profile initiatives that are giving more depth to the space. In another initiative, several organizations have come together to establish a new commercialization center for medical technologies.

The Pharma Partners (TPP), a Chinese health care market advisory firm, has brought together innovative science and technology carrier Biobay, Legend Capital and Legend Star to invest in a commercialization center in Jiangsu Province with the aim of opening the market to promising foreign technologies for medical devices and diagnostics.

“The cost and risks for approvals in China have pushed the industry from pharma into other areas, such as med tech,” Tony Chu, co-founder and managing director at TPP, told BioWorld Today. “However, for TPP’s regular business, we continue to work with many pharmaceutical products and supplements.”

The commercialization center will invest in highly innovative North American and European health care companies as well as support the commercialization of their products in China.

Biobay is located in the hi-tech development zone of Suzhou where a lot of biotech and med tech companies are stationed. BioBay provide services for drug discovery, diagnostic and medical device, CRO, nano material and investment.

“Many Chinese investors in our network are supportive of this alliance and will be looking to fund the projects we select,” said Chu. “We hope to build this collaboration to be the largest of its kind in Chinese history.”

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