AstraZeneca’s chief executive recently returned from a trip to China enthused about the “explosive growth” of Chinese biotech companies and the potential for his business to bring medicines discovered there to the world.
Pascal Soriot said the market was “fully open” to pharmaceutical investment. “It’s hard not to be impressed by the progress China has made over the past few years,” he added at a news conference in April.
While the Group of Seven nations have warned of the threat of “economic coercion” from China and the United States is reviewing Chinese investment in its biotech sector, AstraZeneca is focused on capitalizing on its position in China as the largest overseas pharmaceutical company by sales.
“When you’re a global company like AstraZeneca, you always have geopolitical risk and you have to try to manage it without being overly involved,” the company’s new chairman Michel de Mare told Reuters. British “Financial Times”. As long as there are no legal or sanctions issues, “you just do your best to take care of your patients and try to reach as many patients as possible,” he added.
Many drugmakers have been lured by China’s large aging population, which is increasingly affected by chronic diseases, in part due to smoking, pollution and a more Westernized diet. While vaccine nationalism has meant China has abandoned foreign Covid-19 vaccines in favor of its own less effective ones, it has been open to other innovative medicines.
AstraZeneca believes that opportunities lie not only with Chinese patients, but also with Chinese scientists. “The power of innovation has changed,” Demaré said. “It’s not ‘copy and paste’ anymore. They really have the ability to innovate and put all the money in. There are a lot of start-ups and we’re part of that.”
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The Anglo-Swiss drugmaker last month signed a partnership worth up to $600 million with Shanghai-based LaNova Medicines for a global license to a potential cancer drug, part of a series of oncology and cell therapy deals The latest in . Unusually, AstraZeneca China even has a partnership agreement to sell a traditional Chinese medicine aimed at lowering cholesterol.
Foreign drugmakers have often seen collaborations as safer than acquisitions in China due to concerns about political risk and historical intellectual property theft. But Soriot said in April it had “no restrictions” on acquiring Chinese companies.
Asked about possible objections from Washington, he cited a recent speech by U.S. Treasury Secretary Janet Yellen in which she insisted the U.S. had no intention of “decoupling” from China.
“Of course there are industries that are more stressed, but that doesn’t apply to our own pharmaceutical industry,” he said.
Still, breaking into the market requires political skill, as western companies still face hurdles in doing business in China.
As AstraZeneca recently celebrated its 30th anniversary in China, global executive vice president Leon Wang pledged that the drugmaker would strive to be a patriotic company that “loves the Communist Party,” according to Reuters. AstraZeneca declined to comment on Wang’s statement.
Since taking over the company 10 years ago, Soriot has transformed the company, investing in research and development that has created breakthrough cancer medicines. After defeating Pfizer’s bid in 2014, AstraZeneca’s shares have risen more than 100 percent in the past five years, and its market value recently surpassed that of its U.S. rival.
The company’s strategy of building its China presence by building relationships with local governments outside the Beijing, Shanghai and Suzhou biotech hubs gives it another advantage.
“Typically, the market looks at pharmaceutical companies through key franchises, such as individual drugs or therapeutic areas,” said Dani Saurymper, portfolio manager at AstraZeneca investor Pacific Asset Management. “So this is the growth segment that people don’t usually think about: what is the geographic revenue potential?”
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According to Demaré, the group is “very deep into some provinces where there are not even foreign players besides us”.
Meanwhile, Wang has been building AstraZeneca’s business in China since arriving in 2013. “He’s always been very innovative.”
With a keen eye on the needs of China’s evolving healthcare system, Wang oversaw the construction of thousands of centers within hospitals to deliver AstraZeneca’s Pulmicort, an asthma and chronic obstructive pulmonary disease drug. The latter condition affects more than 100 million Chinese.
Paul O’Brien, a China market access strategist, said the drugmaker’s partnerships and capital investment were attractive to the government and helped the company “blur some of the lines” between being regarded as pure foreign entrants and “companies with significant skin in the Chinese market”.
As China has begun to increase its focus on pharmaceutical innovation over the past five years, pharmaceutical companies that rely on selling off-patent generic drugs have had to scramble to change their business models. The country has introduced major reforms to enable patients to get new medicines, rather than cheap generics.
Helen Chen, head of LEK Consulting’s healthcare practice in Shanghai, said there had been a “very big mentality shift” in the industry since 2017, as Beijing accelerated the process of regulatory approvals and insurance coverage. The National List of Covered Drugs, which once took four years or more to complete, is now reviewed annually.
But while the Chinese government has pleased the industry by speeding up the process, it has taken a tough line on prices.
Demaré said AstraZeneca had been through a “difficult period” in China as the government put pressure on prices and demand took a hit during the strict Covid-19 lockdown.
However, he noted that the company returned to double-digit growth in the country. Sales in China (excluding sales related to Covid-19 vaccines and treatments) increased 11% YoY to $1.6 billion in constant currency in Q1 2023, although growth is expected to slow to the low single digits Number percent this year.
Simon Kuhe’s Liu said AstraZeneca had been “not vigilant enough” to China’s policy of encouraging generic drug competition over the past two years and had not launched enough innovative drugs in response.
But he added that the company’s extensive local experience in China was helping the transformation, noting that AstraZeneca China was treated with “freedom, liberty and trust” from the drugmaker’s global headquarters.
AstraZeneca has also had some success with its innovative medicines. Sales of the lung cancer treatment Tagrisso in emerging markets rose 17 percent year-on-year to $444 million in the first quarter, with three-quarters likely to come from China, said Redburn analyst Simon Baker. The pound bomb is not far off,” he said, an industry term for a drug with annual sales of $1 billion or more.
Reforms such as looser rules for outsourced manufacturing have also made it easier for Chinese biotech companies to compete globally, while changes to Hong Kong listing rules have opened up the market to biotech companies with no revenue. Because of their long development times, biotech groups sometimes require a decade of funding before first sales.
Soriot believes AstraZeneca can be the partner of choice for the Chinese biotech, which he says is discovering new products and technologies that will “shape the future of medicine”. He plans to use AstraZeneca’s presence in the country “to leverage this innovation and help these companies develop and commercialize their products globally”.
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Wang has spearheaded a partnership with state-backed investment bank China International Capital Corporation to create a $1 billion fund to invest in local start-ups.
Chen of LEK Consulting thinks AstraZeneca is politically likely to make an acquisition, as long as the group doesn’t target “major industry champions in China” or gene therapy companies deemed to be of national strategic importance.
Acquisitions “are not a bad idea in theory,” Liu said, with drug companies able to negotiate prices because many biotechs are “short of money.” But he added that they were uncommon due to potential problems with asset consolidation and other geopolitical and legal challenges, especially since relations between the West and China have soured.
Lindsey Gorman, a senior fellow in emerging technologies at the Safeguarding Democracy think tank, said a statement of patriotism and loyalty to the Communist Party is pragmatic in this case.
“The flattery is definitely not subtle, but AstraZeneca is saying the quiet parts loud and clear. To some extent, all businesses in China are operating at the pleasure of the authoritarian state,” she said.
“That’s why the U.S. government is looking at more and more industries . . . but is it a cost of doing business? In the pharmaceutical industry, many companies think it is.”