Report from Asia

December 2, 2010

Source: Pharmaceutical Technology

Issue 12,Volume 34

Global pharmaceutical companies have much to gain in Asia, and the good news is that it's a two-way street. Firms based in Asia are also expected to grow at the global level.

In recent years, the fortunes of big pharmaceutical companies have declined due to the global economic crisis as well as other issues such as expiring patents and dwindling pipelines in the industry. These changes have prompted companies to seek new markets and opportunities outside their traditional borders. Many are attracted to Asia given its largely untapped potential, low operating costs, huge population base, and rising occurrences of common diseases including cancer and heart diseases.

PHOTO: ULTRA.F, GETTY IMAGES

In a nutshell, Asia presents significant business opportunities for multinational companies, but there is work to be done. Reynold (Pete) Mooney, consulting leader for the life sciences and healthcare industry at Deloitte Touche Tohmatsu Limited (New York), explains, "Asia is not just one market but a diverse range of markets. As each market has its distinctive characteristics and dynamics, companies need to fine-tune what they do in a specific market in order to compete effectively."

Take, for example, sanofi-aventis (Paris) which is locally branding in each market in Asia via acquisitions. The company signed a collaborative agreement with Hangzhou Minsheng Pharmaceutical Group (Zhejiang) early this year, which marked its entry into the consumer healthcare segment in China. The French company has also inked a licensing deal with Glenmark Pharmaceuticals (Mumbai) for the development and commercialization of new molecules for chronic pain treatment. Again, this is significant for sanofi-aventis considering that the osteoarthritic pain market is estimated at $4 billion with 40 million patients. Similarly, Bayer (Leverkusen, Germany) has introduced high-growth therapy drugs (e.g., Glucobay for diabetes and Adalat for hypertension) in the Chinese market. Today, the Chinese market accounts for 3% of its group revenue.

In fact, many companies are starting to explore ways to enter Asia. "Given that the Asian market is developing rapidly, it will be advantageous for companies to enter early. This will give them the opportunity to gain experience and to grow alongside with it," says Mooney. India is one such market that pharmaceutical firms may want to focus on given the country's low-cost manufacturing and research and development. As the Indian market establishes itself over time, foreign players will have to build selling and marketing capabilities. However, Mooney points out that there will be mixed success of foreign companies in the Asian marketplace depending on their market-entry strategies.

Interestingly, governmental policies play a paramount role in ensuring the success of foreign firms in Asia. When China advocated its open-door policy and socioeconomic reforms, it attracted a significant amount of foreign fixed investments for its pharmaceutical industry. Between 1980 and 1988, there were approximately 1600 foreign establishments in the country. The government's commitment of US $125 billion to Chinese healthcare infrastructure and universal health coverage by 2011 has kept the interest of foreign companies and encouraged them to stay in China as an overseas market avenue.

The mergers and acquisitions (M&As) trend is also starting to emerge in the Japanese market. Under the Abe government, new regulations have opened doors for foreign firms to purchase Japanese firms. The move has paved the way to develop areas such as drug development and generic-drug manufacturing for Japan's aging population. In addition, the government's strong push to develop the generic-drug industry has attracted many multinational pharmaceutical companies into the country. For example, Lupin (Mumbai) is able to make inroads into the Japanese generic-drug market given its 80% stake of Kyowa Pharmaceutical.

Big Pharma gains

Still, many pharmaceutical companies have yet to stamp their presence in Asia. Only the larger firms seem to have made real gains. Earlier this year, Pfizer (New York) commented that it is expecting its China business to grow by at least 25%. It has planned to forge more partnerships and expand its team of representatives, many of whom are trained doctors, from 2300 in 177 cities to 3200 in 252 cities by 2011. It is also teaming up with Japan's Takeda Pharmaceutical (Tokyo) to sell the latter's blockbuster Actos diabetes drug in China. On the other hand, Novartis' (Basel) made a $1 billion research and development investment in China and took an 85% stake in a privately held vaccine company in China.

"Currently, many foreign firms are still playing the catch-up game and exploring ways to enter the Asian market. Some are considering the M&As option as a means to increase presence in Asia," says Jan Williem Eleveld, vice-president of consulting and services for the Asia–Pacific at IMS Health.

In the long run, local and foreign companies are likely to benefit from global partnerships in the Asian region. As Pieter de Geus, vice-president of strategic business development at DSM Pharma Cluster (Heerlen, The Netherlands), explains, "Generally, professional sales and marketing of MNCs [multinational corporations] will elevate the overall market practices for local companies. The [intellectual property] protection environment will also improve [in Asia] as there will be a push for sophisticated and efficient research and development requirements." He noted that the presence of global firms will also fuel the generic-drug market.

Eleveld adds, "There will be a positive development for patients and governments as foreign firms will support the availability of innovative medicines to treat unmet medical needs in the region. This will also present an opportunity for local companies to assist their foreign counterparts through joint marketing collaborations."

Interestingly, Asian companies are making their presence known in overseas markets although the industry has yet to see a definite regional or global player. Some attempts to increase overseas presence include Simcere's (Nanjing, Jiangsu) in-licensing of an oncology drug and clinical-trial program in the United States, and the China National Biotech Group's (Beijing) attempt to become a worldwide vaccine manufacturing leader.

Mooney says, "Asian companies are expected to perform well in overseas markets. We can certainly expect them to gain dominance over time and to come up with products that are innovative at lower price points that will cater to both US and European markets."

Jane Wan is a freelance writer based in Singapore.