Pharma Partnering: Two Views From China

By Gail Dutton, Contributing Writer
Follow Me On Twitter @GailLdutton

Partnering locally makes sense when it comes to gaining acceptance in new regions. Sometimes, it’s even a requirement of doing business there. Naturally, any potential partners must be vetted, but when working in regions that lack a history of pharmaceutical regulation, local partnering can be fraught with peril.

China is a good example. HUYA Biosciences International and SciClone both are China-focused companies. HUYA has searched out innovative Chinese products since 2004, working closely with universities, research institutions, and young companies, maintaining operations in eight cities — Shanghai, Beijing, Guangzhou, Hangzhou, Shenzhen, Chengdu, Wuhan, and Taizhou. SciClone has worked with Western companies to bring innovative medicines to China since 1996, cultivating relationships with hospitals and key opinion leaders. Although these two organizations see different sides of the business environment, they both stress that China is changing rapidly and has many opportunities. “There are a lot of attractive things about China,” says Friedhelm Blobel, Ph.D., CEO at SciClone.

Improving Research Quality
Since HUYA entered China, the company has seen the quality of research improve. “The fact that our compounds come from China doesn’t make them any more risky,” says Curtis Tyree, VP of operations at HUYA. “Independently testing the molecule is a critical point. We have a due diligence process that is frankly skeptical. There are several examples of compounds in China that have gone head-to-head in clinical trials with those outside China with comparable or superior results.” HUYA in-licensed HBI8000, a novel HDAC (histone deacetylase) inhibitor, just before it entered Phase 1. Tyree calls it ”one of the first truly novel Chinese drug discoveries to enter U.S. clinical trials.” The number of successful, international-quality compounds is not yet at Western levels, but it is growing.

From the Chinese perspective, Western companies offer the expertise that makes their programs more attractive globally. For example, HUYA may suggest experiments or models the local researchers may not be considering that can make their work more attractive internationally. “In discussions with our global partners, we’ve learned the gold standard models,” Tyree says. “If the Chinese group doesn’t have access to that model, we may know someone in China running it already, because we maintain ongoing relationships with investigators.”

In China, as in other emerging markets, conventional wisdom advises partnering with companies with international experience. But, for companies bent upon accessing innovation, that’s not always possible or practical. Increasingly, small Chinese companies are developing innovative products. Those companies, however, don’t necessarily have the expertise or understanding of the international regulatory environment needed to deliver quality products. “In manufacturing, you have to be careful that they truly have the experience to manufacture to GMP standards. They call many things GMP that do not qualify in the Western sense,” warns Blobel.

A Challenging Regulatory Environment
Because the government has a vested interest in building an international-quality pharmaceutical industry, it periodically cracks down on non-GMP manufacturers. That can be considered one of many growth pains of an industry that is evolving virtually from scratch. Another is the unpredictability of the SFDA (State Food and Drug Administration). For example, some biotech executives who have gained agreements with one SFDA official have seen those same agreements altered dramatically by the next person to fill that position.

That said, the SFDA is progressing closer to Western standards. Unfortunately, that increasing harmonization means the regulatory framework remains fluid. Approvals for products already commercialized in the West may take three to five years to gain SFDA approval, Blobel adds. Regional governments also have great power. “They’re like different countries, to a great extent. There are some overarching rules, similar to the situation in the EU, but those can change very quickly.” Therefore, collaborations with organizations that understand the local business environment are critical to success in China.

Meanwhile, the government is providing substantial funds to support its scientists and research institutions. Indirect access to Chinese government funding is one of the benefits of partnering with Chinese companies.

Overall, according to the World Bank, China devoted 1.4% of its gross domestic product (GDP) to R&D in 2008. In 2011, however, China listed biotech as a developmental priority and China pledged to invest 2 trillion yuan ($318.5 billion at current exchange rates) — approximately 2.8% of its estimated 2011 GDP — on science and technology through 2016. Because of these resources, Chinese R&D projects are generally well-funded, well-equipped, and well-advanced when international companies begin licensing discussions. Consequently, the risk associated with specific projects is reduced.

A Different Kind Of Intellectual Property
“IP is still a very special topic in China. There, they have a different understanding than the West of what constitutes IP,” Blobel cautions. IP laws also are in flux. As Chinese companies are becoming innovators, the government sees an incentive to strengthen IP laws and their interpretation in an effort to protect the country’s intellectual investment both domestically and internationally. Nonetheless, Blobel says, “It’s not unheard of for a group of employees to leave, open a business, and file your patents first.” Be cautious, he advises.

The Key Is The Relationships
In view of such cautionary messages, it behooves potential partners to have a long courtship, working together on small projects before taking on the risks of larger, more formalized collaborations. Traditionally, businesses in China have been built upon the strength of relationships, because the force of law was unavailable. Although a legal framework is improving, the role of relationships remains strong. Because they are so important throughout Asia, they take longer to develop than in the West. The relationships HUYA began forging in 2004 are coming to fruition today, eight years later. So far, the company has in-licensed four products.

HUYA’s embrace of Chinese-style relationships sets it apart from many organizations that focus strictly upon particular development programs. “We keep relationships, even if we can’t license anything from them this year,” Tyree emphasizes. By forming patient relationships with institutions and individuals, the company tries to help researchers’ programs advance over time.
In return, HUYA gains the rights to license the potential products outside China, while the innovator retains domestic rights. The relationship also figures in the due diligence process, ensuring that questions regarding data aren’t left unanswered. That attention to detail minimizes misunderstandings that otherwise can doom potential partnerships. 

Because of its ongoing relationships, HUYA often gets the first look at promising projects, enabling it to match its database against the needs of some of its multinational partners. Consequently, some large pharmas have gained innovative compounds, and some Chinese start-ups have been able to advance their work beyond their internal capabilities or HUYA’s interests.

There’s another benefit, too. Because the Chinese version of the products usually advances faster than the international version, risk is lowered for products with a global market focus.
On the flip side, at SciClone, “We become interested in partnering once a company has some interesting assets or approvals in the West and is considering bringing them to China,” Blobel says. Doing so involves conducting clinical trials at some of China’s leading hospitals. In the process, SciClone has forged good relationships with key opinion leaders who have participated in trials for particular drugs and are convinced of their efficacy. “Without them, there’s no chance of success.”

Minimize Your Chance For Corruption Charges
The commercial culture in many emerging regions, including China, is different than in the West. Partnering with organizations that understand the culture is an obvious advantage. Unfortunately, it also has a dangerous aspect.

“For many, business is still done with red envelopes [i.e. monetary gifts],” Blobel observes. Regardless of the local custom, American organizations and their international partners must adhere to the Foreign Corrupt Practices Act (FCPA). Additionally, if they have any business dealings in Britain, they also must adhere to the United Kingdom’s Anti-Bribery Act. What is considered a usual business practice locally may be considered a facilitation payment under the FCPA and a bribe under the Anti-Bribery Act.

Minimizing the risk of corruption charges from either of those acts requires training partners’ staffs as well as your own, with rigorous follow-up to ensure the training is understood and implemented and that the consequences of not complying are thoroughly comprehended.

Partnering in China can be a very profitable, worthwhile endeavor for organizations with the patience to understand the business environment and the tenacity to endure rapidly changing regulations (along with a host of other risks and vagaries inherent in building an industry). Remember that, above everything else, in China, relationships matter.