Beyond Borders: Global biotechnology report 2010

“The biggest challenge for Western
companies is to really understand the
local market, including the local culture,
available resources, infrastructure and
Government policies.”
So my advice to companies moving into China is threefold. First,
really do your homework and understand the local market. Second,
tailor your business model to your specific needs and the nature
of the local market. Third, partner with local entities — companies,
governments, and academic and medical institutions — to navigate
the market.
Mazumdar-Shaw: I agree completely that partnering with local
companies has its merits. For example, as national health systems
struggle with containing costs, they will inevitably need to rely
on tender-based procurement from the private sector. But to win
these sizeable contracts, it is important to partner with a regional
company that knows the landscape and can bid much more
aggressively than a big or foreign firm could do on its own.
One other area that is often underestimated is the significant
investment — both in time and money — necessary to establish your
brand in a new market. Partnering with a regional company and
leveraging its distribution network will allow much faster market
entry and bigger gains in market share.
But probably the biggest risk and challenge to any new market,
particularly markets as complex as India and China, is awareness of
the regulatory regime. This may be the biggest benefit in partnering
with a local company that is more adept and up-to-date with the
increasingly changing regulatory landscape in these markets.
Ernst & Young: In the current climate, many Western companies
need new models for raising capital creatively, tapping
alternative sources of revenue and operating more efficiently.
Given that Asian firms have often developed models different
from the typical Western biotech model, what lessons, if any,
could Western firms learn from their Asian counterparts?
28 Beyond borders Global biotechnology report 2010
Mazumdar-Shaw: Western biotechs tend to be dependent on a
very high-risk, all-or-nothing business model funded by VC firms
looking for timely returns on investment. This puts a lot of pressure
on companies to find a path to an exit, because VCs have a limited
investment horizon. Of course, if a drug candidate fails, the
company is often finished unless it can find more funding to go on
to something else.
We can’t afford that sort of operating model in India, because risk
capital is largely unavailable for Indian biotech companies. Our
businesses are mostly debt-funded. A bank isn’t looking for a VCstyle
“exit” — it simply wants you to pay back your loan by managing
risk well and building a sustainable, profitable business. Companies
like Biocon are self-funded — we use revenues from our product
and services to fund our R&D pipeline. So Indian companies have to
carefully manage risk in making R&D choices and determining their
business mix. For Western biotechs, the lesson may be in how you
approach your business model — are you building an investment
opportunity or building a sustainable business?
Jiang: The “standard” biotech business model has served Western
patients and economies wonderfully for decades. Now, we need
to serve the needs of patients in emerging markets. And to do
that, we need new thinking and new business models. Of course,
Western companies should preserve good corporate principles and
bring them to emerging markets, including quality, ethics and legal
protections. But the biggest mistake they could make is coming in
with preconceived notions and doing everything “as usual.”
In the area of talent, for instance, one mistake multinationals
can make is to not fully appreciate and utilize the potential of
local talent. There is always an adjustment period during which
“The ‘standard’ biotech business model has
served Western patients and economies
wonderfully for decades. Now, we need to
serve the needs of patients in emerging
markets. And to do that, we need new
thinking and new business models.”