Pharmaceuticals

Tue, 06/24/2008 - 18:02

Shanghai. June 23. INTERFAX-CHINA - Within a year of issuing its initial public offering (IPO) on the New York Stock Exchange, Simcere Pharmaceutical Group (Simcere) acquired controlling stakes in three other Chinese companies in a series of rapid moves that turned even those heads accustomed to the booming Chinese market. Interfax pinned down Frank Zhao, Simcere's chief financial officer, to ask him about the company's plans for the future.

"We have people around the country identifying potential targets for our next acquisition," Zhao said. "We will definitely see more mergers and acquisitions in the near future. We intend to use [the remaining funds from the NYSE IPO] to acquire more domestic companies."

In April 2007, Simcere became China's first bio-pharmaceutical company to issue an IPO on the New York Stock Exchange. The funds raised by the IPO came to $226 million.

In the following September, Simcere kicked off its wave of purchases by getting hold of a 51 percent stake in Jilin Boda Pharmaceutical Co. Ltd, Simcere's sole competitor in the Chinese market for edaravone injection. Through the acquisition, the company became the sole manufacturer of edaravone injection in China, a market which is exhibiting rapid growth.

The next two acquisitions were both companies that produce successful anti-tumor drugs that were not in Simcere's product portfolio. With the purchase of all shares in Hong Kong Wanfu Xingye Co. Ltd., Simcere picked up an 85.71 percent stake in Nanjing Dongjie Pharmaceutical Co. Ltd., one the fastest growing anti-tumor drugs manufacturers in China. A survey conducted in 2006 showed that Dongjie Pharma held more than 80 percent of the domestic market for nedaplatin injections.

Simcere also acquired a 70 percent stake in Wuhu Zhongren Pharmaceutical Co. Ltd., owner the first fluorouracil implant product approved for use in China, Sino Fu'an.

Last year was a bumper year for the large number of Chinese pharmaceutical companies who invested in a bullish stock market, fueling concerns that playing the stock market would become too strong a crutch for Chinese drug makers, which are generally acknowledged as spending too little on new drug research and development.

According to Zhao though, Simcere is not just investing in any good opportunity it sees coming along, but is buying into companies with distinct goals in mind. "We are trying to broaden our range of products and plan to launch a new product every year," Zhao said. "But, we are mainly concentrating on first-to-market new drugs and innovative new drugs, either by growing our product pipelines, or by acquisitions."

"We want to make use of the advantages currently available in China, such as lower pre-clinical and clinical trial costs, to carry out the basic or early stages of new drug research and development," Zhao said.

Construction commenced in Shanghai last week on the company's third R & D center. So far, Simcere Pharma has two R & D center in Beijing and Nanjing with around 150 researchers.

Zhao said that he sees Simcere's approach to growth as a foretaste of what's to come in the Chinese market over the next decade.

"There are approximately 4,500 domestic pharmaceutical companies in China. However, as the State Food and Drug Administration introduces increasingly stringent supervision regulations, survival will become increasingly tough for small-scale manufacturers of generic drugs," he said.

Western pharmaceutical industries are characterized by a dominant company dwarfing the rest of the industry. The United States has Pfizer, while in the United Kingdom GlaxoSmithKline (GSK) rules the roost. Merck overshadows all in the German market and Sanofi-Aventis is its equivalent in France, Zhao said.

"The same will happen in China; a breed of Chinese pharmaceutical titans that occupy large market shares in various fields will emerge," Zhao said.

Simcere Pharma is a manufacturer and supplier of branded generic pharmaceuticals in China. In 2007, the company generated sales revenue of RMB 1.39 billion ($201.45 million) and a net profit of RMB 301 million ($43.62 million).