Fresh Formulas for Growth: Assessing Asia in the New Year

Bruce Liu
Partner
Simon-Kucher & Partners

2023 was not an easy one for many in Asia’s pharmaceutical and biotechnology industry—all the more reason to look forward to the year of the dragon. In this article, we share a few key themes that are already emerging on the horizon.

1. Cross-border deals are riding on strong momentum. The past year saw increasing deal activities between global pharma majors and Asian biotech companies, many in the form of licensing deals. While the typical deal structure features multiple modest and upfront milestones for licensing, the recent deal that Bristol Myers Squibb inked with China biotech SystImmune for a Phase I antibody-drug conjugate (ADC) caught many by surprise. The sizable upfront payment of $800 million underscores the eagerness of the suitor, and may set a new benchmark for the industry.

More remarkably, an acquisition announced by AstraZeneca (AZ) in late December highlights a different approach to Asian dealmaking. Its $1.2 billion offer for CAR-T player Gracell represents an 86% premium over the previous closing. Gracell staged its Nasdaq IPO just two years ago and has since been advancing its leading asset for multiple myeloma and systemic lupus erythematosus. Its stock performance has been lackluster, though—a bargain for AZ’s Asian shopping spree. Unlike other deals, it is the first outright acquisition of a Chinese biotech by a multinational company, and could very well be the harbinger of more M&As across Asia in the new year.

2. Local partnerships are also being tapped toward Asian access and go-to-market. Zai Lab has been an early mover for bringing innovative therapies to Asia, starting out with oncology and recently branching out to neurosciences and autoimmune diseases. It scored a major win recently by securing China’s approval for Vyvgart just in time for the 2023 national reimbursement drug list (NRDL), and made it to the final listing in December without missing a beat. BeiGene, Huadong, Grand Pharma, and CANbridge are among the up-and-comers with similar plays, each with somewhat different focus and strategic thrusts.

Pharma majors are also looking into local partnerships for their mature portfolios. In December, Sanofi entered into a “broad and deep” collaboration agreement with Shanghai Pharma for the bulk of its inline portfolio across cardiovascular, oncology, CNS, and rare disease franchises. While cost optimization appears to be a main consideration, it may very well give a new lease on life to many of the off-the-patent originator drugs, so they can indeed go broader and deeper across the vast market.

3. Underlying the buzzing deal scene is the call for a new modus operandi in Asia. Indeed, while Asia represents an increasingly key driver for growth and innovation, it also features a high level of complexity, especially in terms of the access environments and competitive landscape. Success in the market requires a holistic and coherent approach combining differentiated portfolios, winning access strategies, and effective go-to-market approaches.

More importantly, there is no guarantee that yesterday’s formula will work in the future, given the dynamic changes across the healthcare value chain in Asia.

On the provider front, the ongoing payment model shift from fee-for-services to a prospective payment system has been seen across many markets. China, for example, has launched its own version of a diagnosis-related group (DRG), forged ahead with regional pilots, and aims for national rollout by 2025. This will bring fundamental changes to hospital-funding flow, as well as access, reimbursement, and buying behaviors for pharmaceuticals, as it will become a cost item and come under increasing scrutiny and cost pressure.

At the same time, there is growing empowerment among patients and caregivers alike, enabled by more readily available information and knowledge, more vocal patient advocacy and support, and more choices of products and channels. Among the new channels, telemedicine and digital healthcare platforms have been mushrooming, with frontrunners such as JD Health, Halodoc, and Lybrate blazing the trail and netting millions of users beyond traditional reach. The sheer size and volume, combined with the use of artificial intelligence, machine learning, and big data, affords unprecedented opportunities for real-time insights, tailored offerings, and customer intimacy.

More deals and partnerships are on the way, but they are unlikely to be the answer to everything. Instead, in-depth understanding of the structural shifts, strategic foresight to navigate the changes, and the openness to experiment and innovate could be the key toward a market-fit and future-proof positioning in Asia.

Justinian Liu in Simon-Kucher’s China Life Sciences division contributed to this article.