Recruiting in China

China's mobile healthcare market is expected to see fast growth and hit 12.5 billion yuan ($2 billion) by 2017, according to a report released by China Medical Pharmaceutical Material Association at a press conference on Wednesday.

According to the 2014 China Medical Internet Development Report released by the CMPMA, there are more than 2,000 mobile healthcare applications in China.

The report states that the market in China will expand by 400 percent when compared to 2013 when the market was at about 2.36 billion yuan.

The dramatic growth of the mobile healthcare market can be largely attributed to the fast development of China's mobile internet, said Long Yan, deputy president of CMPMA at the conference.

As of 2014, the number of China's internet users through cell phones was 527 million.

While the market has grown, Long said a number of healthcare apps were pulled from app stores over the past year due to poor performance and user retention.

Companies are required to integrate the online apps with offline services and products to cater to the developing trend of the mobile healthcare industry, added Long.

French drug maker Sanofi will expand into small cities to meet the growing market demand for health products, the company's top management said on Thursday.

According to Fabrice Baschiera, general manager of commercial operations of Sanofi Greater China, demand for high-quality health care products and services is growing.

"So, we decided to go out from those big cities to counties to reach more patients, bring our know-how with physicians through training and the latest training materials — especially in the cardiovascular and diabetes areas, the areas where Sanofi has already built up a strong foundation and knowledge, where we can make a real difference and have the most impact," Baschiera said.

The company, together with the Medical Services Standard Specialized Committee of the Ministry of Health, National Institute of Hospital Administration and Chinese Medical Doctor Association, launched the Basic Medical Standard Enhancement Project to offer more medical services to customers in towns and counties.

China's top industry and commerce watchdog recently ruled that the trademark "OneTouch" for a line of blood glucose meters and test strips produced by LifeScan, a Johnson & Johnson company, violates Chinese trademark laws, and should be revoked.

According to Chinese laws, if Johnson & Johnson doesn't file a lawsuit against the ruling in 30 days, or if a verdict isn't reached within 60 days after the ruling was made, the Trademark Appeal Board of China's State Administration for Industry and Commerce has the right to remove all of the company's OneTouch products from the market.

Public security authorities can also confiscate the company's illegal income from the product line in the past years, said Huang Yunzhong, an attorney from Beijing Peiwen Law Firm.

Huang is also the legal counsel of Guilin Zhonghui Biotechnology Co in the Guangxi Zhuang autonomous region, which has been under criminal investigation since 2007 for allegedly producing counterfeits of Johnson & Johnson's OneTouch blood glucose test strips used by patients with diabetes.

In 2005, Johnson & Johnson recalled its OneTouch glucose meters, because instead of providing a warning, the meter turned itself off when it read a dangerous blood glucose level of 1024 mg/dL or above.

But later in 2006, Johnson & Johnson announced that it found a large amount of counterfeit blood glucose test strips from Zhonghui in China, which caused previous machine failures in its blood glucose meters.

Huang Yunzhong, the attorney, filed the dispute on the "OneTouch" trademark to the Trademark Appeal Board in late 2011, and the board reached the decision to revoke the trademark on Dec 27, 2013.

The recent ruling said "one touch" falls into a category of medical subject headings, so "OneTouch" cannot be trademarked.

Huang believes the ruling would bring about a favorable investigation result for Zhonghui on the accusations the company was making counterfeits.

Johnson & Johnson told China Daily it would comment on the ruling when the company had prepared a response.

British pharmaceutical giant GlaxoSmithKline announced on Tuesday it will on longer reward its Chinese sales representatives based on their sales volume, a vast change after the company became embroiled in a series of bribing scandals.

The new system applies to all of the GSK sales employees, including sales representatives and sales managers, who interact with prescribing healthcare professionals, according to GSK's Tuesday announcement.

Under the new system, all customer service employees will be evaluated on technical knowledge, quality of service and adherence to the company values of transparency, integrity, respect and patient focus.

GSK is the first pharmaceutical company to publicly implement such changes in China. The company said the new system allows it to put patients' needs above everything else it does.

The Chinese government initiated an anti-corruption campaign for the medical industry in July after conducting a bribery investigation into GSK.

According to China's public security authorities, the company allegedly used travel agencies to funnel at least 3 billion yuan ($489 million) in bribes since 2007.

The scandal widened across an industry in which other multinational pharmaceutical companies also faced scrutiny in China over claims they bribed medical staff to prescribe their products.

GSK denies that the new move is directly related to the probe by Chinese authorities, saying the changes are part of its efforts to evolve their business model, build trust in the markets and improve transparency.

Experts said GSK and its sales team face a difficult transition.

"It will take some time for GSK to find out how to improve the effectiveness of its incentive system and how to encourage its salespeople to pay attention to their service quality for more income," said Bruce Liu, partner and co-head of the Pharma & Healthcare practice at Roland Berger Strategy Consultants.

Liu said GSK's former payroll was based on objectives, which translates to sales volume, but it now is focused on process management.

"It is helpful to improve employees' academic level in order to provide professional information to doctors," he added.

"Our medical representatives are the gateway to our customers, and it is important that we inspire, coach and ultimately reward people working within the organization to focus on behaviors that reflect our values," said Herve Gisserot, senior vice-president and general manager of GSK Pharmaceuticals and Vaccines China.

But Liu cautioned that GSK's changes "will not get instant results."

In the third quarter that ended Sept 30, the company reported a 61 percent year-on-year slide in its China pharmaceuticals and vaccines business.

But the crisis, Liu said, could be a blessing in disguise.

Since the government is encouraging private investment in the medical sector and prioritizing support of nonprofit hospitals run by private investors, and as experts are calling for the separation of medical services and drug sales in hospitals, Liu said GSK's prompt action will help the company grab market share ahead of its peers.

GSK also announced it will stop paying individual healthcare professionals to attend medical conferences and instead will fund education for them through independent grants.

The transition to the new sales compensation model will start in January in China as well as in other markets around the world.

Nearly 80 percent of the 3,700 doctors surveyed by the Chinese Medical Doctor Association said they don't want their children to work in medicine. Many of the doctors surveyed cited the growing tension between patients and doctors as well as the escalating violence in hospitals across the country in recent years.

In 2009, 62.5 percent of the 3,200 doctors the associated surveyed expressed the same opinion, according to the Chinese Medical Doctor Association.

"We conducted similar surveys around the country in 2002, 2004, 2009 and 2011, and we found that the proportion of doctors who want to see their children become doctors keeps dropping," said Deng Liqiang, an official from the association.

An overwhelming majority of doctors also said that their salary didn't match how much work they put into their jobs, and that tense doctor-patient relationships and enormous amounts of pressure at work are creating a negative attitude toward their jobs.

"The survey results showed that doctors are not positive," Deng said.

A survey conducted by one of China's most popular medical websites, Dingxiangyuan, or dxy.cn, showed that many doctors are not in good health, with more than a quarter of those surveyed are at high risk for cardiovascular diseases. The incidence of hypertension among male doctors older than 35 is two times the normal rate.

SOME 116 medical staff from 85 institutes in north China’s Tianjin Municipality were involved in a bribery scandal with French infant formula producer Dumex, the city government said yesterday.

From 2011, staff collected personal details of newborn babies for the company, gave presentations, distributed publicity materials and offered free introductory cans of Dumex.

In return, they received kickbacks from Dumex, part of French food group Danone, an investigation found.

Staff involved every month received sums ranging from hundreds to tens of thousands of yuan.

The cash has been recovered, the government announced on its official Weibo.com micorblog.

Thirteen people have either been sacked, had operation licences revoked or been transferred to other positions.

And another six people, who had supervisory duties, received administrative punishments, the statement said.

Tianjin government did not give details on the remaining 97 staff involved in the scandal.

It said three names published in earlier media reports — Li Yue, Wang Zi and Lu Xuezhi — were Dumex employees, rather than hospital workers.

Dumex China launched an internal investigation after media reports in September.

Over the weekend, it said the investigation has now been “substantially completed.”

Dumex blamed the scandal on shortcomings in a company-sponsored mother-and-child health education program.

These led to “practices that contradicted the purpose of the program, which violated companywide policies,” said Dumex.
In some cases, the program was not appropriately managed, said the company.

Dumex said the program has been suspended, new management would be appointed, and training carried out.

Last month, a China Central Television program claimed doctors and nurses in Tianjin were feeding babies with Dumex in return for cash payments.

Babies developed a taste for Dumex and rejected their mothers’ milk, it was claimed.

It also gave Dumex an advantage in the fiercely competition formula milk market, said the report.

Last week CCTV claimed that the bribery scandal extended to other cities, including Beijing.

In 2011, the former Ministry of Health ruled that producers were not allowed to promote formula to babies up to six months old, unless mothers suffered from serious conditions.

In 2008, the Supreme People’s Court and Supreme People’s Procuratorate said that medical staff using their positions to make money would be considered to be taking bribes.

Merck (NYSE:MRK) has announced that it will cut its workforce by 20% over the next two years, which could result in the loss of close to 16,000 jobs. This will leave the company with less than 65,000 employees which is in stark contrast to its peak strength of close to 100,000 employees following its acquisition of Schering-Plough in 2009. [1] With this restructuring, Merck intends to save $2.5 billion annually which can boost its free cash flows by almost 20%. However, the impact will be mitigated by the expected restructuring costs of roughly $2.5 billion to $3 billion. [1]

The company’s move highlights the broader problems that Merck and other big pharmaceutical firms are facing today. The R&D (research and development) productivity has declined over the years, and the strategy of developing drugs for major diseases is not working. The landscape of the global pharmaceutical industry is shifting towards more niche, innovative and genetically targeted medicines. In addition, Merck is suffering from the loss of patent exclusivity for some of its major drugs and may look for acquisition of some promising medicines to offset the failure of some of its research projects.

What Is The Problem That Merck Is Facing?

Like other major pharmaceutical companies, Merck is also battling the impact of patent expiry of its several major drugs including Singulair, Propecia, Clarinex, Maxalt, Cozaar and Hyzaar. Out of these, asthma drug Singulair has had the biggest impact and has continually weighed on Merck’s growth for the past few quarters. Worldwide sales of Singulair, a once-a-day oral medicine for chronic treatment of asthma and relief of symptoms of allergic rhinitis, stood at $5.5 billion for 2011. However, this figure declined to $3.85 billion in 2012 following its patent expiry in August same year. Merck expects that within two years following the patent expiration it will lose substantially all U.S. sales of Singulair, with most of those declines coming in the first year.

In addition, Merck’s cardiovascular division has also been hurt by the patent cliff as its drugs Cozaar/Hyzaar, which garnered over $2 billion in revenue in 2010, lost patent exclusivity in large markets including the U.S. and Europe in late 2010. As a result, sales fell by roughly 35% to $1.3 billion in 2012. Additionally, Propecia, Clarinex and Maxalt together accounted for roughly $1.5 billion in revenues in 2012. Due to patent expiries, we expect their combined sales to go down to about $1-1.1 billion in 2013.

While the big drugs are losing their sales, there is little chance for new blockbusters replacing them. The R&D productivity has significantly declined over the last decade. Although the industry’s R&D spend has increased, the number of new drugs approved by the FDA has come down. In fact, Merck is planning to terminate certain drugs in late stage development and intends to focus on acquiring experimental drugs.

What Is Merck Likely To Focus On?

There has to be a shift from developing blockbusters treating major diseases to focusing on niche therapeutic areas where although the patient population is low, pricing is quite high due to high specificity and efficacy. Major therapeutic areas are getting flooded with generics and there haven’t been any major advancements to thwart the competition. Merck has mentioned that it plans to continue investing in vaccines and diabetes, where it already has successful products.

Diabetes

Merck’s type 2 diabetes treatment drugs Januvia and Janumet saw strong volume growth in international markets and retained their market leadership with 70% share in the second quarter. [2] Excluding the impact of currency movement, Januvia saw its sales jump by 7% while Janumet’s revenues surged 17%. [3] In addition, the company is working with Pfizer to develop and commercialize its investigational SGLT2 inhibitor, Ertugliflozin, for the treatment of type 2 diabetes. With obesity on the rise, diabetes is affecting more people globally. In the U.S. alone, roughly 26 million people suffer from the condition. [4] China’s problem is even worse, as a report suggests that 11.6% of Chinese adults have diabetes and around 40% of adults between the age of 18 and 29 are on the verge of developing it. [5] That puts China’s diabetes patient count at 114 million individuals, and this figure is likely to go higher. According to IMS health, China’s diabetes market is expected to grow 20% annually and reach $3.2 billion by 2016. [6]

We currently account Januvia’s revenues under Alimentary & Metabolism drugs division, which constitutes roughly 15% to our price estimate for Merck. Januvia’s importance can be gauged from the fact that the exclusion of the drug’s sales from Merck’s revenue forecast leads to downside of about 5-10% to our price estimate. That’s a lot of value for a single drug in a diversified company like Merck.

Acquisition Strategy

It appears that Merck will trim down its R&D expenses, and instead focus on acquiring drugs externally. This way, the company will assume the role of pharmaceutical private equity/venture capitalist firm to a certain degree. In addition, we believe that it can pursue orphan drugs, and novel therapies including higher focus on gene therapy, stem cell research etc.

Cancer Treatment

Cancer treatment is a growing market for the pharmaceutical industry. The opportunity comes from the fact that global incidence of Cancer is likely to increase from about 12.7 million in 2008 to 21.3 million in 2030. [7] In addition, the number of deaths are likely to show a similar growth trajectory as depicted in the chart below. Cancer is a not a single disease, it has in fact more than 200 types and thousands of subtypes affecting more than 60 organs. That gives an opportunity for Merck to develop novel therapies and capture niche markets.

Our price estimate for Merck stands at $51.60, implying a premium of about 5-10% to the market price.

Submit a Post at Trefis Powered by Data and Interactive Charts| Understand What Drives a Stock at Trefis

Notes:
Merck to Cut Staff by 20% as Big Pharma Trims R&D, The Wall Street Journal, Oct 22013 [?] [?]
Merck’s Q2 2013 Earnings Transcript [?]
ref:1 [?]
National Diabetes Fact Sheet, 2011, CDC [?]
China ‘Catastrophe’ Hits 114 Million as Diabetes Spreads, Bloomberg, Sept 4 2013 [?]
China Diabetes Triples Creating $3.2 Billion Drug Market, Bloomberg, Nov 5 2012 [?]
J&J’s Investor Presentation [?]

It began as a rumour on a Chinese social media site in July, but the impact has swiftly spread around the world: allegations that GlaxoSmithKline was the “godfather” of a system of bribery in the country totalling up to $500m.

The corruption claims, which have since expanded to other multinational pharmaceutical companies including Sanofi, Novartis and Eli Lilly, have created a growing sense of concern among executives, investors and doctors alike.

They raise the prospect of a squeeze in future sales growth, and a repetition of the escalating fines imposed on the industry in the US for illegal marketing and overpricing which have exceeded $30bn over the past two decades, according to Public Citizen, a health watchdog.

Last year, GSK paid a record $3bn to settle claims the US Department of Justice described as including “cash payments disguised as consulting fees, expensive meals, weekend boondoggles and lavish entertainment”. Abbott paid $1.6bn for illegal marketing of its bipolar disorder drug Depakote, and Johnson & Johnson paid $181m to settle some claims over marketing of its antipsychotic Risperdal, while the final bill could reach $2.2bn.

Now western companies face accusations in China covering everything from offering doctors luxurious trips to foreign medical conferences and visits to massage parlours, to payments disguised as research fees. All remain unproven and only scantily described. The sources are often anonymous – and potentially disgruntled – whistleblowers.

They also come in a country where commissions to doctors are viewed as a necessary way of supplementing low salaries. “If a doctor is paid no commission at all to use a particular drug, no one will ever prescribe it unless it has no competitors,” says a former drug representative for a mid-level Chinese pharmaceutical company.

But the Chinese probes have caused a drop in marketing activities as companies and the physicians they target seek to understand the new rules of behaviour, against a broader backdrop of concern over price cuts.

Marc de Garidel, chief executive of Ipsen, says some companies have stopped promotion in China, while hospital doctors did not want to meet sales staff. “In certain cities, in certain areas, there is a toughening of the marketing conditions,” he says. “We are monitoring this very closely. We don’t know how long it will last.”

Many investors have shrugged off the US fines, given the relatively modest financial impact compared with the revenues the companies’ drugs generate. They express more concern over costlier product liability litigation sparked by the side effects of drugs such as the painkiller Vioxx, which alone cost Merck more than $5bn.

Even so, the US clampdown has sparked fresh interest by regulators in other countries, who have been considering imposing their own fines.

This threatens to compound the drug companies’ problems. US and UK anti-corruption legislation – the Foreign Corrupt Practices Act and the Bribery Act respectively – raise the prospect of fines in those two countries being imposed on top of local penalties in the markets where bribery occurred.

Johnson & Johnson in 2011 paid nearly $80m to the UK and US for its activities in southern and eastern Europe and Iraq, for instance.

More fundamentally, investors have grown concerned in recent weeks about the impact of the Chinese probes on future sales practices and prices. Jo Walton, pharmaceutical analyst at Credit Suisse, says: “It seems clear that the breadth of the investigation into marketing practices is likely to slow growth for all of the majors.”

Few predict any withdrawal from China, given its strong growth. But they see pressure for price cuts after a period of adjustment to new rules. Deutsche Bank last month predicted the anti-corruption investigations in China would be “longer and larger” than expected, depressing sales growth into the first half of next year.

That also applies to many regional and local companies, perceived to be more aggressive in marketing than their western counterparts. One senior drug company sales representative in China says: “Everyone is afraid of getting caught, everyone. Before GSK, commissions were half public and half hidden, but now everything has been forced to go totally underground.”

“Doctors are trying to avoid drug sales reps, and many companies have put reps on half-time, or sent them for training,” she says. “Before, drug reps were given a quota of doctors they had to see every day; now you still need to go to the hospital, but if someone looks at you suspiciously, you should leave.”

Another multinational company rep said she still pays regular visits to doctors. “We try to avoid unnecessary trouble by hiding our company logo when we enter hospitals, but I am not too worried because what we are doing is legal. Doctors have to find out about our drugs somehow, and it is our job to inform them.”

Others are more critical of the industry’s role. One middleman in Shanghai said he recently began a business for multinationals conducting “phase IV” clinical trials, conducted after a drug is approved – and which critics claim are often for marketing purposes.

He described how over 15 years working for four foreign drug companies, he regularly filled out fake “clinical research forms” on trials that never took place, allowing kickbacks to be paid to the doctors who were on record for conducting the trials.

A medical student in a leading Shanghai hospital says: “The supervising doctor in my department sees as many as 80 patients in a morning, and prescribes as much as Rmb100,000 worth of drugs. She definitely takes commissions from drug companies, but that only affects what she prescribes when there are two similar drugs. It doesn’t affect the quality of care.”

Industry executives argue the multinationals are again reviewing compliance. “There is a real fear right now about doing business in China,” says Gregory Lovas, in charge of life science clients in Asia with CTPartners, an executive recruitment agency.

He says companies which previously saw China postings as a way of exposing their future leaders to an expanding market are now seeking greater existing “language, cultural understanding and market knowledge”. For middle level marketing staff, they want background checks and references stretching back as far as 10 years.

The industry is braced for a squeeze on pricing and tougher marketing rules in future. But given the sluggish growth in their traditional markets, China’s expanding healthcare demand will probably still be worth the price for most.

BEIJING—GlaxoSmithKline GSK.LN +0.03% PLC came under new pressure as Chinese state-run news outlets ran reports of employees purportedly detained in a government bribery investigation of the drug maker saying that company executives created a sales culture that led to corruption.

China's national broadcaster on Tuesday aired reports featuring what it said were detained employees saying that managers pressured sales representatives to get drugs to Chinese customers faster. The identities of the people, whose faces were blurred, couldn't be verified.

A person identified as sales manager Huang Hong, who China Central Television said was one of four Glaxo employees detained in July, said in the report that former Glaxo China chief Mark Reilly told workers to enter hospitals to develop relationships with administrators to speed drugs' entries into pharmacies.

Mr. Reilly couldn't be reached for comment. Glaxo Chief Executive Andrew Witty in July said authorities hadn't alleged wrongdoing by Mr. Reilly.

"Upper management came from sales, so they should have realized what they were doing," the person identified as Ms. Huang said in the report.

Glaxo said the issues mentioned in the reports "would be a clear breach of our corporate values and we have zero tolerance for any behaviour of this nature."

Chinese officials have alleged that Glaxo transferred three billion Chinese yuan, or about $490 million, through travel agencies since 2007, creating fake invoices to help the company generate money that could be used to bribe doctors. Officials in July said that some of the travel agencies offered Glaxo employees bribes in the form of sexual favors to keep the company's business. Authorities didn't disclose further details.

Glaxo has said that some senior executives may have violated Chinese laws and that it is cooperating with the probe.

The person identified as Ms. Huang said in Tuesday's report that management instructed sales representatives to approach clients from the biggest and most powerful hospitals at least once a week and provide them with travel opportunities and gifts. The Wall Street Journal reported similar information last month, outlining information on trips and kickbacks that Glaxo allegedly offered to doctors.

Chinese authorities in July said Mr. Reilly left the country as they began investigations. Glaxo said Mr. Reilly left China on a preplanned business trip.

Glaxo in late July replaced Mr. Reilly as head of China with Hervé Gisserot, who had been co-head of Glaxo's pharmaceutical business in Europe. Glaxo said at that time that Mr. Reilly would remain with Glaxo in London, helping the company respond to the Chinese investigation.

A report from China's state-run Xinhua News Agency on Tuesday quoted Ms. Huang as saying that Glaxo management set sales growth goals of 25%, much higher than the industry standard of 7% to 8%. "Mr. Reilly's company objective was, 'Sales are king,' " Ms. Huang said.

The official People's Daily quoted Glaxo's head of recruitment in China, Guo Jianhua, saying that company executives shrugged off responsibility when authorities made bribery allegations. "When the problems were exposed, the company pushed all responsibilities to individual employees," Mr. Guo said.

Allegations that British drugs giant GlaxoSmithKline has paid millions of dollars in bribes to increase its market share in China have thrown the spotlight on the country's murky pharmaceutical industry.

China's health spending is projected to soar from $357bn (£232bn) in 2011 to $1tn in 2020, according to a report by McKinsey, the global management consultancy group.

And with sales slowing in the West, the global drugs giants want a share of the booming profits in China.

But now the Chinese authorities say they are investigating up to 60 pharmaceutical firms in an effort to curb drugs prices.

Chinese doctors who spoke on condition of anonymity to the BBC - fearing they would lose their jobs for speaking out - say the healthcare system is awash with corruption.

They say that the pharmaceutical firms, both foreign and Chinese, have enormous influence.

'Bribery chain'
That is because Chinese hospitals traditionally rely on pharmaceutical sales as a major source of income.

Government funding is often barely enough to cover basic operational costs at most hospitals.

So doctors rely on drug prescriptions - and the kickbacks that come with them - to bulk up their pay.

But the doctors we spoke to stressed that they were at the "very end of the bribery chain".

"State and food administrators need to decide if the drugs are safe," said one doctor.

"And then, when the drugs reach the hospital, the directors get involved. Everyone takes their cut. And by the time it reaches the doctors there is very little money to be made."

While Chinese companies will offer incentives in the form of cash to prescribe certain drugs, foreign companies will offer lecture fees or conferences at hotels, the doctors claim.

The medical staff we spoke to say they depended upon the income. Despite China's booming economy, they receive meagre salaries.

"My basic monthly salary is about $600," said one surgeon with 30 years of experience. "Without bribery I could not live a decent life."

But increasingly, doctors in China are bearing the brunt of public anger over bribery. Patients often complain of being given tests they do not need and being prescribed expensive drugs.

According to Chinese state media, there were more than 17,000 violent incidents in Chinese hospitals in 2010. Several hospitals in Beijing have also reportedly beefed up their security.

Market survival
Fixing the system is one of the priorities of China's new leaders. The Chinese government has promised to rein in soaring health costs as the authorities roll out a national health insurance plan.

They plan to introduce national reforms to lower drugs prices and pay doctors more.

Tackling the powerful pharmaceutical industry also fits with President Xi Jinping's pledges to do more to root out widespread corruption, which is a source of enormous public anger.

James McGregor, a businessman and author who has spent more than 20 years in China, said foreign companies make a convenient first target for the authorities.

"It's all about market survival for foreign firms because there are local businesses that want their market share," he said.

"At the same time there are political reforms that look like they are going to happen in the state sector. And I think the authorities are going to be going after some very tough players. So if you go after the foreigners first it may soften the way a little bit. "

But the doctors we spoke to said the healthcare system needed a total overhaul. They said the key problem was that the government was not spending enough money to guarantee decent healthcare.

But they all agreed there was no easy fix.

"I'm a Communist Party member," said one doctor. "I probably shouldn't say this but the system is rotten to the core. It's hard to cure a deeply ingrained disease."

BEIJING city corruption and health officials have launched an investigation into allegations that staff at French pharmaceutical giant Sanofi paid bribes totaling some US$280,000 to 500 Chinese doctors.

The joint investigation will probe claims reported in China’s 21st Century Business Herald newspaper that company staff paid 503 doctors in 79 hospitals bribes totaling 1.69 million yuan in a bid to increase sales.

The paper, citing documents provided by an anonymous whistleblower, said Thursday that in 2007 Sanofi paid doctors 80 yuan every time a patient bought its products, with the largest payment being 11,200 yuan.

The products named in the report are two drugs for high blood pressure.

Most payments were made to medical staff in hospitals in Beijing, Shanghai, Guangzhou, capital of southern Guangdong Province, and Hangzhou, capital of eastern Zhejiang Province, said the newspaper

The report claimed these were listed as “research expenses.”

The Beijing municipal health bureau will coordinate with the disciplinary authorities to investigate, a spokesman told Xinhua News Agency yesterday.

Define the boundary

How to define the boundary between a “research expense” and bribery is key to the case, industry insiders said.

Investigators will seek to find out whether clinical research programs had lists of patient names and medical reports, said a Beijing health bureau official.

On Friday, Guangdong Province health bureau summoned the heads of 16 hospitals named in the report, vowing to carry out a thorough investigation.

Sanofi said that it took the allegations “very seriously” and has begun relevant procedures to investigate the allegations.

“We have zero tolerance to any unethical practice,” it said.

Sanofi added that it has “processes for reviewing and addressing such issues in a manner that is consistent with our legal and ethical obligations.”

The allegations come after four executives from British drug firm GlaxoSmithKline were arrested last month for alleged bribery and other offences.

China’s top economic planner is investigating 60 foreign and domestic pharmaceutical companies over their prices.

Allegations by a whistle-blower that French pharmaceutical giant Sanofi-Aventis bribed more than 500 doctors in China in late 2007 to boost its sales are being taken "very seriously" by the company.

An anonymous whistle-blower on Thursday told the 21st Century Business Herald newspaper that Sanofi staff paid about 1.69 million yuan ($276,000) in bribes to 503 doctors at 79 hospitals in Beijing, Shanghai, Hangzhou and Guangzhou in November 2007. The company also allegedly bribed 43 doctors at five hospitals in Beijing in the form of cash payments and gifts each month from May to October in 2007.

The allegations come after four Chinese executives from British drug firm GlaxoSmithKline were detained last month for suspected bribery and tax-related violations. China's top economic planner is currently investigating 60 foreign and domestic pharmaceutical companies over their prices.

British drugmaker AstraZeneca and Belgian drugmaker UCB recently admitted they are being investigated by Chinese authorities.

The 21st Century Business Herald, based in Guangzhou, Guangdong province, surmised that the whistle-blower worked in Sanofi-Aventi's upper management in China based on the nature of the content provided to the publication.

The whistle-blower said the bribes were given in the name of research spending and would only give the name "Pei Gen" to the newspaper.

"Sanofi is confident in our business operations in China and committed to conducting its business globally with integrity. We are determined to respect the ethical principles governing our activities and are committed to abiding by the laws and regulations that apply in each country where we operate. We have zero tolerance to any unethical practice," the company said. "At this time, it would be premature to comment on events that may have occurred in 2007."

The National Health and Family Planning Commission recently passed a plan to fight what it called inappropriate behavior in selling medicine. Li Bin, head of the commission, stressed in July that medical reform is needed to combat bribery in an industry where many Chinese hospitals rely on the sale of medicine.

Currently, the central government sets a pricing standard for medical services provided by public hospitals. Many experts believe the policy keeps the price of services at an artificially low level and puts pressure on hospitals and doctors to sell more medicine and possibly accept bribes.

In 2012, Beijing introduced new regulations on public hospitals to emphasize quality medical services and discourage hospitals and doctors from relying on the number of prescriptions they dole out.

As part of the reform, some hospitals are required to sell medicine at cost, but they are allowed to charge 42 yuan to 100 yuan in consultation fees (health insurance companies are required to reimburse the 40 yuan to the patient). Before the reforms, a consultation would cost between 5 yuan to 14 yuan.

But Niu Zhengqian, deputy director of the Chinese Pharmaceutical Enterprises Association, said the key to preventing doctors from excessively prescribing medicine lies in changing the way the healthcare insurance industry pays hospitals.
"Currently the public healthcare insurance sector pays hospitals based on each item of the service they provide, encouraging them to choose more expensive items, from which doctors can get more illegal kickbacks," Niu said.

An advanced payment system is also effective, said Wang Hongzhi, a healthcare industry consultant. With this plan, a local government healthcare agency pays a hospital a specified amount of money to cover healthcare fees. If there is a surplus, the hospital pockets it; if there is a deficit, it must share the costs with the local agency.

"If the market is more competitive and there are more private healthcare providers, that will also help solve problems in the industry," Niu said.

* Sees FY earnings down 7-10 pct at constant currencies
* Says one office visited by authorities in China
* Says not aware of visit purpose
* Q2 business net income down 23.4 pct to 1.48 bln eur
* Shares down 6.2 percent (Adds details, CEO comments, background)

By Elena Berton

PARIS, Aug 1 (Reuters) - Sanofi SA cut its 2013 earnings forecast as it reported a steeper-than-expected drop in second-quarter profit, hit by the effect of patent losses, currency fluctuations and an inventory setback in Brazil.

The French company also said one of its 11 regional offices in China had been visited by the State Administration for Industry and Commerce (SAIC (NYSE: SAI - news) ) in Shenyang, but added it was not aware of the purpose of the visit from the agency.

A probe by Chinese authorities into the activities of GlaxoSmithKline (Other OTC: GLAXF - news) led to allegations of a wide-reaching bribery scandal last month and prompted speculation that other international companies could be drawn into the investigation.

"We are not really aware of the purpose of the visit, we are working with," Chief Executive Chris Viehbacher told reporters on Thursday. SAIC is one of China's anti-trust regulators in charge of market supervision, which also looks into low-level bribery cases.

Viehbacher added that the French group's local head office in Shanghai had not been contacted by Chinese authorities.
China's 21st Century Business Herald earlier reported Sanofi (NasdaqGM: GCVRZ - news) and U.S. drugmaker Eli Lilly & Co had confirmed visits to their offices by the Shenyang bureau of the SAIC.

Sanofi said in an emailed statement to Reuters that the agency visited its offices on July 29, but said the purpose of the visit was unclear.

Eli Lilly said in a statement to the newspaper that the visit was a routine inspection by the relevant government departments that occurred in early 2013, and was completely different to previous industry investigations led by the public security bureau.

"Regarding this inspection, we have fully cooperated," the U.S. group told the paper. Lilly representatives in China did not respond immediately to a request for comment from Reuters.

China remains a priority market for Western drug makers, which can command hefty price premiums for their medicines even though they are no longer protected by patents.

TOO EARLY

A promise this week by GlaxoSmithKline to make its drugs more affordable in China in the wake of the bribery scandal could be a lever for Chinese authorities to start redressing the balance.

Viehbacher said it was premature to say what repercussions the scandal would have on Sanofi's business in China.

"We are examining the issue closely and we are examining our business in China, but I think it's too early to draw any conclusions," he said.

Sanofi also predicted earnings this year would be between 7 and 10 percent lower than in 2012 at constant exchange rates, but said it continued to expect to return to growth in the second half of 2013.

Sanofi had previously forecast that annual profit would be flat to 5 percent lower at constant currencies.

Its shares were down 6.2 percent at 75.13 euros by 0758 GMT, the biggest losers in the CAC 40 (Paris: ^FCHI - news) index in Paris which was up 0.3 percent.

"Whilst this is disappointing, the one-time nature of most of the areas of weakness now creates even easier comparatives for the growth rebound expected in the second half of 2013 and beyond," analysts at brokerage Jefferies said in a note to clients.

The group's closely watched business net income, which excludes items such as amortisation and legal costs, declined 23.4 percent to 1.48 billion euros ($1.96 billion), below an average of 1.79 billion in a Thomson Reuters I/B/E/S poll of nine analysts.

Sales shrunk 9.8 percent to 8 billion as last year's patent expiry on anti-clotting drug Plavix, once the world's second-best selling prescription drug, sliced 481 million euros off revenue in the quarter.

The group's generics business in Brazil was hit by much higher-than-planned inventory levels during the second quarter, Sanofi said.

As a result, Sanofi had to adjust sales by 122 million euros and book an additional provision of 79 million to write off the inventory and other related costs. ($1 = 0.7531 euros) ($1 = 6.1289 Chinese yuan) (Additional reporting by Michael Martina in Beijing; Editing by Christian Plumb and David Holmes)

GlaxoSmithKline has admitted that some of its senior Chinese executives broke the law in a £320m cash and sexual favours bribery scandal.

Abbas Hussain, the drug maker's head of emerging markets who was dispatched to Shanghai to oversee the crisis, apologised to the Chinese authorities and promised the company was taking the charges "extremely seriously".

"Certain senior executives of GSK China who know our systems well appear to have acted outside of our processes and controls which breaches Chinese law," Hussain, the brother of England cricketer Nasser Hussain, said on Monday. "We have zero tolerance for any behaviour of this nature."

Hussain's apology and admission comes a month after Britain's biggest drug company said a four-month internal investigation had found "no evidence of corruption or bribery in our China business".

The Chinese public security ministry welcomed Hussain's apology and issued a fresh statement saying GSK's executives "violated China's laws and damaged markets by engaging in bribery to raise drug prices, expand sales and reap inappropriate profits".

Andrew Witty, GSK's chief executive, who was paid £3.9m last year, will repeat the apology on Wednesday when the company announces its half-year results.

The Chinese authorities have arrested four senior Chinese GSK executives as part of the investigation into claims that doctors were bribed with cash and sexual favours in return for prescribing GSK's drugs.

One of the arrested executives has confessed to the allegations on Chinese state television from what appeared to be his detention cell.

GSK China's British finance director, Steve Nechelput, has been prevented from leaving the country. The leading Chinese investigator has raised questions over why Mark Reilly, the UK head of GSK's Chinese operations, left China for Britain just before the charges were announced and has not returned. GSK said Reilly is not scheduled to return to China.

Chinese police have also detained Peter Humphrey, a British private investigator who has worked with GSK in the past. Humphrey, founder and managing director of risk advisory and investigations firm ChinaWhys, was arrested in Shanghai on 10 July.

The ChinaWhys website boasts: "Combining detective skills with our understanding of business operations and financial management, we assist multinationals to prevent, detect or investigate fraud, employee corruption or other white-collar crime to protect their bottom line, reputation and regulatory integrity, as well as providing support for dispute resolution and other business crises."

GSK has a long history of problems in China, and conducts up to 20 internal audits in the country every year. Last year more than a sixth of the 312 staff it sacked worldwide for breaching policy violations were in China. China accounts for just 3% of GSK's £27bn annual sales.

A GSK spokesman said Humphrey was "never a GSK employee", but refused to say whether or not it had contracted Humphrey, who has previously worked for corporate investigations firm Kroll.

The Foreign and Commonwealth Office (FCO) said it was aware of Humphrey's arrest and said diplomats are providing consular assistance to the family.

Hussein said GSK shared the Chinese authorities' desire to "root out corruption wherever it exists" and said the company would "take all necessary actions required as this investigation progresses". GSK is also regularly briefing the Serious Fraud Office (SFO) in London.

GSK also promised to radically change its business model and pass on the savings to Chinese consumers by reducing drug prices. One of the arrested GSK executives, Hong Liang, told Chinese state TV last week that bribes paid to doctors and officials pushed up the prices Chinese patients pay for GSK drugs by as much as 30%.

The Chinese investigation appears to have widened to other western pharmaceutical companies. AstraZeneca said [on Mondayits Shanghai office was raided by police and one employee was detained for questioning. Belgian drug company UCB has also been visited by the police.

GSK last year paid a $3bn (£1.9bn) fine in the US to settle claims that it tricked and bribed doctors into prescribing dangerous antidepressants to children.

Hong Kong (CNN) -- An investigation by Chinese authorities into the activities of GlaxoSmithKline has allegedly turned up a bribery network that involves government officials, doctors, hospitals and at least 700 travel agencies.

The U.K.-based GlaxoSmithKline, one of the world's largest vaccine makers, is now attempting to distance itself from its China arm -- which has been accused of using hundreds of millions of dollars in bribes to encourage the use of GSK products and artificially boost prices.

As Chinese authorities and GlaxoSmithKline reveal new information, here is an overview of the probe, the parties involved and the potential penalties.

What is GlaxoSmithKline?

Pharmaceutical giant accused of bribery GlaxoSmithKline probe could widen Pharmaceutical giant accused of bribery
GlaxoSmithKline, headquartered in London, is one of the largest pharmaceutical companies in the world. The firm is known for its wide range of over-the-counter and prescription medicines and vaccines including its popular anti-depressant Paxil and diabetes drug Avandia.

GSK, as the company is also known, says it employs some 97,000 people in more than 100 countries.

In the last fiscal year, GSK reported more than $11.5 billion in pre-tax profits and ranked #231 on the Fortune Global 500.

What are the accusations?

On July 11, China's national police agency accused GlaxoSmithKline of bribing government and medical officials in some of China's biggest cities -- including the country's financial hub of Shanghai and Hunan's provincial capital Changsha -- to encourage the use of GSK medicines and to push prices higher.

The bribes totaled nearly half a billion dollars, according to media reports.

On July 22, GSK executive Abbas Hussain admitted that some of the company's senior executives in China appeared to have violated the law. Hussain, the company's president of Europe, Japan, emerging markets and Asia-Pacific, had been dispatched to China to contain fallout from the alleged scandal.

On July 24, China's state media reported that 39 hospital workers were being punished for taking more than $450,000 in kickbacks from pharmaceutical firms over a three-year period.

Nine of the doctors involved had been suspended or had their licenses revoked, and a case involving a trade union official was referred to the judicial system.

Who has been caught up in the scandal?

Chinese authorities have barred GSK China's Vice President for Finance, British national Steve Nechelput, from leaving the country since late June. At least four Chinese executives have also been detained.

Chinese state media have identified these executives as Vice-President of GSK China's investment company Liang Hong, Vice-President and human resources director Zhang Guowei, GSK China's legal affairs director Zhao Hongyan and the company's business development manager Huang Hong.

Chinese state television also broadcast an apparent confession by Liang Hong. It is unclear whether his statement was made under force or duress.

Liang explained how conferences were faked in order for travel agencies to create receipts for services never performed. Funds were then used to pay off bribes encouraging the use of GSK products.

How have drug prices been affected in China?

In Liang Hong's alleged confession aired on Chinese state television, the executive explained that the bribes could have encouraged corrupt government and medical officials to raise prices 20-30%.

Liang added the cost for medication would be substantially inflated by the time it reached patients.

How important is China to GSK?

In the company's just-released second quarter earnings statement, GSK revealed net losses in Europe and Japan, with flat turnover in the United States in the first half of the year.

The only regional growth occurred in emerging markets and the Asia Pacific -- of which China is core.

As China's investigation into GSK expands, the firm's profits from the crucial emerging growth market are expected to take a hit.

"Clearly, we are likely to see some impact to our performance in China as a result of the current investigation," said GSK CEO Sir Andrew Witty, "but it is too early to quantify the extent of this."

Sine the bribery allegations first surfaced, GSK's share price has slumped 3.5% in London and 2.4% on the New York Stock Exchange.

What are the penalties if GSK is found guilty?

China's investigation could expose the company to legal action in the U.K., and possibly the United States, under laws relating to the bribery of foreign public officials.

GlaxoSmithKline says it has informed the U.K.'s Serious Fraud Office about the bribery allegations but had not yet been asked to provide any further information. The agency, which investigates and prosecutes corruption cases, said last week that it could neither confirm nor deny an interest in the claims against GSK at this stage.

BEIJING — Charles River Laboratories International Inc., a U.S. medical research equipment and services company, said Friday it is canceling a $1.6 billion acquisition of WuXi PharmaTech after shareholder objections.

Charles River's announcement of the planned purchase in April came amid a rush by foreign drug companies to expand research and development operations in China.

But Charles River shareholders objected to the deal's price and strategic value.

"Given their concerns about the proposed transaction, and our commitment not to proceed without their support, we have decided that terminating the transaction is the appropriate action to take," said Charles River's chairman, James C. Foster, in a statement.

The company, based in Wilmington, Massachusetts, said it would pay WuXi PharmaTech a $30 million break fee.

The deal would have given Charles River drug-testing facilities in the Chinese cities of Shanghai, Suzhou and Tianjin.

Investment firm Jana Partners LLC, which owns a little more than 7 percent of Charles River's stock, urged shareholders to reject the takeover.

Jana Partners objected to the price and pointed to what it called Charles River's "poor track record" of integrating acquisitions.

Around the world over the past couple of years, the pharmaceuticals industry has been slashing jobs at a rapid rate, beset by expiring patents on important drugs and slowing growth in rich country markets.

The lost jobs have included sales representatives and back office staff, but also the once ring-fenced jobs in drug development, the lifeblood of the industry.

Against this somewhat grim backdrop, however, Shanghai has managed to cement its position as one of the drugs industry’s most important hubs for research and development.

Many of the industry’s premier companies, including Novartis, GlaxoSmithKline, Pfizer and AstraZeneca have opened new research facilities in the city and some of them are already looking to expand them.

Novartis, the Swiss group, said in November it planned to invest $1bn in its Shanghai laboratories, which would employ 1,000 people in five years’ time. Shanghai would become the third pillar in the company’s global R&D, alongside Basel and Boston.

Amid hype about corporate research moving to China and overinflated figures about how much real innovation is taking place in the country, the rapid emergence of pharmaceuticals research in Shanghai is a strong demonstration that the city can actually build a genuine corporate research base.

How has it managed to flourish while the industry as a whole is struggling?

The principal draws are the market and the pool of talented scientists.

While OECD healthcare markets are languishing and the industry is trying to come to terms with the impact of US healthcare reform, emerging markets are flourishing, none more so than China.

IMS, the consultancy, believes the country will see sales increase by 17 per cent this year.

Most companies are working on the assumption that China will be one of the three biggest markets in the industry in five years, alongside the US and Japan.

Although industry executives say there is no direct link between where research is conducted and sales in that country, there are plenty of subtle advantages to having labs in important markets – from currying favour with regulators to establishing links with the doctors and scientists who are leaders in their area.

AstraZeneca says that its research arm in Shanghai is mostly focused on trying to learn more about patients in China and the country’s medical needs.

When the company launched its Iressa drug for lung cancer seven years ago, it quickly found that Asian women who were non-smokers responded much more strongly than western patients. One of the genes that the drug targets appears to mutate much more frequently among Asian women, making the treatment more effective.

The initial focus of the facility has been to try to understand more about these differences, first in cancer and now in respiratory diseases.

“The Iressa case will not be an exception. It will happen again and again, so we are here to study the differences between patients in this part of the world,” says Zhang Xiaolin, head of AstraZeneca’s Shanghai research facility.

“All of this will have a profound effect on drug development and on the prospects for personalised medicine.”

The other driving force for drugs companies is the relatively untapped ranks of smart young Chinese scientists.

Novartis says this was the main reason for its decision significantly to expand its research arm in Shanghai. Six years ago, it moved the headquarters of its research operations from Basel to Cambridge, Massachusetts.

Daniel Vasella, chairman, says the experience in the US “taught us that you have to go where the talent is rather than getting the talent to come to you”.

The gap in the local talent pool is that, while there are plenty of excellent scientists, there are few people with extensive experience in drug development – an area that is still in its infancy in China.

That means that multinationals have needed to recruit a significant number of overseas Chinese from labs in the US and Europe to take leadership positions – something that nullifies much of the cost advantage there might be to conducting research in China.

At a time when the industry struggling elsewhere, there is no shortage of overseas Chinese scientists wanting to come back.

At first, it was quite hard work to lure back talented researchers, says Mr Zhang at AstraZeneca, but now there are no problems.

Because of the large number of drug research facilities established in Shanghai, there is also now a critical mass of suppliers of the instruments and chemicals that are vital for research.

There are some obstacles, however. Drug companies experience considerable problems shipping biological samples while the regulatory environment for early-stage clinical trials is also extremely complicated.

The purchase of China’s WuXi PharmaTech Inc. will give Charles River Laboratories International Inc. the ability to offer drug makers one-stop shopping for preclinical drug development and testing, executives of both companies said yesterday.

Charles River Labs, a drug testing contractor based in Wilmington, agreed to acquire Shanghai’s WuXi (pronounced who-shee) in a cash and stock deal valued at about $1.6 billion.

The alliance is a good fit because the two companies serve a similar client base of leading pharmaceutical and biotechnology companies in the United States and Europe but provide different services, said James C. Foster, chief executive of Charles River, who will lead the combined company.

While the Massachusetts company conducts animal tests for drug developers before clinical trials, its new Chinese partner, among other things, manufactures the primary ingredient in drugs — known in the industry as the API, or active pharmaceutical ingredient, the substance in drugs that is biologically active.

“We’re doing this because our clients, particularly large pharmaceutical and biotechnology companies, want to buy an increasing number of services from a smaller number of providers,’’ Foster said in an interview. “We want to be one of those providers.’’

Edward Hu, the WuXi chief operating officer who oversees US operations, said the deal will allow his company to expand faster, and serve a broader customer base, than it could have on its own.

“It creates a formidable company in the early development space,’’ Hu said in an interview, citing the ability to handle a range of services for clients, from designing molecules to safety and animal testing. “No other service provider has this capability today. This is going to reshape the pharmaceutical and biotechnology industry.’’

But investors apparently thought WuXi stockowners got the better part of the deal, which the boards of both companies have approved. Shares of Charles River tumbled $6.22 (15.6 percent) to $33.55 on the New York Stock Exchange yesterday, while WuXi shares vaulted $2.84 to $19.41, a 17.1 percent gain.

Charles River agreed to pay $21.25 a share for the Chinese company. That includes $11.25 in cash and $10 in Charles River common stock. The deal represents a more than 25 percent premium over WuXi’s closing stock price Friday. It is expected to be completed some time before the fourth quarter.

The merger reflects a consolidation trend among both drug makers and the companies that provide services to them.

Increasingly, many drug makers have been outsourcing development and testing services to contract research organizations, such as Charles River and WuXi, and focusing their own efforts on clinical trials and marketing. The outsourcing business, which allows drug makers to cut costs and increase their speed to market, has been growing by an estimated 30 percent annually.

“This is another way of reducing risk,’’ said Harry Glorikian, managing partner at Scientia Advisors, a Cambridge consulting firm that focuses on life sciences. “It’s less risky for large pharmas to outsource their drug development functions and become marketing shops pushing these drugs onto consumers. When you think about it, this is similar to Procter & Gamble or Dell outsourcing component design.’’

Under their definitive agreement, the combined company will retain the name Charles River Labs and its global headquarters in Wilmington. The Chinese operation will continue to be called WuXi and be run by its existing management team of mostly Chinese-born, US-educated executives.

WuXi was one of the companies visited by Governor Deval Patrick on a trade mission he led to China in 2007. The company currently serves about 20 customers from Massachusetts, including Vertex Pharmaceuticals Inc. of Cambridge.

While the deal helps to cement the role of China as low-cost venue for drug development, Charles River’s Foster said he expects operations in Wilmington will expand as the company grows. Charles River also plans to reopen in 2012 an animal testing site in Shrewsbury where it suspended operations early this year because of a slowdown in business from its customers in the Boston area, Foster said.

“Our footprint will get larger in Massachusetts,’’ he said.

Charles River, which had $1.2 billion in sales last year, employs about 8,000 workers worldwide, including more than 800 in Massachusetts. The company was founded by Foster’s father, veterinarian Henry Foster, in 1947. It went public on the Nasdaq exchange in 1968, and was purchased by medical technology company Bausch & Lomb in 1984.

A management group, led by James Foster, repurchased the company in 1999 through a leveraged buyout and took it public again in 2000, this time on the New York Stock Exchange.

WuXi, a 10-year-old company that posted revenue of $270 million last year, is the largest Chinese maker of chemical compounds for the pharmaceutical industry. It acquired three US research sites in 2008 when it bought Minnesota-based AppTec Laboratory Services Inc. WuXi employs about 4,000 workers worldwide.

Published: 29-Jan-2010

Sanofi-aventis has signed agreements with Minsheng Pharmaceutical to form a new consumer healthcare joint venture (JV). Sanofi-aventis will obtain a majority equity stake in the new entity. The agreements were signed in the presence of senior leaders of the Hangzhou municipal government.

The proposed Sanofi-aventis-Minsheng joint venture will primarily focus on vitamins and mineral supplements (VMS).

Recently, Sanofi-aventis had announced its planned acquisition of Chattem, a manufacturer and marketer of branded consumer healthcare products, toiletries and dietary supplements in the US.

Hanspeter Spek, president of global operations at Sanofi-aventis, said: “We are pleased to take a significant step toward establishing the new consumer healthcare joint venture with Minsheng, our long-standing partner. Combined with our leadership position in vaccines, we will continue to contribute to preventative healthcare in China. Entering the world’s second largest consumer healthcare market is also a strategic move for Sanofi-aventis to consolidate its position in consumer healthcare.”

Zhu Fujiang, chairman of Minsheng Pharmaceutical, said: “We are equally excited about the prospect of forming the new consumer healthcare joint venture with Sanofi-aventis, after more than ten years of successful partnership.Sanofi-aventis is an energetic and dynamic company. His success with pharmaceuticals and vaccines has demonstrated his strong marketing capability.

"We hope that once materialized, the new venture will revitalize our consumer healthcare business and expand the reach of our products to benefit more consumers. We also hope that the new venture will serve as a platform for us to develop more health products in order to contribute to the local economy and meet consumer needs.”

GlaxoSmithKline is poised to announce cuts of more than 3,000 jobs this week at its European and US operations as the focus shifts from stagnant Western markets to China, emerging Asia, and Latin America.

By Ambrose Evans-Pritchard
Published: 6:51PM GMT 31 Jan 2010

The retrenchment follows last week's move by AstraZeneca to slash 8,000 jobs in a five-year restructuring plan, on top of 12,600 cuts already made. The lay-offs at the UK's two largest drugs groups are a blow to one of the last surviving fortresses of British industry, responsible for a quarter of the world's top 100 medicines.

The cuts are a sign that the old strategy of relying on patents and selling "white pills to Western markets" has passed its time as generic drugs sweep global markets.

Glaxo aims to reduce £1.7bn in annual costs by the end of next year and re-focus efforts on research and development. The company has seen lower demand than expected for its Pandremix vaccine against H1N1 swine flu as the virus proved less deadly and contagious than feared at first, though it may yet come back to bite in a mutated form, as the similar Spanish flu virus did in 1919.
The vaccine has lifted sales by around £835m over the last three months but it has not proved a bonanza.

Sales of Glaxo's H1N1 drug Relenza have also fallen short as swine flu fears subside. Germany alone cut its order of Relenza by 30pc earlier this month, costing the company almost £120m in lost sales. France plans to cancel half its expected orders. Britain, Holland, Spain, and Belgium have all been in talks over reductions. In the end, many patients who did come down with the disease needed just one pill instead of two.

Analysts say the group is likely to announce a return to profit growth of around 12pc to £8.69bn at its full-year results on Thursday after an 11pc slip the year before.

The company has been hit by generic versions of its herpes treatment Valtrext after the recent expiry of its US patent, although it has the lupus drug Benlysta wating in the wings. Valtrex sales are expected to drop by two thirds this year to $782m, raising concerns that the group is too reliant on aging patents.

Andrew Witty, the chief executive, is trying to diversify away from its core pharmaceutical business in the West to consumer health, especially in China.

Tougher rules have made it harder to make money in Europe and America. The EU has passed swingeing codes that have pushed key research activities abroad.

The share of the world's clinical trials conducted in the UK fell from 6pc to 2pc between 2000 and 2006, largely due to intrusive regulations that have sharply raised costs.

By Jacob Goldstein

Same song, different verse: A big drug maker is cutting jobs in the developed world and growing in China.

This time, it’s Pfizer, which said today that it’s looking to increase its sales force in China to 3,200 by the end of next year, up from about 2,300, Dow Jones Newswires reported today. The company has said it will cut nearly 20,000 jobs as part of the Wyeth merger.

Eli Lilly said last fall that it would continue to hire in China, even as it cuts jobs in the U.S. and other developed markets. Novartis is also making a big push into China, hiring hundreds of workers and spending $1 billion to expand a research center in Shanghai.

With business tough in developed markets, drug makers are counting on the developing world for growth. But that’s not always a sure thing, either; just today, the WSJ reported that the Philippine government is asking drug makers to submit a list of proposed price cuts on their “top-selling and most expensive drugs.”

Last summer, the government in Manila put price controls on several drugs, including Pfizer’s Norvasc and Lipitor. Pfizer had previously offered to cut the prices on some of its drugs there, and said last year it was “disappointed” that the government didn’t accept its offer.

Spurred by the healthcare reform launched by the central government, healthcare has now become the hot destination for domestic and foreign venture capital (VC).

The buzz has been the most active in the bio-pharmaceutical sector which has raised funds to the tune of nearly $130 million in the first half of the year.

The sector accounted for 20 percent of the investment deals signed in China during the same period, according to a report by Zero2IPO, a leading domestic service provider for the venture capital and private equity industry.

"The ratio is pretty high. The passion (for bio-pharmaceuticals) has been ignited by the predictable growth potential in China's healthcare industry and the growing demand for biopharmaceuticals," said Zheng Yufen, senior manager for healthcare at the investment banking division of Zero2IPO.

"Talks are also on for a slew of other investment deals in the bio-pharmaceutical sector and hopefully they would be sewn up by the end of the year," she said.

"The bio-pharmaceutical segment often sees mega deals and would continue to catch the fancy of venture capitalists for some time to come."

In January, Kerry Bio-Science, a Zhejiang-based life science research pharmaceutical company, raised its second round of funding worth $13 million from KPCB China and some institutional investors. Kerry Bio-Science will use the funds to set up a new development and research center and expand its output capacity.

The Kerry Bio-Science deal sparked a flurry of investment in the bio-pharmaceuticals sector. Macrostat, a clinical research data provider on bio-pharmaceuticals, got investment, with no details available, from Tigermed Consulting and Qiming Venture Partners. In May, KPCB China made its second investment this year, in Nanjing-based Genscript Corporation, a leading bio-pharmaceutical research outsourcing company, at a price of $15 million, the largest this year.

According to Xiao Jun, executive vice-president of Genscript, the company got funding due to its "inherent strength in biotechnology research and its comprehensive service system".

"GenScript needs capital and mature management experience to help fulfill the goal of becoming a leading contract research outsourcing company," Xiao said.

Bio-pharmaceutical companies are those producing drugs using bio-technology. In early 2000, investors began to show interest in the sector, but the investment was not sizable given the limited scope of the medical market then.

"After China unveiled its healthcare reform, a huge potential for these products was unleashed," said Zheng.

Over the next few years, China's bio-pharmaceutical sector will continue to grow by 12 to 15 percent annually, and by 2010, the market will reach $100 billion.

With its strong talent pool, China is in a much better position to attract investment by international medical companies for R&D centers. In November, drug major Merck Serono and IBSA, a Switzerland-based bio-pharmaceutical company, announced plans to set up R&D centers in China.

Maurizio Dattilo, director of Strategic Marketing of IBSA, said: "China has a very strong scientific research team and employees to work for the R&D center."

This year, venture capital firms like International Data Group and SAIF are bolstering their teams and hiring more employees from hospitals and domestic bio-pharmaceutical companies.

"Both the companies are in negotiations for deals of over $10 million," said Zheng.

AstraZeneca plans to move all production of the vital molecules in its medicines offshore, mainly to China.

The pharmaceuticals company’s cost-cutting drive, which will continue for some years, means that it will cease to produce or source active pharmaceutical ingredients (API) in the UK.

The manufacturing shift to Asia could lead to job losses and either plant closures or a sale to another company, but an Astra spokesman said no decisions had yet been made. “Over the next several years we would seek to outsource all of our active ingredients,” he said.

In the UK, Astra makes APIs for cholesterol and schizophrenia drugs in a factory at Avlon, near Bristol, which employs 300 people. An option for that facility could be a sale to a third party but no decision has been taken, the Astra spokesman said.

Astra has ended the production of active ingredients at its main UK factory in Macclesfield and has been building up its manufacturing presence in China with a big factory in Wuxi, which in addition to making APIs, also does medicine formulation and packaging.

The decision by Astra to shift offshore the entire process of making active ingredients will ring alarm bells in Britain’s chemical sector, which has suffered huge losses in the recent downturn.

According to figures compiled by the Chemical Industries Association, Britain’s trade in pharmaecutical ingredients moved into positive balance over the past year after a decade of deficits. Anecdotal evidence suggested some UK-based chemical companies were getting contracts from drug companies that had experienced quality-control problems in India and China.

The outsourcing of the active molecule in a medicine is an important trend among drug companies and is increasing, said James Knight, chemicals analyst at Collins Stewart, the broker. “There is a move to outsource more and more of the basic ingredients from Asia,” he said.

The threat to makers of pharmaceutical ingredients comes at a time when the UK chemical industry is reeling from a sudden fall in demand from manufacturers. A big chemical site, originally developed by ICI in the northeast of England, has come under threat after a decision by Dow Chemical, the American company, to cease production at its ethylene oxide plant. The integrated nature of the site means that the decision has put neighbouring plants, both suppliers and buyers, under pressure.

Robert Tyler, president of the Chemical Industries Association, said the pressure could become too great for some companies. “If the final decision on ethylene oxide is negative, then there will be more job losses. We have put a plaster on it for a year. A lot of companies will say we are returning to demand levels in 2005 and they will restructure.”

AstraZeneca last month reported that pre-tax profits for the third quarter rose 27 per cent to $3.4 billion (£2 billion), as revenue rose by 5 per cent to $8.2 billion.

By James A. White

The global drug industry’s long push into China continued today, as Novartis said it plans to spend $1 billion to expand its R&D center in Shanghai. Dow Jones has the details.

CEO Daniel Vasella said the company’s Shanghai work force will grow from 160 to about 1,000, putting it on par with Novartis’s research center in Cambridge, Mass. Novartis’s Basel research center will remain the largest for the Swiss company, which spent $7.2 billion on R&D last year.

“I think it will be a signal of China’s rising importance in the pharmaceutical industry,” Vasella told Dow Jones during a visit to Beijing, where the investment was announced. “You have to ask yourself where do you need to be down the road, and clearly it is here.”

Drug manufacturing has been shifting to China for a long time. More recently, U.S. and European companies have begun expanding their R&D operations there as well, as we noted last year when Genzyme said it planned to spend $90 million on an R&D shop in Beijing.

And as Eli Lilly reminded us recently, companies continue to hire in China and other emerging markets, even as they cut positions in the U.S. and other established markets.

China Update: Novartis said today it plans to buy 85% of a closely held Chinese vaccine maker for $125 million if Chinese authorities approve the deal. Dow Jones Newswires notes in its story that China is the world’s third-largest vaccine market.

Daniel Marshak, PhD, Chief Scientific Officer and President, Greater China, PerkinElmer, Inc.
Drug Discovery & Development - June 09, 2009

China continues to emerge as a life sciences market with significant opportunity, despite the global economic downturn. For example, although pharmaceutical giant Novartis is decreasing its US investment, it is increasing its investment in China. Many other biopharmaceutical companies are following suit, and the life sciences tools community is close behind.

As China emerges as a primary market for advanced laboratory and research technologies in instruments, consumables, and services, several responsible factors in particular stand out. Above all, there is a growing realization within the industry that science in China, both in pharmaceuticals and in basic research, is quite sophisticated and has been for some time. This has resulted in Chinese demand for the same level of technology and support services as is present in the US and Europe, and will no doubt continue to grow as China emerges as a life sciences power in the coming years.

To meet this demand, tool providers have increased their investment in delivering advanced lab technologies and services despite the economic uncertainty. Companies that take the short-term view and downsize their Chinese operations are taking a serious risk. Only those who make the investments needed to initiate and maintain strong commitments to their customers, and to back them with highly trained and motivated staff, have a chance of winning.

One straightforward strategy for succeeding in this market is often the most undervalued or overlooked: increasing service capabilities, implementing resources and processes for lowering service response time, minimizing customer downtime, and maximizing first-time repair metrics. Research organizations in China are highly productivity-minded, and they will reward top-tier, highly responsive service following their investment. This is particularly true for laboratory automation workstations and detection systems for screening their growing compound libraries.

To ensure all this requires a strong local presence of experts, which means maintaining jobs, salaries, benefits, and bonuses, all investments worth making in the Chinese workforce. Initial installations will grow as our clients’ capabilities increase alongside China’s presence in the global market. Further investments must be made in language localization in every possible facet of a China operation. Stocking service parts and consumables locally, in addition to local expertise, are fundamental requirements for successful customer relationships in the region. Excellent local language at all levels of customer contact is an absolute necessity, going beyond the basics of user manuals into high-level, detailed scientific applications notes and even advanced software. For example, PerkinElmer has recently expanded its application labs in China, and also created a dedicated global development center for information technology that serves the region, as well as installed new software development initiatives based in China. To excel in these areas is a basic requirement of doing business in China today.

A guiding principle for life science tool makers in China is to ensure that their product portfolio matches the particular technology demands of local customers. For example, both local and global pharmaceutical companies in China place a high degree of emphasis on high-throughput screening (HTS) and high-content screening (HCS) in their research operations, as well as on biochemical assays that complement cellular assays and cellular image-based assays. In fact, most global pharmaceutical companies are moving much of their labor-intensive screening activities, and some assay-based development, to China. However, the latter trend of shifting labor-intensive research activities to Asia should not overshadow the increasing demand for sophisticated lab solutions for cutting-edge research. The ability to provide complete instrument, reagent consumables, software, services, and training capabilities to customers will be a key differentiator in the China market for years to come.

A key pitfall for vendors in the region is a lack of preparedness for advanced customer interactions in the introduction of new technologies. The importance of providing significant customer training opportunities, particularly in the use of cutting-edge techniques possible through their tools with regard to their specific applications, cannot be overstated. Furthermore, it is critical not only to invest in supporting current product portfolios, but also to keep customers in China abreast of new science being performed globally, as well as emerging technologies in the pipeline in the near future. Successful partners will not hesitate to dedicate their best staff and commit significant resources to maintaining a high degree of customer interactions, featuring frequent visits to various research and development and manufacturing sites in the region, continual technology demonstrations, and in-depth training and symposia, all of which are essential to keeping customers informed of the potential of their product investment in advancing their research and business goals.

Another important avenue for success in China is to have strong working relations with the central government as a partner, in both human health and environmental health. Government priorities in life sciences research, especially in testing technologies for food, water, air, and consumer products, have guided many regional advances in health and safety, and will continue to do so in the foreseeable future. The common goal of the central government and the life sciences industry is unltimately to provide a healthier life to people and the environment in China.

Trends in the Chinese life sciences’ market clearly indicate not only growing innovation with global applicability, but also an increase in the scale and the depth of demand for new technologies and applications. Tool companies must acknowledge China’s sophistication and locally-originated--as well as globally-imported--advanced research requirements. Those who seek to serve these needs accordingly, and above all, make the necessary investments to do so, will meet with success. This demand can only be met by global players who make the necessary commitments to localization, in the form of smart investments in people and resources.

Chesterfield-based Commonwealth Biotechnologies (CBI) is planning to expand its presence in China by acquiring all outstanding shares of GL Biochem in Shanghai.

The companies have reached a purchase agreement for an undetermined price.
CBI itself does not develop drugs, but it out-sources research and laboratory support for companies that do.

According to CBI’s due diligence report, the Chinese biotech company had revenue of $13 million and an after-tax profit of $2 million in 2008.
The deal is pending regulatory and shareholder approval. CBI is publicly traded on NASDAQ and closed today at $0.56 a share, up 44 percent on the day.

“When you are merging a non-U.S. company into a U.S. NASDAQ-listed company, there are some challenges to reconcile,” said Richard Freer, co-founder and chief operating officer of CBI.

Freer said the company hopes to close on the deal within 90 days.

GL Biochem is a market leader for an area of biopharmaceuticals known as custom peptide synthesis, Freer said.

“We then become, by extension, a major player in the peptide pharmaceutical discovery business,” he said.

The product is primarily used in the development of vaccines.

This is not CBI’s first foray into China. Last year, the company entered a $1 million deal with Beijing-based Venturepharm Laboratories. Under that agreement, CBI sold 463,426 shares at $2.15 a piece in exchange for $500,000 cash and $500,000 worth of Venturepharm stock.

Freer said China is not only a good location for low-cost research centers, but also – with a population of 1.3 billion – a future growth market for vaccines.

Win-win Cooperation Between China Leading CROs, Boosting Full Service Capability

HANGZHOU, China, March 3 /PRNewswire-Asia/ --

Tigermed Consulting Co., Ltd, a leading Contract Research Organization (CRO) in China, and Qiming Venture, a premier venture capital firm based in Shanghai join hands to grant asset injection to MacroStat, the unique CRO in China specialized in clinical data management and statistical analysis. The union between the two top CROs will significantly improve Tigermed's clinical data management serviceability and broaden MacroStat's business line.

''MacroStat has the leading talents and system in biostatistics, with absolute competitive advantage in China. Tigermed and MacroStat shall establish extensive strategic partnership in the management of clinical trials, data management and statistical analysis. Tigermed accumulated outstanding expertise in clinical trials, while MacroStat is an expert in biostatistics. Our cooperation shall expand Tigermed's business line and add professionalism to Tigermed's biostatistics services. The win-win cooperation between leading CROs with complementary advantages is conducive to constructing a higher level of CRO service chain and further updating full service capability, which also opens a fast track to the globalization of China CROs,'' comments Dr. Ye Xiaoping, CEO and founder of Tigermed.

Ms. Cao Xiaochun, Vice President of Tigermed, added, ''Tigermed pays close attention to MacroStat advantage in data management and statistical analysis. Besides Ms. Cao Xiaochun, Dr. Ye Xiaoping (CEO and founder of Tigermed) and Hu Xubo (Director of Healthcare Investment Sector of Qiming Venture) will also join in MacroStat's board of directors. The cooperation between Tigermed and MacroStat will not only satisfy global clients with international standards but also power the innovative drug development in China, making it possible to streamline clinical research cycle and considerably reduce drug R & D costs.''

''MacroStat has set up strategic partnerships with many multinational pharmaceutical and biotech companies and international CROs, and has become their preferential biostatistics vendor. MacroStat's customers are mainly from USA and Europe. With the new capital, MacroStat will further accelerate its development effectively, on one hand, keeping the unique advantage in biostatistics, one the other hand, extending business line into clinical trials, so as to provide more extensive and comprehensive services for the pharmaceutical industries.'' Comments Helen Yin, managing director of MacroStat China.

About MacroStat

MacroStat, an international CRO, founded in 2002 in USA, is one of the few professional CROs dedicated to providing clinical data management and statistical analysis services. MacroStat is specialized in providing data and safety monitoring board (DSMB) support for USA FDA, and statistical support to FDA, CVM, EPA, MAA, MCA and other agencies and Asian countries. MacroStat (China) was established in 2005 in Shanghai, and now becomes the unique CRO focused on biostatistics in China

About Tigermed

Tigermed Consulting Co., Ltd, a leading Contract Research Organization (CRO) in China, is expected to become the largest CRO in China within 3 years. With capital injection from Qiming Venture in 2008, Tigermed has entered into a period of rapid expansion. The combined asset injection to MacroStat marks a stride forward in Tigermed's internationalization strategic development. The extensive cooperation between Tigermed and MacroStat allows both to make a big step forward.

LEO Pharma Establishes Strategic Company in China

SHANGHAI, China--(BUSINESS WIRE)--LEO Pharma is taking a giant leap into the Chinese market by establishing an affiliate with the ambition of eventually becoming the leading dermatological company in China.

The new company, LEO Pharma China, will market LEO Pharma's comprehensive portfolio of high-profile and patent protected drugs for the treatment of the chronic skin disease psoriasis and other dermatological products (pharmaceuticals for the treatment of skin diseases).

LEO Pharma's leading psoriasis brand, Daivobet®, has just been approved by the Chinese authorities and can now be marketed in China.

LEO Pharma's new company in China underpins LEO Pharma's long-term global strategy of providing patients that suffer from psoriasis with the best topical treatments possible.

"This is an interesting opportunity for LEO Pharma. We will be bringing our global knowledge of dermatology and comprehensive portfolio within high-profile, topical psoriasis drugs and other dermatological products into the new LEO company and out to the Chinese market for the benefit of the Chinese patients," says Poul Rasmussen, Chairman of the Board of LEO Pharma and of the sole shareholder, the LEO Foundation.

The setting-up of LEO Pharma China must be regarded as a long term investment for the LEO Group, says Gitte Aabo, CEO and President of LEO Pharma:

"The project in China can lead to significant investments for LEO Pharma, but the earnings potential in one of the fastest growing markets for pharmaceuticals can also be huge in the long term."

About psoriasis

Psoriasis often appears as raised red patches with silvery scales - known as plaques - in various anatomical sites.

It is primarily located on the elbows, knees and scalp, but can also appear elsewhere on the body. Severity can vary greatly.

Psoriasis affects 0.1 - 1 % of the population of China and is equally common in men and women. It can start at any age, but most patients develop psoriasis in their twenties. There is a peak of incidence in the late teens to early twenties and a second peak in the fifties.

The duration of an outbreak may vary, but in most patients, the cycle of remissions and exacerbations goes on for many years or even over an entire lifetime. If treated correctly many people with psoriasis can live regular lives with the condition.

Daivobet® is LEO Pharma's main product family for the treatment of psoriasis vulgaris. Daivobet® is a fast, efficacious, once-daily dosage product for the topical treatment of psoriasis. Daivobet® has been used by thousands of people with psoriasis, and the product is very well documented in clinical trials. Furthermore, a 52-week randomized safety study shows that Daivobet® can be used for long-term treatment of psoriasis.

About LEO Pharma

LEO Pharma is an independent research-based pharmaceutical company with headquarters in Ballerup, Denmark. LEO Pharma is wholly owned by the LEO Foundation and is a leader within the strategic focus areas of Dermatology and Critical Care. LEO Pharma maintains a strong focus on developing, manufacturing and marketing safe and efficacious drugs for treating psoriasis and other skin diseases as well as thromboembolic disorders. 96% of the turnover, which in 2007 was DKK 5.2 billion, was generated outside Denmark. LEO Pharma is represented in more than 90 countries and has nearly 3,000 employees around the world, 1,200 of whom are based in Ballerup, Denmark.

Read more about LEO Pharma at www.leo-pharma.com. Read more about psoriasis at www.psorinfo.com - www.daivobet.com.

By: Patricia Van Arnum

Large pharmaceutical companies rank China as the best location for outsourcing in Asia, followed by India, Korea and Taiwan, respectively, according to a recent PricewaterhouseCoopers index. The index evaluates Asian countries according to cost, risk, and market opportunity for the pharmaceutical industry. The report suggests outsourcing to Asia is moving up the value chain, as low-cost production is eclipsed by a broad range of factors, including market potential and research and development (R&D) capacity as the drivers of growth.

"Within five to ten years, we will be moving from 'made in China' to 'discovered in China,'" said one pharmaceutical industry executive interviewed for the report. "Pharmaceutical companies need to make sure they are refining their strategies to make the most of the opportunities presented in Asian countries," said Michael Keech, director of the global pharmaceutical and life-sciences industry group at PricewaterhouseCoopers. "China and India will continue to spearhead growth in the Asian pharmaceutical sector, but, alongside those countries, Singapore will maintain its position as a center for research and innovation. While the trio of India, China, and Singapore are proving to be the 'hotspots' of the Asian pharmaceutical sector, other countries, notably Korea and Taiwan, are also going to be increasingly significant. The companies that will be most successful at making pharma outsourcing and location decisions will be those that are most adept at managing and mixing a range of contractual relationships and partnerships across a number of different locations."

According to the report, pharmaceutical companies in the United States and other developed countries are facing challenges that are constraining revenue growth and have a resulting need to look for new ways to boost drug-discovery potential, reduce time to market, and minimize costs. For example, only nine of the 18 new treatments launched in the US in 2006 came from the laboratories of the 13 companies that comprise Big Pharma.

The report highlights three significant developments that are shaping Asian pharmaceutical outsourcing:
•The trend toward high-end innovation. Intellectual property (IP) concerns have previously inhibited this trend in the pharmaceutical industry, but increasingly such concerns are being overcome and major moves are being made by large pharmaceutical companies to increase their drug-discovery investment in Asia.

• Rapid expansion of clinical trials in Asia. The volume of clinical trials being conducted in countries outside of Europe, North America, and Japan has been growing rapidly in recent years with Asian countries leading much of the growth. China has overtaken India as one of the fastest-growing locations. By June 2008, China had 428 clinical trials underway and registered on the website Clinicaltrials.gov and a cumulative total of 870 completed or ongoing trials compared with 737 clinical trials in India. Cost has been a critical factor in this expansion. For example, clinical trials are estimated to be up to 50% cheaper in India compared with the US.

• A scaling up of pharmaceutical manufacturing in Asia. An increased commitment to international standards, Asian contract manufacturing organizations (CMOs) are securing more outsourcing orders from large pharmaceutical companies. In India, for example, there are more than 100 US Food and Drug Administration-approved pharmaceutical facilities, the largest number in any country outside the US, according to the report.

The report shows that China and India, followed by Korea and Taiwan, provide several benefits for the pharmaceutical industry, including a pool of educated and qualified scientists, IP law reform, and market growth. These trends are outweighing factors that had previously inhibited development, principally uncertain regulatory frameworks and enforcement.

Although significant risks remain, there is growing convergence with international regulatory standards. However, the report's authors point out that such convergence is also being felt in labor markets, with the result that traditionally wide wage differentials, compared with developed-country locations, are narrowing. Such convergence will continue to shrink the cost gap, prompted in part by the need for Asian countries to compete for high-end skills in an international labor market. India, for example, is already finding it difficult to recruit in certain areas such as clinical research personnel.

There’s a lot of talk these days about India and China as potential markets and as sources for cheap manufacturing and R&D. But the real potential of these countries is far more interesting: As China and India (and Brazil, Russia, and Korea) learn to create new products, they’re going to do it at price points that make sense for their own domestic markets—which means substantially lower than US or European prices. The drugs they create may not measure up to the standards of approval in the developed world, but those standards, these days at least, have more to do with politics and preferences than they do with a practical risk/benefit ratio.

Let the emerging market come up with low-cost must-have medicines, though, and we’ll see how long the US fights to keep them out. A handful of sucessful medicines from India and China could end up doing a remarkable amount to transform the US drug industry and US drug regulation.

I finally met a pharm exec who’s pursuing that insight as a way to build his company, when Abe Abuchowski, founder and COO of Prolong Pharmaceuticals, stopped by to visit not long ago. You’ve probably heard Abe’s name already. He’s the biotech pioneer who developed the technique of attaching polyethylene glycol (PEG) to protein-based drugs. PEGylation, the subject of Abuchowski’s thesis at Rutgers back in 1971, proved to be an effective way to reduce the immunogenecity of biotech drugs and to increase the amount of time they remained in the body, and it’s gone on to become one of the field’s gold-standard technologies.

Abuchowski himself went on to found Enzon (starting with just half a dozen people in 1983), which he developed into a fuly integrated company. “We had to,” he says. “At the time you couldn’t just hire services like toxicology.” Enzon’s pegylation technology led to several important products, including Adagen (pegylated adenosine deaminase, for severe combined immune deficiency disease, just the fifth biotech product to win FDA approval), Oncospar (pegaspargase for certain cancers), and the blockbuster PegIntron (pegylated interferon A, for Hepatitis C, developed with Schering Plough and approved in 2001).

With PegIntron, Enzon was profitable, but it turned away from pegylation, leaving the field to Nektar. (The company announced earlier this week that it was considering divesting itself of its biotech business.) Abuchowski, meanwhile, had left in 1996, spending more than a decade as a stay-at-home dad and part-time consultant. He never lost the entrepreneurial urge, though, and in 2005 launched Prolong. (The name refers in part to the way that pegylation prolongs the time a protein spends in the body.)

The new company’s strategy is to develop patented, second-generation biotech products in India and China, using Prolong’s expertise in pegylation (which Abuchowski says is not part of the Indian/Chinese biotech arsenal) and to partner with companies able to manufacture at low cost.

Low-hanging fruit is the name of his game. Within the past month or so, Prolong announced a partnership with Zydus Cadila, one of India’s 30,000 biotechs, to produce a pegylated erythropoietin (an anti-anemia drug in the same class as Amgen’s Epogen and J&J’s Procri) and another deal is in the works in India for a pegylated granulocyte colony-stimulating factor (GCSF) drug, similar to Amgen’s Neupogen. When last I spoke with Abuchowski, he was just back from China, where he formed a tentative agreement with a biotech company over one, or possibly two, products.

“All the modern technology we have here they are copying,” says Abuchoswki. “All the first generation of biotech products are being made there and brought into the marketplace. The benefit is that they are starting with scientific knowledge that is mature rather than developing that knowledge from scratch. They have the benefit of waiting for 20 years, then building the most modern facilities with the cheapest labor and developing these products at the lowest cost possible. There are an unbelievable nmber of biotech companies, and being able to link up with a company like ours will allow them to differentiate themselves from the others in the ferocious competition that goes on there.”

Expect an announcement soon. In the meantime, more news from Prolong:
The company has just received a grant from the National Heart Lung and Blood Institute to supply Prolong’s developmental blood replacement product (which, not surprisingly, is based on pegylated hemoglobin) for researchers in such areas as combat surgery.

“It’s exciting to us because it changes the dynamic of the company,” says Abuchowski. “Instead of raising money to test our product, we can sell it to the research community while still working on it as a product, and make a little money on it. And researchers will find new uses for it. We hope that various branches of the military will want to buy it for their own application.”

Source: PharmExec Blog

The FDA today opened an office in China's capital city Bejing to help monitor imports to the United States. The office is the first FDA office beyond the borders of the U.S. It's part of the agency's new global safety strategy, as companies increasingly move operations offshore with plans to import products back to the U.S. In addition, Chinese quality officials will set up a station in the U.S.

While concerns about infant formula, food and toothpaste have brought headline-grabbing attention to Chinese imports, problems with pharmaceuticals, including contaminated blood thinners, are a major concern as well.

The vice health minister and head of China's food and drug administration, Shao Mingli, said that the FDA presence in China will provide "a very clear signal to the whole world." U.S. Health and Human Services Secretary Mike Leavitt said that this marks a new strategy to "build safety into products at every step of the way," rather than just monitoring it upon importation at U.S. boarders.

The two countries will work cooperatively to detect contamination. Together, they will require greater corporate responsibility and increase data and information sharing.

The FDA will soon open two more offices in the Chinese cities of Shanghai and Guangzhou, as well as offices in Europe, India and Latin America. The new China offices will oversee regulation, policy, food, medicines and medical devices.

In another confirmation of pharma's eastward gaze, Novo Nordisk is plowing $400 million into a new factory for diabetes treatments. The plant will produce insulin-based meds for China and other Asian markets. It will be Novo Nordisk's biggest-ever investment outside its home country of Denmark.

As you know, Big Pharma has been pinning new hopes on emerging markets like those in Asia. Growth in the U.S. is slowing, of course, so drugmakers are looking to the developing world as one source of new revenues. GlaxoSmithKline is looking to beef up its operations in China and India, for instance, and Merck's Indian subsidiary is staffing up in anticipation of a series of new product launches there.

Though China's economic engine looks to be shifting to a lower gear as well, its healthcare markets are still underserved. As Lars Rebien Sorensen, Novo's CEO, told the Financial Times, "For over a decade we have realized that the diabetes market in China would grow quickly and nothing in the recent financial crisis has really changed that."

France's Sanofi-Aventis announced it will expand its research and development functionality in Shanghai, China. In a new partnership with the Shanghai Institutes for Biological Sciences, the company will work on drug discovery in the areas of cancer, diabetes and neurological disease, and will put a new biometrics facility in Beijing. The facility in Shanghai has been there since June of 2005 and functions in the full spectrum of drug discovery.

The new facility in Beijing, which it hopes will be in full operation by year's end, will be more specialized, handling specifically data management, study design and statistical analysis.

"A comprehensive development program for vaccines is already on-going in China and we are looking forward to its expansion in the near future," said Dr. Michel DeWilde, Senior Vice President, Sanofi Pasteur R&D.

Quality-control fears notwithstanding, China has knocked India off the catbird seat as pharma's favorite spot for outsourcing. According to a new report from PriceWaterhouse Coopers, China beats every other Asian country as an investment and contracting destination, followed by India, Korea and Taiwan. The countries all were evaluated by cost, risk, and market opportunities.

And it's not just low-cost production that's luring pharma to Asia, either. The report found that the region is growing in stature as a source for innovation and discovery. Plus, local markets are burgeoning, giving pharma the potential for lots of new emerging-market sales.

The various countries have different strengths, with China and India the primary drivers of pharma growth in the region. Singapore, on the other hand, is considered more of an R&D specialist, while Korea and Taiwan are emerging as competitors for pharma investment and business. What's contributing the the region's magnetism? Greater attention to intellectual property protections, for one. Cheaper clinical trials, of course. And an explosion of growth in certified contract manufacturers. In India, for example, there are more than 100 FDA-approved pharma plants, the largest number in any country outside the U.S.

Stephanie Wells is the Senior Vice President of the U.S.-based CRO Charles Rivers Laboratories.

With its impressive pool of native scientific talent, large population with unique therapeutic needs, rapidly growing economy, and rising interest in Western products and services, China is emerging as a powerhouse in the life sciences industry. However, in the past year a series of product contamination incidents have beset China's manufacturing industry, emphasizing how vital it is to establish Good Laboratory Practice (GLP) so that China's potential as a quality pharmaceutical producer can be fully realized. As China continues to evolve as a center of R&D innovation, providing GLP-compliant preclinical services is critical to fostering this culture, as well as to helping academia, scientific societies, and biopharmaceutical organizations accelerate their drug development programs.

To accomplish this goal, it is critical to make a strategic investment in local resources and staff to support these drug development programs. A critical component of this investment is the transfer of expertise and western lessons learned to Chinese talent, including high standards of research, safety, humane care, and good laboratory practices. The goal is not to have a Chinese facility that is staffed and operated from the west, but to create an autonomous operation that meets the same regulatory and quality standards as its Western counterparts.

Creating a Culture of Compliance

The most important aspect of successfully replicating GLP procedures in a new location is to rigorously train the people responsible for carrying out the procedures. It is at this fundamental level that quality can be most easily compromised. In other words, personnel can make or break a GLP facility.

To guarantee the quality of the knowledge and actions of personnel, the staff needs to be well trained. This is accomplished by either training them at other GLP-compliant facilities before placement at a China facility or transferring key management positions from those GLP-compliant facilities to China to train and oversee staff on-site. Ideally, a combination of these plans should be implemented to achieve effective training.

After establishing a base of highly-trained staff members, the GLP standard must be maintained. From the start, the goal of all training should be to create and sustain a culture of compliance, where compliance is not a goal to be reached daily, but the normal state of affairs in which any deviation is immediately evident and quickly corrected. This is maintained through orientation and refresher training, as well as quality assurance initiatives.

An Assurance of Quality

When setting up a facility in a different country, the amount of regulatory complexity that is involved increases significantly. Achieving these new quality standards in addition to meeting domestic GLP standards while in a foreign environment takes both prior planning and continual oversight.

Much like the aforementioned training, which in itself is an important component for quality assurance, engagement and importation of key quality assurance personnel is essential to the success of any such offshoring venture, and not just after the facility has opened. Quality assurance starts in the planning stages, with detailed validation plans drawn up by experts in the field. Validation plans should include facility construction, standard operating procedure implementation, and staff training. Throughout the planning stage and all the way through to implementation, it is vital to involve international experts in addition to imported quality assurance personnel, in conjunction with local experts in Chinese regulations and processes.

Finally, a Quality Assurance unit should be instituted and empowered to monitor compliance once the site is functioning. Quality audits should be conducted frequently, and continued process improvements should be developed and implemented wherever possible to more efficiently meet GLP standards.

An Integration of Local Resources

Although the above two steps involve the importation of a considerable amount of skill and resources, it is also essential that local resources are engaged and incorporated. In fact, eventually a company should come to rely on the resources available locally.

The main reason for importing resources at first is one of trust. The suppliers and vendors that a company normally relies on for support have already been vetted and have proven over time to be dependable. However, for fiscal and geographical reasons, that same pipeline of resources might be impractical or impossible to use on the opposite side of the world. As a result, relying on domestic suppliers as a long-term strategy is untenable.

Fortunately, China has a great deal to offer with respect to local expertise. In addition to knowledge of local regulations and the prodigious scientific talent of the country, there are plenty of high-quality suppliers and vendors available. However, these local resources need to be subjected to the same quality control scrutiny to which the domestic pipeline is subjected. In fact, by importing resources from domestic sources at first, a company can buy itself the time it needs to properly examine and establish local China suppliers and vendors for GLP-compliance.

Conclusion

To achieve a culture of compliance, effective quality assurance procedures, and the successful integration of dependable local resources, it takes an immense amount of planning before the first brick is laid in a new China venture. To reiterate, the goal is to create a preclinical center of excellence in China and an offshore partner for multinational and local biopharmaceutical companies. By definition, such a goal is best achieved by leveraging domestic experience and importation in the early stages to ensure quality standards are established and replicated. If the appropriate blend of domestic expertise, western compliance processes, and oversight are linked with proper utilization of local resources, an efficient GLP-compliant facility can be established and maintained. Once created and maintained, this will go a long way toward delivering the enormous potential that China offers in helping the pharmaceutical and biotechnology industries enhance development of more effective therapies, both in China and the rest of the world. - Stephanie Wells

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.”

BEIJING, Feb 12 (Reuters) - A unit of Bayer AG (BAYG.DE) will spend about 100 million euros ($129 million) over five years to build a research and development centre in Beijing, the company said on Thursday.

Bayer Schering Pharma, a division of Bayer HealthCare, will build the centre, becoming only the third country besides Germany and the U.S. to host a global R&D centre for Bayer Schering, it said in a statement.

China is the third largest market worldwide for the Bayer group. The new centre aims to include Asian patients earlier in global drug development, it said.

"Our goal is to build a world class organization here in Beijing that will lead drug development not only for China but also for other Asian countries," said Kemal Malik, a Bayer Schering Pharma board member, in the statement.

China said last month it planned to spend about $124 billion on health care over the next three years, aiming to improve basic medical insurance, expand local-level clinics, improve the public health system and initiate pilot public hospital programmes.

Foreign health-care firms are seeking to fill a huge gap in China's health care sector that leaves hundreds of millions of people with little or no coverage.

GlaxoSmithKline Plc (GSK.L), the world's second-largest drug maker, said last year it planned to double its R&D staff in China to 350 people in the next few years, as China could become the world's fifth-biggest pharmaceuticals market by 2010.

BEIJING, Feb 12 (Reuters) - A unit of Bayer AG (BAYG.DE) will spend about 100 million euros ($129 million) over five years to build a research and development centre in Beijing, the company said on Thursday.

Bayer Schering Pharma, a division of Bayer HealthCare, will build the centre, becoming only the third country besides Germany and the U.S. to host a global R&D centre for Bayer Schering, it said in a statement.

China is the third largest market worldwide for the Bayer group. The new centre aims to include Asian patients earlier in global drug development, it said.

"Our goal is to build a world class organization here in Beijing that will lead drug development not only for China but also for other Asian countries," said Kemal Malik, a Bayer Schering Pharma board member, in the statement.

China said last month it planned to spend about $124 billion on health care over the next three years, aiming to improve basic medical insurance, expand local-level clinics, improve the public health system and initiate pilot public hospital programmes.

Foreign health-care firms are seeking to fill a huge gap in China's health care sector that leaves hundreds of millions of people with little or no coverage.

GlaxoSmithKline Plc (GSK.L), the world's second-largest drug maker, said last year it planned to double its R&D staff in China to 350 people in the next few years, as China could become the world's fifth-biggest pharmaceuticals market by 2010.

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.”

By Tracy Staton

You all know what AstraZeneca CEO David Brennan said last week about big mergers: Not for us; we don't need it. So what does it need to do to overcome the litany of challenges that face every drugmaker these days? In an interview with The Economist, Brennan says AstraZeneca will cut costs--he doesn't need a merger to make the company more efficient--plus increase sales in emerging markets. And then there's the good old "boost innovation" goal (isn't that on everyone's list?)

AstraZeneca is in the middle of a big-time cost-cutting plan, and the company announced more layoffs last week to bring the total number of axed jobs to 15,000 over five years. In another move to shrink expenses, AstraZeneca is moving manufacturing to developing countries. China, for instance, which serves Brennan's cost-cutting push and his emerging-market sales goals. It just expanded a factory outside Shanghai, for instance, which will supply drugs throughout Asia now, and aims to export to Europe by 2012 or 2013. In 10 years, one-quarter of AstraZeneca meds may come from China.

The drugmaker, you'll recall, made a big move into China years ago, and it's been building on that presence ever since. It uses tried-and-true pharma sales techniques on Chinese doctors, and it's working; sales there are growing at a faster-than-average clip. In a market where cronyism and kickbacks used to rule, pharma detailing and sales conferences seem like out-of-this-world professionalism, the magazine notes.

We'll let you check the article for Brennan's innovation plans. Hint: They include selective biotech buyouts.