AstraZeneca’s chief executive returned to AstraZeneca from a recent visit to China exuberantly excited about the “explosion” in biotech companies and the potential of his company to bring drugs discovered in China to the rest of the world.
Pascal Soriot stated that the market for pharmaceutical investment was “completely opened”. He said on a April press conference that it was hard not to be impressed with the progress made in China in the past few years.
AstraZeneca, the world’s largest pharmaceutical company in terms of sales, is focusing on capitalising on the position it has in China.
Michel Demare is the new chairman of AstraZeneca. “When you’re a global company, like AstraZeneca, you always have to deal with geopolitical risks and you must try to manage this without getting too involved,” he said. He added that as long as there are no legal or sanction issues, “you try to take care your patients and reach the maximum number of patients possible”.
Drugmakers are attracted by China’s ageing population. Chronic diseases, including those caused by pollution, smoking and westernised diets, are on the rise. China’s vaccine nationalism led it to reject foreign Covid-19 vaccinations and replace them with its own, less effective vaccines. However, the country is now open to new drugs.
AstraZeneca is convinced that the Chinese scientists and patients are also the key to unlocking the potential of the Chinese market. Demare said, “Innovation power has changed.” It’s no longer a case of ‘copy and paste’. They have the ability to innovate, and they can invest all their money. We are part of a number of start-ups.
Last month, the Anglo-Swedish pharmaceutical company signed a deal worth up to 600mn dollars with Shanghai-based LaNova Medicines. This is the latest of a number of deals made in the fields oncology and cellular therapy. AstraZeneca China has an unusual collaboration agreement with a traditional Chinese medicine aimed at lowering cholesterol.
Due to concerns over political risk, and historically, intellectual theft, foreign drugmakers often prefer partnerships in China than acquisitions. Soriot, however, said that in April the company has “no limitations” when it comes to buying Chinese companies.
In response to a question about possible objections from Washington he cited a recent statement by US Treasury Secretary Janet Yellen, in which she stated that the US had no intention of “decoupling” from China.
He said that there were industries with more tensions than our own.
To crack the Chinese market, however, requires a high level of political skill. Western companies face numerous obstacles to doing business there.
Reuters reports that when AstraZeneca celebrated its 30th Anniversary in the country recently, global executive vice president Leon Wang promised that the company would strive to become a patriotic firm that “loves” the Communist Party. AstraZeneca refused to comment on Wang’s statement. Soriot transformed the company in 10 years. He invested in research and developed breakthrough cancer drugs. AstraZeneca shares are up more than 100% in the last five years after it resisted a Pfizer bid in 2014. Its market capitalisation has recently passed its US competitor.
Its ability to build its presence in China through relationships with governments outside of Beijing, Shanghai, and the biotech hub Suzhou gives it an additional advantage.
Dani Saurymper is a portfolio manager for AstraZeneca’s investor Pacific Asset Management. “Typically, the market views drug companies based on their key franchises such as a specific drug or therapeutic area,” he said. It’s a growth plank that people don’t usually think about: what is the geographical revenue potential?
Demare stated that the group “was very into some provinces, where there was not even another foreign player except us”.
Wang has built AstraZeneca’s business in China ever since he first arrived in 2013. Bruce Liu, the head of Simon-Kucher & Partners’ life sciences division in China, said that Leon is “open to everything”. “He is very innovative.”
Wang, who has been keeping a close watch on China’s rapidly developing healthcare system for years, oversaw the construction of thousands of centers within hospitals that deliver AstraZeneca Pulmicort – a drug to treat asthma and chronic obstructive lung disease. More than 100m Chinese suffer from the latter condition.
Paul O’Brien is a China entry strategist. He said that the partnership and capital investment of the drugmaker were attractive to the government and helped it “blur the lines” between being viewed as a foreign entrant, and one with “significant skin in the China Market”. China has been focusing more on innovation and drugmaking in the last five years. Pharmaceutical companies that depended on generic drugs off-patent had to change their business model. The country has made major reforms in order to provide patients with new drugs instead of cheap generics. Helen Chen, the head of LEK Consulting’s healthcare practice in Shanghai said that there has been a “really big change in mentality” in the industry, since 2017, when Beijing has accelerated the process of regulatory approval and insurance cover. It used to take four years or longer to be added to the list of national covered medicines. Now, it is reviewed annually.
While the Chinese government has been able to please the industry with its speedy process, they have also been very tough on the price.
Demare said AstraZeneca experienced a difficult period in China due to the government’s influence on prices, and the impact of demand during the strict Covid-19 locksdowns.
He did, however, point out the company’s return of double-digit growth to the country. Sales in China for the first quarter 2023 were up 11 percent at constant exchange rates, but excluding sales related to Covid-19 treatments and vaccines. This equates to $1.6 billion. However, growth is expected this year to be a single-digit percentage.
Liu of Simon-Kucher said AstraZeneca was not “vigilant” enough in the last two years about China’s policy to encourage generic competition and that it had not introduced innovative drugs as a response.
He added that the local experience of AstraZeneca China helped with the transition. The global headquarters treated AstraZeneca China with “freedom and latitude” as well as with trust.
AstraZeneca also has some success with their innovative drugs. Simon Baker, Redburn analyst, said that sales of Tagrisso lung cancer treatment increased 17 percent year-on-year in emerging markets, reaching $444 million in the first quarter. Three-quarters were likely in China. He said that the drug was “not far from being a blockbuster” in China, a term used by industry to describe a drug that sells $1bn or more a year. Reforms, such as the relaxation of rules for outsourcing manufacturing, have made it easier to compete internationally. Hong Kong has also changed its listing rules to allow biotechs with no revenue to enter the market. Biotech companies often need funding for up to a decade prior to their first sale due long development periods.
Soriot is convinced that AstraZeneca will be the partner of choice for Chinese biotechs. He said they were developing new technologies and products which would “shape future medicine”. He plans to use AstraZeneca’s presence in China to “tap into these innovations and help these companies develop and market their products worldwide”.
Wang has already led a partnership between the state-backed China International Capital Corporation and a fund of $1bn to invest in start-ups locally.
Chen, a LEK Consulting consultant, believed that AstraZeneca could make acquisitions as long as it did not aim for a “major Chinese industry champion” or gene therapy companies which are considered to be national strategic.
Liu said that acquisitions are “in principle not a bad thing”, as pharma companies can negotiate lower prices with biotechs who are “cash-starved”. He said that acquisitions were “in theory not a bad idea”, with pharma companies able to negotiate bargain prices because many biotechs are “cash starved”.
Lindsay Gorman is a senior fellow for Emerging Technology at the Alliance for Securing Democracy, a think tank. She said that statements of patriotism or loyalty to the Communist Party are pragmatic in this context.
“The obsequiousness of AstraZeneca’s silence is not subtle. She said that all Chinese businesses operate to some degree at the pleasure an authoritarian government.
“The US government is worried about more and different industries. . . Is this the price of doing business? Many companies in the pharma industry have made this decision.