More innovation in Pharma

There's been tremendous innovation in China's pharmaceutical industry with both multi-national drug as well as local companies keen to step up research.

Outsourcing to contract research organizations in China has been a key driver of the changes in the pharmaceutical industry here. And now that trend is extending beyond research services.

Mark Lotter, CEO of Novamed said "Companies no longer are seeing the need to extract value internally across the entire value chain. And so the concept of outsourcing has started to gain a high degree of traction."

Novamed partners with and shepherds companies through the often-difficult drug development process. It offers everything from the testing of new drugs to the promotion of these drugs to Chinese hospitals.

Mark Lotter said "We've chosen to focus on the drug development area. Essentially, we look to target companies already in the development cycle. We'd look at doing part of the development in China. We've also selected to facilitate development in other emerging markets, like South Africa, where you would have the Caucasian subset, which would be very important for the global file development."

Arthur Mok, Partner of Hogan & Hartson said "I think there's a great opportunity here to actually build a new model, a new paradigm, a new pharmaceutical business here. In China, the real advantage is we're really in the first or second chapter of a long story of evolution. So China can leapfrog beyond some of these legacy aspects that have held back large pharmaceutical companies, and learn to be more adaptable. Probably be more of a virtual pharmaceutical company based sector than you would see in Europe or North America."

Analysts say the virtualization of pharmaceutical companies will continue as more firms focus on what they're good at and leave the rest for someone else.

As local pharmaceutical companies grow, many have turned to venture capitalists to help expand their businesses. VC investment in life sciences was up 400% in 2007, year-on-year. Nisa Leung is a partner at Qiming Ventures, one of the most active investors in the Chinese healthcare industry. She explains where their focus has been.

Nisa Leung, Partner of Qiming Venture Partners said "We're looking at two prongs. One is the domestic market--distribution, sales, and possibly new drugs as well, development, though they're far and few in between. Another area that we're very interested in is the export contract manufacturing, which has only really just begun."

When asked about the number one issue affecting healthcare in China, she replied government regulations.

Nisa Leung said "Because the regulations are constantly changing, it's a little bit different from the US. So it's still a little bit difficult for people to put their hands on what are the right areas to invest in. What if policy changes tomorrow. So not only in pharmaceutical, but also in healthcare services, which we also invest in, including hospitals, specialty clinics, or medical devices."

Industry analysts cited a number of other issues that needed to be resolved in the Chinese pharmaceutical industry.

Mark Lotter said "One is you need to attract the talent into China. The second is you need to provide the right environment. So whether that's incentive-based or infrastructure-based, one has to invest. And that's very much a role that government would play in China. And then most probably, the last and important issue, in terms of driving this concept of innovation is the issue on protecting the innovation that's created."

Most industry experts believe the IP environment has improved, driven by a domestic pharmaceutical industry that wants to protect its own intellectual property.

And in regards to the talent issue, Suzhou-based BioBay, a government-backed biopharmaceutical park, has sponsored programs linking academia and industry together. The goal is to boost the pool of scientists that are trained in a commercial setting.

Liu Yuwen, General Manager of Biobay said "We are encouraging the collaboration between the industry players with the research institute and universities. For instance, there are some joint-invested/operated technology platforms between the local university, like Suzhou University, and some other university from Nanjing, for instance Nanjing University, and local company."

One industry veteran said innovation didn't necessarily come from being able to do good science. Instead, he said it depended on having people that could inspire and lead to the next innovation.

The influx of Chinese returnees, the growing number of local entrepreneurs, the introduction of foreigners with years of industry expertise. They are all helping move China towards innovation.

And they all seem to be pointing to China as the setting for the future of the pharmaceutical industry. Whether that happens remains to be seen. But if it does, given how fast the industry has already changed, it will probably happen faster than anyone expects.