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PharmaDeals Business Commentary

Eastern Promise (2006-11-01)

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We are all aware of the increasing importance of China to the world economy in general. Having just visited Shanghai, the word 'awesome' leaps into my mind to describe the region. There is a feeling of energy, and a 'can-do' attitude that appears to be in abundance; this is a country advancing at a rapid pace. So where does that place the pharmaceutical and biotech industry in China? Clearly, the manufacturing of active pharmaceutical ingredients and intermediates has made the country famous. Since the early 1990s, large pharmas such as Roche have established significant sales and marketing activities there as joint ventures (JVs), and a rapidly growing affluent population with health insurance means that the Chinese market is becoming increasingly important. The emergence of a competent commercial pharmaceutical capability is clear to see.

At the research and development (R&D) level, China is still in its infancy. However, a number of large pharmas have established research centres, which will lead to a world-class competence in drug R&D. Running alongside this is the emergence of a competent intellectual property (IP) system, although this is still at an early stage and will require the continued evolution of both a legal system and a R&D management that sticks to the rigours of IP disciplines. Lack of an IP mind-set is still found among inventors, but the Chinese Government is committed to changing this, and to supporting the need for greater IP awareness. A demonstrated enforcement of IP rights in the courts will further boost confidence.

"Are we likely to see an emerging biotech industry in China? There are some small biotechs but, as yet, no significant investor activity ... . Are there opportunities within China for biotechs based outside the country? Yes, absolutely. China is an exciting opportunity for the pharmaceutical industry, one that simply cannot be ignored."

Are we likely to see an emerging biotech industry in China? There are some small biotechs but, as yet, no significant investor activity in these. However, as investors operate within very short horizons, finding money for a manufacturing venture or a sales and marketing JV is relatively easy. It will be some time before a longer term investor mind-set emerges in China, but time is the only limiting factor.

Are there opportunities within China for biotechs based outside the country? I would say yes, absolutely. In sales and marketing alliances, I would suggest that these biotechs should consider retaining at least some rights for their products in China. There are a number of Chinese entrepreneurs who would consider setting up such a JV, and this could be another way for biotechs to capture some of the value in any deal made. Other biotechs may want to consider doing their manufacturing in China. Here, the approach taken depends on the business model adopted, and whether there is a desire to retain manufacturing rights. In conclusion, China is an exciting opportunity for the pharmaceutical industry, one that simply cannot be ignored.

Fintan Walton

Chief Executive Officer

PharmaVentures Ltd