SUZHOU, China – On the eve of a key biopharmaceutical partnering fest – the Chinabio Partnering Forum begins here today – BioWorld Today took a closer look at what it takes for successful dealmaking in the most populous nation on earth. The experts all agree: the landscape for licensing in China is getting more crowded with competitors.

On one hand, Western biotech companies are coming here to execute their China strategies. On the other, Chinese players are increasingly able to in-license assets to meet China's urgent unmet medical needs, such as for diabetes, cardiovascular disease, oncology and central nervous system disorders.

"China is not a do-it-yourself environment," advises Greg Scott, founder of Chinabio LLC and organizer of the partnering conference. "Work with someone in China who knows China. Even if you did India, Japan or Korea on your own, don't assume to know China."

This is often-heard advice, but especially pertinent in the biopharma space given the time-consuming regulatory landscape, costly manufacturing requirement for domestic biopharmaceuticals and risky commercialization environment. Many small to medium size Western biotechs decide it is not worth it to go alone in the beginning. So what do you need to know when mapping your China strategy?

If you are a Western biotech, the good news is Chinese companies are wiling to pay well for the right asset and value a collaborative relationship.

Companies like Sciclone Pharmaceuticals Inc., of Foster City, Calif., Eddingpharm Co. Ltd., in Shanghai, and Lee's Pharmaceutical Holdings, of Hong Kong, have pioneered this path and have done well taking a strategy of licensing the best of the West for China, with others now following suit.

"We are finding we have much more competition when we are looking at international companies with interesting products without a China presence," noted Blobel. "It has gone from few if any local companies are competing, to now quite a lot that are competing and sometimes willing to overpay to get a deal done, although many are not made public."

Local licensees look for more than a great asset, they also look for partnership from a company that will share their technical expertise. Many deals are coming in earlier and earlier, in phase I or phase II, in part when local companies work with a foreign company, Lewis Ho, partner at Dechert LLP, in Hong Kong, told BioWorld Today. "They are looking for an asset, but also continuing support from the originator."

While deal values are still not comparable to the deals in the U.S. or Europe, the game is changing fast and Scott predicted deals values will eventually match Western standards in the next five years.

Scott further cautions that China is not so different when entertaining an offer and some jump in too quickly. "At the top level China is essentially the same process, it is at the next level of detail that things begin to differ. You pick your primary companies and get the best term sheet and do the whole process. Sometimes when people come to China they forget how they do business elsewhere."

WHEN IS THE RIGHT TIME?

The safe bet has been to bring a product already approved in the U.S. or Europe; it likely will have an easier time with CFDA regulators and attract top-dollar from risk-adverse local companies. "Going from scratch, it will take at least six years," Dechert's Ho said, "but if you have a registered product it can go into the market in two to three years; it will be a good revenue stream for the Chinese company looking for new products."

In 2008, according to Chinabio data, 74 percent of the licensing deals were done that way. However this is changing, now "the optimum time to partner is in phase II in preparation for phase III and the stats bear this out," Scott said.

Blobel warned the queuing times have to be factored, adding months to a lengthy process even before applications are seen by the CFDA. "The regulatory process is always slow, but now with the queuing times, things have become slower."

"New products take a long time before you can get on the market to make them commercially important," Bloblel said. "After CFDA approval, if you are doing a really good job you might be commercial in 60 percent of the country within two years but you need a big machine doing the provincial and hospital listing. There are many cases where it is much less than 60 percent after two years."

RISK-AVERSE PARTNERING

Blobel is well positioned to see another trend in the aftermath of the recent corruption investigations. He has found companies are looking to partner their portfolio with firms like Sciclone, with a sales force on the ground, reducing exposure to the risks of the China market.

"Everybody understands the need to have a strong compliance effort and these companies are looking for partners that already have a compliance culture in place," Blobel said. "The question is, will they be willing to pay a little more in fees. I am hopeful that this will turn out the right way."

While companies cannot expect to contract out Foreign Corrupt Practices Act obligations, finding partners can diversify the risk. If a concern arises, Blobel said, "the bigger issue will be faced by the partner, to justify to authorities why they don't have a stronger compliance system in place. In terms of the degree of exposure, this gives multinational companies a little less exposure."

Blobel confirmed that he is currently in talks with companies looking for this arrangement.

PROTECT YOURSELF

Given the complicated regulatory regime, many over rely on their partner according to Ho, who cautioned, "Chinese companies cannot necessarily get you to approval quicker."

He advises clients to keep drug registration in their name, saying it is unrealistic to outsource the registration to local partners. If something should occur and "the relationship turns sour, in future it will be very hard to get back your registration," he warned.

He noted that some companies get hung up on how to work in Asia with a concern that a China partner could hamper a regional deal. His suggestion: Make a provision to allow for signing an Asia deal at a later date so the Chinese partner either becomes the China distributor or receives some profit out of the deal.

SLOW START BUT EXPECT MORE TO COME

While everyone we spoke with for this article is confident there is a lot of licensing activity – seeing it firsthand – public deals this year have been few and far between.

Ho said it is just a matter of time. Many deals seeded at the J.P. Morgan Healthcare Conference, for example, take time to close. In the latter half of this year, he predicted, expect to see a spate of deals signed and announced.