Breakingviews - Biotech upstarts will be Big Pharma's China tonic

The logo of the British pharmaceutical company AstraZeneca is seen at the company's China Commercial Innovation Centre (CCIC) in Wuxi, Jiangsu province, China, September 15, 2018. Picture taken September 15, 2018. REUTERS/Adam Jourdan

HONG KONG (Reuters Breakingviews) - A dose of Chinese biotech could be beneficial for Big Pharma. AstraZeneca is launching a $1 billion healthcare fund in the People’s Republic. A wealthier, older society promises huge growth for drugmakers, but the burden for the state means Beijing is already pressing global heavyweights to lower prices. Investing in local discoveries and exporting them could be a smart remedy.

Chief Executive Pascal Soriot is choosing the right time to double down on China’s healthcare sector. The country is the world’s second-biggest pharmaceutical market, after the United States, with sales forecast to top $220 billion by 2020, according to Deloitte. Demand for biological therapies is soaring too. Analysts at Bernstein, for example, reckon that even though more than a fifth of new cancer cases globally each year are from China, the country only accounts for 4% of worldwide oncology drug sales.

Multinationals like the $124 billion AstraZeneca should benefit. Indeed, demand is such that Beijing is rolling out new policies like simplifying and fast-tracking new drug approvals. The UK drugmaker already generates a fifth of total sales from China.

Yet even as the country opens its doors to foreign names, the government is also keen to slash healthcare expenses for its aging population. That will certainly dent bottom lines.

Last year, 11 major Chinese cities piloted a radical drug procurement scheme where companies that offered the lowest price could sell a guaranteed amount to public hospitals. The initiative, which is being expanded across more provinces and regions, has resulted in foreign pharmaceutical groups being undercut by domestic rivals. In a bidding round this year, Bernstein says, Pfizer’s blockbuster cholesterol drug Lipitor lost out to local generics-makers, which submitted prices at a tenth of the U.S. giant’s bid.

AstraZeneca’s new fund should help ease some of that pain. China’s new breed of innovative biotech stars, including the Amgen-backed BeiGene, are racing to perfect drugs to sell at home and abroad. Domestic funding, though, has dried up of late, mirroring a broader venture capital slowdown: healthcare-focused private equity fundraising plummeted to just $1.4 billion last year, compared to over $8 billion in 2017, according to Prequin. AstraZeneca’s deep pockets, expertise and global heft should yield some lucrative discoveries.


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