The CEO of AstraZeneca returned from a recent trip to China raving about an “explosion” of biotech companies in the country and the potential for his company to deliver drugs discovered there to the world.
Pascal Soriot said the market was “fully open” to pharmaceutical investments. “It’s hard not to be impressed with the progress made in China in recent years,” he added during a press call in April.
While the G7 has warned of the threat of “economic coercion” from China and the US scrutinizes Chinese investment in its biotech sector, AstraZeneca is focused on cashing in on its position in China as the largest overseas pharmaceutical company by sales.
“When you’re a global company like AstraZeneca, you’re always dealing with geopolitical risk and you have to try to manage that without getting too involved,” Michel Demaré, the company’s new chairman, told the Financial Times. As long as there were no legal or sanctions, he added, “just try to take care of your patients and try to reach as many patients as possible”.
Many drugmakers are tempted by China’s large, aging population, increasingly afflicted by chronic diseases, caused in part by smoking, pollution and more westernized diets. While vaccine nationalism led China to reject foreign Covid-19 vaccines in favor of its own less effective jabs, it is open to other innovative drugs.
AstraZeneca believes the opportunity lies not only with Chinese patients, but also with the country’s scientists. “Innovative power has changed,” says Demaré. “It’s no longer ‘copy, paste’. They really have the power to innovate and put all the money into it. There are many start-ups and we are part of them.”
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The British-Swedish drugmaker last month signed a partnership worth up to $600 million with Shanghai-based LaNova Medicines for the global license of a potential cancer drug, the latest in a series of deals in oncology and cell therapy. Unusually, AstraZeneca China even has a partnership agreement to sell a traditional Chinese drug that aims to lower cholesterol.
Foreign drugmakers often see partnerships as safer than acquisitions in China because of concerns about political risk and, historically, intellectual property theft. But Soriot said in April that the company had “no restriction” on buying Chinese companies.
When asked about possible objections from Washington, he cited a recent speech by US Treasury Secretary Janet Yellen in which she insisted that the US had no intention of “disengaging” from China.
“Of course there are industries where there are more tensions, but that is not the case with our own pharmaceutical industry,” he said.
Nevertheless, with Western companies still facing numerous barriers to doing business in China, cracking the market requires political skill.
As AstraZeneca recently celebrated its 30th anniversary in the country, 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.
Soriot has transformed the company since taking over 10 years ago, investing in research and development that has created breakthrough cancer drugs. After seeing a bid from Pfizer in 2014, AstraZeneca’s shares have risen more than 100 percent over the past five years and its market cap has recently surpassed that of its US rival.
The company’s strategy of building its presence in China by forging relationships with regional governments outside of Beijing, Shanghai and the biotech hub of Suzhou gives it another advantage.
“Typically, the market looks at pharmaceutical companies based on key franchises, such as an individual drug or therapeutic area,” said Dani Saurymper, portfolio manager at AstraZeneca investor Pacific Asset Management. “So it’s a shelf of growth that people haven’t usually thought about. What’s the geographic revenue potential?”
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Demaré said the group was “very interested in some provinces where there isn’t even a foreign player other than us”.
Meanwhile, Wang has been building AstraZeneca’s business in China since arriving in 2013. “Leon is open to anything,” said Bruce Liu, who leads the life sciences division for China at consulting firm Simon-Kucher & Partners. “He’s been very innovative.”
With a close eye on the demands of China’s evolving healthcare system, Wang has overseen the construction of thousands of centers in hospitals to supply AstraZeneca’s Pulmicort, a drug for asthma and chronic obstructive pulmonary disease. The latter condition affects more than 100 million Chinese.
Paul O’Brien, a strategist for entering the Chinese market, said the drugmaker’s partnerships and capital investments were attractive to the government and had helped the company “blur some boundaries” between being seen as a purely foreign entrant and ” one with considerable skin”. in the Chinese market”.
As China began to focus more on innovation in drug making over the past five years, pharmaceutical companies that depended on selling patent-expired generics had to scramble to change their business models. The country implemented sweeping reforms to give patients access to new medicines instead of cheap generics.
Helen Chen, head of LEK Consulting’s healthcare practice in Shanghai, said there has been a “really big mindset shift” in the industry since 2017 as Beijing accelerated the process of issuing regulatory approval and insurance coverage. The list of nationally covered medicines, which used to take four years or more to get there, is now reviewed annually.
But while the Chinese government pleased the industry by speeding up the process, it played hard with the price.
Demaré said AstraZeneca has been going through a “difficult period” in China due to government price pressures and a hit in demand during the strict Covid-19 lockdowns.
However, he pointed to the company’s return to double-digit growth in the country. In the first quarter of 2023, sales in China, excluding those related to Covid-19 vaccines and treatments, increased 11 percent year over year at constant exchange rates to $1.6 billion, though growth is expected to slow to a low single-digit percentage this year.
Liu, from Simon-Kucher, said AstraZeneca had not been “vigilant enough” with China’s policies to encourage generic competition over the past two years, and had not introduced enough innovative drugs in response.
But the company’s extensive local experience in China helped with the transition, he added, noting that AstraZeneca China was treated with “freedom, space and trust” by the drugmaker’s global headquarters.
AstraZeneca is also experiencing some success with its innovative medicines. According to Simon Baker, an analyst at Redburn, sales of Tagrisso, a lung cancer treatment, rose 17 percent year over year in emerging markets to $444 million in the first quarter, three-quarters of which were likely in China. . “It’s not far off becoming a blockbuster in China alone,” he said, an industry term for a drug with sales of $1 billion a year or more.
Reforms, such as more relaxed rules on outsourcing manufacturing, have also made it easier for Chinese biotechs to compete globally, while changes to Hong Kong’s listing rules have opened up the market to revenue-less biotechs. With long development times, biotech groups sometimes require a decade of funding before being sold for the first time.
Soriot believes AstraZeneca could be a preferred partner for Chinese biotech companies, which he said discovered new products and technologies that would “shape the future of medicine.” He planned to use AstraZeneca’s presence in the country to “tap into this innovation and help those companies develop and commercialize their products globally.”
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Wang has already spearheaded a partnership with state-backed investment bank China International Capital Corporation to establish a $1 billion fund to invest in local start-ups.
Chen of LEK Consulting believed that acquisitions would be politically possible for AstraZeneca as long as the group did not target a “major Chinese champion of the industry”, or gene therapy companies, which were considered nationally strategic.
Liu said takeovers were “not a bad idea in theory”, with drug companies able to negotiate bargain prices as many biotechs were “starved for money”. But he added that they were not common due to potential asset integration issues and other geopolitical and legal challenges, especially as relations between the west and China had deteriorated.
Lindsay Gorman, a senior fellow for Emerging Technologies at the Alliance for Securing Democracy think tank, said statements about patriotism and loyalty to the Communist Party were pragmatic in this context.
“The submission is certainly not subtle, but AstraZeneca says the quiet part out loud. To some extent, all businesses in China operate at the pleasure of an authoritarian state,” she said.
“That is why the US government is concerned about more and more industries. . . But is this the cost of doing business? In pharma, many companies have decided that this is the case.”
