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When Borders Break Down

The new generation of Asian Biotechnology industry

George Yeh, General Manager, Taiwan Liposome Company

The pharmaceutical industry is in a nascent stage of globalisation in terms of drug development, where a few big names still reign. . Yet an increasing trend of transnational partnerships is seen to be formed to deliver value arbitrage through leveraging cost arbitrage. How the Asian biotechnology companies take advantage of this trend has become the vital topic for all managers involved.

“Globalisation” is, without a doubt, the buzzword across the board in today’s society; coupled with the many benefits brought about by the disappearance of country borders, globalisation also presents new challenges to entrepreneurs across the world.

The Information Technology industry has already experienced the globalisation process. Leading Asian PC companies Acer and Lenovo chose to merge with internationally renowned companies Gateway and IBM to become the third and fourth largest global PC makers respectively. These Asian IT giants found a way to break down the borders and successfully thrive in the international arena The Asian biotechnology industry is about to face a similar challenge.

The pharmaceutical industry is in a nascent stage of globalisation in terms of drug development, where a few big names still reign, with the CROs (Contract Research Organisation) and CMOs (Contract Manufacturing Organisation) becoming more speed as well as cost-driven. Yet an increasing trend of transnational partnerships is seen to be formed to deliver value arbitrage through leveraging cost arbitrage. How the Asian biotechnology companies take advantage of this trend has become the vital topic for all managers involved.

There are some obvious benefits that Asian countries can obtain from this globalisation warfare. One that can be applied across all industries is cost competitiveness due to relatively low labour costs. The cost of conducting development and clinical trials in Asia is about 70 to 80 per cent cheaper than that of the US. Moreover, due to its large population, locating volunteers for clinical trials becomes faster and easier in Asia, resulting in shortenned clinical trial time, and subsequent cost reduction.

There are also some market opportunities available in the Asian countries. Since most of the drugs are developed by Western Pharma with particular attention to the diseases more commonly seen in their society, diseases which are rare in the US or Europe but common in Asia often lack attention and treatment. Therefore, it opens up business opportunities for Asian biotech companies to develop drugs for target diseases such as Hepatocellular Carcinoma, (HCC) and Nasopharyngeal Carcinoma (NPC), where 70 per cent and 90 per cent of the patients respectively are located in Asia..

Besides the above mentioned strengths and opportunities, there are also a few major hurdles that Asian biotechnology companies must overcome and these can be discussed in three facets: technology, regulation and investment environment.

One of the most fundamental problems Asian biotechnology companies have, lies with their lacunae in drug development abilities. There are very few local professionals equipped with adequate knowledge and experience, especially from pre-clinical to clinical phase, which means the proof-of-concept cannot be carried through. Consequently, Asian companies end up making a lot of me-too drugs, with little to no technological breakthrough.

Furthermore, the regulations set by the government also hinder the advancements of biotech companies. This is partially related to the problem of not having enough professionals with adequate practical experiences in the drug development process. Thus when it comes to establishing regulations, the government officials who although are renowned academicians, lack the ability to set regulations that are practical to the biotechnology companies. As a result, the reviewing process is prolonged, and the regulations are outdated.

Another big problem with the regulatory environment in Asia is the lack of Intellectual Property (IP) protection. This not only poses problems in the digital content industry which the public is more aware of, but is also a big problem for biotechnology companies around the world. Without effective enforcements on IP rights protection, biotechnology companies are reluctant to devote resources into drug development, fearing that their efforts will soon be easily and legally duplicated with slight modifications by fellow companies. This factor, coupled with the lack of drug development veterans, further hindered the Asian biotechnology companies’ ability to come out with new drugs and make impressive technological advancements. In addition, it also prevented foreign biotechnology companies to set up research and development facilities in Asia.

Combining all the above factors, it is not hard to understand why venture capitalists may be reluctant to invest in local Asian biotechnology companies. The product development process for biotechnology industry is much longer and more resource consuming than most of the other industries, and a lot of the investment is to be made upfront, with little or nothing to show for in terms of results. The venture capitalists therefore are more inclined to invest in the North American or European biotechnology companies where there is a much more developed exit strategy, and less risk for the money they’ve invested.

To overcome the above mentioned challenges, efforts are required from both the government as well as the private sector. The government has to create a better macro-environment, within which the biotech companies can then make efforts on a micro scale, specific to their own positioning.

In order to create a healthy yet competitive environment for the Asian biotechnology industry, the government should first enhance their IP right protections to ensure that the research and development efforts of all the biotechnology companies are well protected. Thus it is important for the Asian countries which are still lagging behind in terms of IP protection concepts to start treating the problem with more determination. The formation of WTO (World Trade Organization) also acted as an outside force in driving countries with weaker IP concepts to take aggressive actions towards solving the problem.

A well-regulated environment will therefore be more effective for governments to lure in foreign resources, especially in the form of human resources, to help overcome the lack of enough experienced industry veteran The government can create a favourable environment by offering tax deduction and / or subsidies to induce foreign companies in setting up research and development centres. In order to make sure the experience and know-how of these foreign companies can be effectively transferred to the local people, apart from offering financial incentives, the government must also develop a plan to educate the local people adequately so that they are able to fit into the role. Moreover, the government should ensure that local people are being placed in positions where they are able to learn by enforcing this requirement as part of the mandatory conditions for applying subsidies. This could eliminate the possibility of having foreign companies taking it all, while the local industry fails to benefit.

Besides the efforts put in by the government, the private sector can also adopt some strategies to help them to better survive the game. One of the most fundamental strategies a company can take is to capitalise on its existing strength. As previously mentioned, cost competitiveness is the biggest advantage Asian biotechnology companies have over the US and European competitors. Other than having the government provide financial incentives to lure in foreign resources, biotech companies can also establish links with the global arena by means of becoming the outsourcing partner of their American and European counterparts. This is how a lot of Asian IT tycoons started. By working as the outsourcing vendor, the know-how can be learned through the process, thus bringing local professionals up to international standards.

Another strategy that the Asian biotechnology companies can adopt is leveraging overseas Asians. 12 per cent of biotech professionals in the US are Indians, and the number of Chinese scientists working in the biotech industry abroad is also undeniably large. These professionals were trained along with other foreign professionals, thus developing similar abilities and accumulating equal experiences. Moreover, they have a sense of belonging towards their respective motherland, and are generally more willing to contribute back to Asia than foreign companies based in Asia might. Therefore, if the government can help establish an environment that is favourable for these professionals to return back to, and offer a complete plan to settle them down along with their families, these overseas veterans will be an immeasurable asset to the Asian biotechnology industry.

However, if these overseas veterans insist to stay abroad, Asian biotech companies can also utilise them to set up companies abroad in a more matured investment environment. This would pose a much more attractive investment option for venture capitalists since they’ll be investing in a multinational company with offices in the US / Europe and Asia that is covered by a more developed exit strategy, instead of just investing in an Asian company where risks can be high.

It is important for both the Asian government as well as the biotechnology companies to realise that the biotechnology industry is a form of “science plus business”, with the fundamental element being the science and not the business. Asian countries tend to exercise business models that may be applicable for traditional industries in hope to find a route to success in the biotechnology industry, but they failed to recognise the importance of science and technology. With borders breaking down and globalisation spreading fast, Asian governments should play a pro-active role in setting suitable regulations, establishing an attractive environment for foreign biotech companies, and creating a favourable capital market in order to facilitate the development of the industry.

Asian biotech companies should also think about their market positioning in the global arena. Entrepreneurs should concentrate on how to capitalise the current strengths and opportunities into setting up a competitive company with clear sense of direction and positioning to attract more investment, preferably from foreign resources. Moreover, creating a company culture that is favourable to the research and development scientists is also vitally important. This would not only help to retain valuable employees, but would also raise morale and produce better R&D results, because after all, only successful science could lead to successful business.

In the face of globalisation, Asian government and biotechnology companies must work together in synergy while doing their respective duties diligently to survive in this competition, so that when borders break down, the Asian biotechnology industry is ready to play.

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