Foreign giants eye domestic drug market

By Chen Yang

As the domestic drug market expands due to healthcare reform and increased government spending, foreign brands are looking to make large investments in everything from research and development to production in China.

Switzerland-based Novartis, a leading pharmaceutical company, announced Tuesday that it had signed an agreement with Zhejiang Tianyuan Bio- Pharmaceutical, one of China's largest private manufacturers of influenza vaccines, to acquire 85 percent of its stake.

The deal needs to be approved by the Chinese regulator, and financial details of the acquisition were not disclosed at Tuesday's press conference.

"We will provide a series of vaccine products to help Chinese people avoid lethal illnesses and improve their quality of life," said Daniel Vasella, chairman and CEO of Novartis.

"We hope our cooperation will bring the latest products to Chinese people, and our company will be able to go global," said Ding Xiaohang, founder and CEO of Tianyuan.

Currently Novartis, the world's fifth largest vaccine producer, only has influenza and hydrophobia vaccine operations in China, the world's third largest vaccine market with a yearly sales amount of $1 billion. Tianyuan, meanwhile, is one of the eight Chinese companies that has received permission to produce the A (H1N1) vaccine.

Novartis also said it would invest $1 billion to expand its research and development center in Shanghai over the next five years.

Novartis' global sales amounted to $41.5 billion in 2008, and Novartis China's sales reached 4 billion yuan ($586 million) last year.

Vasella told the Global Times its Chinese business experienced an annual growth rate of 30 percent in 2008, and they aim to make China one of their top three markets within five years.

As China's medical industry is seeing 20 to 25 percent annual increases, other pharmaceutical giants such as France's Sanofi-Aventis and Germany's Bayer are also optimistic about China's increasing demand for healthcare.

Sanofi-Aventis announced in October that it would build a joint venture with China's Minsheng Pharmaceutical Group, focusing on vitamins and mineral-based medicines.

In 2007, Bayer spent about 1.2 billion yuan ($176 million) to acquire Chinese brand White & Black, an over-the-counter cough and cold medicine producer.

Li Zhenfu, president of Novartis China, said foreign companies' mergers and acquisitions of Chinese companies would not have a negative impact on the country's medical industry, and it could help Chinese companies gain international experience.

Domestic pharmaceutical firms have advantages in human resources and sales, so acquiring or cooperating with local companies is a safe and efficient way for global giants to expand their business in China, said Guo Fanli, an analyst at Shenzhen Zhongzhe Investment Consultants.

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