Vast Majority of Firms from Developed World Interested in China; Companies at Phase 2 or Later Development Most Interested in Building Their Own China Presence, According to New Survey of Biopharma Companies Around the World by L.E.K. Consulting
Boston (June 4, 2018) – Japan has for years been the powerhouse market in Asia for global biopharma companies’ products. Now China has now caught up, and firms from around the world are actively interested in entering the Chinese market, according to a new report and survey from L.E.K. Consulting, a global management consulting firm.
Although 86% of the biopharma firms that L.E.K. surveyed say they’re interested in China, three-quarters don’t want to enter it alone and will want to partner with a Chinese firm or one from outside China that has made inroads there, according to “Heading East: Biopharma International Expansion to China and Asia,” developed by L.E.K. along with the Biotechnology Innovation Organization (BIO), a not-for-profit biotechnology trade association representing more than 1000 biotech companies.
Insights from the report will be presented today at the China Summit @ BIO International, part of the 25th BIO International Convention in Boston, the largest gathering of the biosciences industry in the world.
Drug regulatory reform, pro-biotechnology trends, new intellectual property rights protection and increased public and private investment within China are contributing to the Chinese market’s attractiveness, the report says. That’s on top of the huge growth in spending on prescriptions in China: In 2017, the market value was $123 billion and is expected to reach $160 billion by 2022. In fact, China is expected to contribute $37 billion, or 13%, of overall global prescription growth over the next five years, according to L.E.K.’s analysis of IQVIA data.
“There are many ways for biopharma companies throughout the globe to tackle China and the broader Asia region. The geographical distances may be vast, but the regulatory steps and cross-border collaborations are bringing the markets closer. The key is to get started,” says report coauthor Helen Chen, L.E.K. Managing Director and Head of China and Asia Life Sciences.
The report underlines the vastness of the market in China. Three to four million cancer patients are treated there each year, and the country accounts for 37% of lung cancer, 44% of stomach cancer and 52% of liver cancer patients globally. It also has 110 million diabetics and another 500 million pre-diabetics. This amounts to three out of five of the world’s diabetics.
Figuring out how to enter and address this market presents a challenge. Perhaps related to that complexity is the fact that, according to the survey, while nearly all biopharmas are interested in China, only 22% of firms say China is their number-one priority.
Joint Ventures and Out-Licensing are a Preliminary Line In
“Some larger, established firms, especially ones with products at later stages, might be able to establish their own presence outright in China, but most companies think of partnering first,” Chen said. But she cautions that choosing “the entry approach goes beyond simply choosing the right local firm. It’s really about the company’s overall strategic plan and commercial objectives.”
The partnering option that biopharma companies outside China consider and pursue most frequently are joint ventures with Chinese or other firms that can navigate the market as “locals,” the report says. For example, Kite (now Gilead) and Juno (new Celgene) each opted for joint ventures in China, with Fosun in 2017 and WuXiAppTec in 2016, respectively.
Another common form of partnering is out-licensing, whereby companies, often smaller biopharmas, grant companies exclusive rights to make and sell, and even develop, products in China, the report says. Among the companies that have done this are Puma, Mirati, Tesaro and Kolltan. The rise of China-based startups that could serve as out-licensing partners to biopharmas has facilitated this trend, the report notes.
Importantly, the survey found that nearly all biopharmas – 91% -- pursuing joint ventures and out-licensing in China prefer a deal with upfront payments, royalties and milestones. Those considerations can be more important to the biopharmas than sales and R&D criteria.
Because of the market opportunity in China, the number of biopharma business deals relating to the country has surpassed the number of deals covering Japan. That said, Japanese licenses still have higher values, according to the report.
Over time, the China deals will naturally grow more valuable, the report authors say. “Over 90% of the biopharmaceutical industry is made up of small, emerging companies. This ‘Heading East’ report gives them a valuable primer to begin to think about the globally important China and Asia markets which can add significant value to their portfolios,” says Joseph Diamond, Executive Vice President of International Affairs at BIO.
The L.E.K. survey was conducted during early 2018 and included 88 qualified responses, completed by senior executives from firms of all sizes from the U.S., Europe and Asia.
About L.E.K. Consulting
L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and rigorous analysis to help business leaders achieve practical results with real impact. We are uncompromising in our approach to helping clients consistently make better decisions, deliver improved business performance, and create greater shareholder returns. The firm advises and supports global companies that are leaders in their industries — including the largest private and public-sector organizations, private equity firms and emerging entrepreneurial businesses. Founded in 1983, L.E.K. employs more than 1,200 professionals across the Americas, Asia-Pacific and Europe. For more information, go to www.lek.com.