Only 50 percent of China’s population is urbanized, which means the pace of change over the next decade is likely to be colossal. Its already one of the largest and fastest growing pharmaceutical markets. But it also can be one of the most challenging for alliance managers to negotiate because of the cultural differences.
Eli Lilly and Company is known for being one of the first—and most persistent—pharmaceuticals to make inroads into China. The company began with an R&D partnership with Shanghai-based WuXi App Tech in 2003. Last year, the companies entered into a significant strategic collaboration for a new project as part of a global program.
For Brent Harvey, CA-AM, director of alliances at Lilly, the test tube is clearly more than half-full when it comes to doing business in China. “How do we leverage the difference between our two companies or cultures for competitive advantage?” he asked during the session “A New Model for Western and Chinese Pharmaceutical Partnering,” at the 2016 ASAP BioPharma Conference “New Faces, Unexpected Places in Partnering: The Foresight to Lead, the Foundation to Succeed” held Sept. 7-9 at the Revere Hotel Boston Common, Boston.
Assisting with the presentation was Zhihui Qiu, Director of Strategic Transactions, at WuXi App Tech (Shanghai) Co., who shared her company’s perspective. The two company representatives discussed their approach to resolve cultural differences, cut government red tape, and extract long-term value from the partnership. They provided several valuable tips gleaned from the experience:
Harvey: We typically manage the IP at the mother ship. But we also have local counsel. It is so hard to keep track of what’s going on there, so it’s important to have that local presence.
Qiu: IP is receiving increasing attention in China. Dedicated IP Courts were established in China earlier this year. In the United States, you tend to have very good IP management. In China, it is not a big practice yet. You probably need local help and US counsel to work together to make sure you are protected.
Harvey: We try to de-risk as much as we can in the contract. We tend to view it as definitive, while the Chinese view it as general guideline. When I think about Western trust, it’s someone who honors his or her word. In China, this perspective is about honing change in mutualities. Chinese people want to stay practical. They don’t want to rewrite their contact.
Qiu: Contacts tend to be simple and boilerplates are greatly simplified. As the relationship evolves, the contract may be replaced by a new one to better serve the purpose.
Making the Deal
Harvey: It’s very important to have high-profile executives helping to build trust and social capital. In Western culture, the deal is the deal, and we would probably celebrate it by going to a bar.
Qiu: We might celebrate the major deals with a ceremony. The government is trying to foster and build innovation in pharma industry, and we would invite multiple government officials and key opinion leaders to the ceremony to raise their awareness.
Planning and Team Meetings
Harvey: Time zone differences can be challenging; use a lunar calendar because holidays will change. It’s very important to have actions and decisions clearly documented in meeting minutes. The Chinese have a different approach to planning with optimistic and aggressive milestone dates. It has benefitted Lilly to be stretched and pushed by aggressive Chinese firms. Relationships are important, but there is a lot of turnover in Chinese firms, which is something you should be aware of going in.
Qiu: Chinese company power is more centralized, which allows the Chinese to push. Our teams are Western educated; the English is really good, which helps a lot with communications. You won’t need translators. Face-to-face meetings are important.
Harvey: China issued a new policy to allow biotech companies to hold product licenses. Manufacturers used to be the only ones who could hold the license. Things change so quickly in China, and you need to think about how you are staffing your alliances to be agile and adaptable in this very, very dynamic environment.
Qiu: New drugs used to be produced by the multinationals, and domestic companies didn’t have the capability for innovation, but that has changed in the last 10 years. A government agency set prices incentives for innovative drugs developed by domestic companies.
Harvey: It took a lot of conversation, the documents were in Chinese, and requirements needed transcription. It took a lot to engage the expertise of Lilly’s Shanghai and Beijing offices. It was not easy to figure out what we needed to do to have an acceptable package.
Qiu: You need local people who truly understand regulatory affairs in China. Your approach depends on what route you are going and the specific goals you are trying to achieve.