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The Chinese Boom — Predictions for 2013
Interview by Sulastri Kamis

Three years ago, a thought paper was released predicting that China would become a global leader in the biopharmaceutical market. The idea was met with much protest back then. Today, that is no longer a far-fetched reality. APBN speaks with George Baeder on his predictions for the Chinese biopharmaceutical market in 2013. He predicts that firstly, China's role in the global drug industry will fundamentally change however most companies will fail to capitalize on this opportunity. Secondly, a new reimbursement model will emerge, with more authority given to provinces; private insurance schemes developed for specific diseases; and for innovative drugs that show value to keep final costs to consumers reasonable.

What is the role of China's “green channel” and rapid China-only launch in the life science sector?

China's unofficial “green channel” offers companies with innovative molecules that have been developed in China to move more quickly through the regulatory process.  For example, it generally takes at least 12 to 18 months to receive permission for a clinical trial from China's SFDA.  We are currently working on a locally developed drug which received approval for a first-in-man trial in just eight months. Betapharma's innovative lung cancer treatment, Conmana (icotinib), went into the clinic in May 2006 and was on the market in 2012, roughly half the time require for a similar drug making its way through the western system.

How would China's rapid China-only launch affect the global biopharma market?

Making China the driver in development and launch has a number of potential impacts.  For companies – smaller biotechs in particular – China may offer the opportunity to shorten development times, lower development costs and launch in the drug market that will soon overtake the United States to become the world's largest. Using cash flow from China would help fund development in the US and Europe.  In theory this would require a longer development cycle, running counter to the need to maximize sales prior to patent expirations.  However, if global development and regulatory sequencing are managed in a highly coordinated fashion, it could well lead to a better overall return.

As more examples unfold, investors are likely to see this “China model” as an attractive alternative to the high cost/high risk model currently employed in the US and other developed markets.  Assuming Betapharma is listed in the next year or so, it may well validate a new investment model in much the same way that Wuxi Aptech first drew global investor attention to China as a source of development skills.

Patients and payers will benefit as well if the model described above begins to bring better products to market faster at a lower cost: precisely what policy makers in China and the West seek from their healthcare systems.

India has a good stronghold in the low-cost generics sector having turned it into a profitable industry in itself. How would China fair?

Chinese and Indian companies are seeking to move into more innovative – or at least differentiated – products as soon as possible. Pricing for generics in the Chinese and Indian domestic markets is brutally low. This is likely to lead to further industry consolidation among generic producers so that a relatively small number of firms will ultimately survive.  In many cases this will require concentration of volume in distinct areas of chemistry.  So in much the same way that a handful of firms in China become the dominant global producer of penicillin precursors, large scale makers of API in such areas as statins, antibiotics or ACE inhibitors are likely to dominate global supply.  What role these leading chemical firms choose to play in downstream formulation, sales and distribution of finished medicines remains an open question.  For example, Pfizer already has strong alliances with Aurobindo in India and Hisun in China, two leaders in high quality API, with Pfizer taking the lead commercial role in most global markets. 

The Economist Intelligence Unit reported that China is rapidly catching up to be the second largest pharma market after the US as early as 2016. Would the growth be attributed to the influx of MNCs moving over to China or due to its own expanding industry?

China has already overtaken Japan to become the second largest drug market after the US, when you triangulate data from various domestic sources rather than rely purely on Western data companies such as IMS. China's growth is mainly attributable to growing demand for quality healthcare driven by a combination of rising incomes, a rapidly aging population, improving access to medical care and the better affordability that has accompanied the expansion of public health insurance to the entire population.  Both Chinese companies and MNCs have profited from this and made significant contributions by bringing both new drugs and more affordable generics to patients.

Your predictions mentioned about China's transition to be an epicenter of innovation and success stories that came about from this re-modeling that China's currently experiencing. What are some of the pioneering companies to lookout for this 2013?

With so much activity in China's life science landscape, it is difficult to single out a handful of firms.  However, thinking about potential landmark events that the rest of the world may see as turning points in their perceptions of China point to several possibilities:

  • A dramatically successful public listing of Betapharma, generating significant returns for some of the original investors – including Eli Lilly's venture fund – could well provide validation among the investment community for a new drug investment/development model.
  • Progress on Simcere's MET/VEGFR-2 inhibitor,  in -licensed from BMS, in pursuing this low cost development model could provide validation for the concept that “big pharma” can participate in this new path to China-focused accelerated commercialization.
  • AstraZeneca's plans to pursue global commercialization of Hutchison Medipharm's volitinib, a novel small molecule cancer therapy, would validate China's ability to develop innovative drugs.

About the Interviewee

Mr. Baeder leads Quintiles Consulting Asia/Pacific and the firm's Commercial business in China, based in Shanghai.  He has spent more than 35 years in Asia working with leading Asian and Western firms to build profitable high-growth businesses in the region's most challenging and complex markets.  He is widely considered to be a thought leader in the industry, having worked on the cutting edge of innovative approaches to market entry, R&D, access and new commercial models - helping clients take decisive moves ahead of competitors.

His life science consulting in began with as an advisor on the first pharmaceutical joint venture in China, set up by an Astra-led consortium of five Swedish companies in Wuxi. Since then he has work with all of the leading Western biopharmaceutical firms, both in China and across the Asian region. He combines strong strategy skills and analytics with an intensely practical focus on implementation.

Prior to joining Quintiles Consulting, Mr. Baeder led the Monitor Group's Life Science practice in Asia for nine years. In the early part of his career, he built two professional services firms that he subsequently sold to leading global players in their respective fields. He then spent three years as an investment banker with working on Asian-focused life science transactions.

Mr. Baeder was educated in Economics at Lafayette College and then studied China's economic development at Oakland University in Rochester, Michigan, and Taiwan Normal University. He is based in Shanghai.

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