Recruiting in China

Roche Holding AG, Switzerland’s biggest drugmaker, may make its first acquisition of a Chinese biotechnology company or buy rights to a compound developed in the country later this year.

Two executives from Roche’s drug-partnering unit based in China are scouting for opportunities, including licensing experimental medicines, Lee Babiss, the head of Global Pharma Research at the Basel, Switzerland-based company, said in a Feb. 4 interview.

“They’re looking not only for those types of assets but also drug formulation because know-how is really very, very deep in China,” Babiss said. “We are also narrowing down a few opportunities that might involve mergers and acquisitions or simple in-licensing.”

Chief Executive Officer Severin Schwan said earlier this week that the drugmaker is “constantly” looking for acquisition targets in addition to the planned $42.1 billion purchase of partner Genentech Inc. Roche, which reported a drop in second-half net income on Feb. 4 and said earnings may not grow this year, went hostile in its bid for full control of Genentech a week ago after failing to secure a negotiated deal.

Bigger Slice

Pharmaceutical companies are seeking a bigger slice of sales in emerging markets such as China as revenue in mature markets in the U.S. and Europe sags. The deepening global recession is spurring industry consolidation as governments increasingly favor generics and cheaper medicines as a way to stem the rising cost of health care.

Roche spent about 100 million Swiss francs ($85.4 million) in research and development in China from 2004 to early 2008, focusing on cancer, arthritis and anemia. The Swiss drugmaker, which opened its first subsidiary in the country more than 80 years ago, operates four sites in Shanghai and Hong Kong with a total of 2,000 staff.

Roche’s hostile bid for South San Francisco, California- based Genentech is 2.8 percent lower than the price it initially offered in July. It follows a $68 billion offer by Pfizer Inc. for U.S. peer Wyeth last month.

Genentech, whose Avastin and Herceptin cancer drugs have made Roche the world’s biggest seller of anti-tumor medicines, has helped the Swiss drugmaker grow faster than its peers and left it less exposed to patent expirations than Basel neighbor Novartis AG or Pfizer, which is the world’s largest drugmaker.

Harvard Graduates

Roche is conducting about six research projects in China and is working with a local partner on an experimental cancer treatment. The collaboration isn’t a “traditional” licensing relationship, Babiss said, without providing details.

The Swiss drugmaker is also looking to hire “excellent” scientists in China and is transferring more chemistry-related research to partners there, Babiss said.

“Most of the people that we’ve hired that have come back were trained at Harvard and MIT and these are brilliant people,” Babiss said, referring to Harvard University and the Massachusetts Institute of Technology. “At the beginning it was chemists, now the biologists are coming over. More of them are going to come back to China and shape that environment.”

Germany’s Bayer AG, Sanofi-Aventis SA of France, and London-based AstraZeneca Plc are among European rivals also expanding their presence in China. Economic growth in China and India is creating pharmaceutical markets that are growing twice as fast as those of developed nations, PricewaterhouseCoopers LLC said in a report last year.

Science Spin-Offs

GlaxoSmithKline Plc, the world’s second-largest drugmaker, in 2007 earmarked $40 million for a research and development facility in Shanghai. Novartis, the same year, decided to open a $100-million research center in the same city.

Roche may also create spin-offs in the country by helping scientists to set up their own companies with compounds licensed from the Swiss drugmaker, he said. Roche hasn’t lost many scientists in China, though “eventually in that type of dynamic environment people will leave,” he said.

“The question is do we want to lose the talent or do we want to have some hook back to that talent and I’d rather do the latter,” Babiss said. “If someone’s going to leave, I’d say well alright you want to leave, you’re entrepreneurial - how can we help you leave?”

Babiss is considering hiring “a few people” with the understanding that in two or three years they would leave and form a startup.

“This is all about testing new ways of doing drug discovery,” Babiss said. “This won’t work in New York or the U.S. or here Basel, but it may work in China.”