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Feb 21, 2012

Pfizer Sets Up Joint Venture With Zhejiang Hisun Pharmaceutical

  • Pfizer’s announcement of a framework agreement with Chinese-owned Zhejiang Hisun Pharmaceutical shows just how serious the pharma giant is about raising its presence in the world’s second-largest economy. On February 17, Pfizer said it would invest $250 million and hold a 49% minority stake in the joint venture, which will develop, manufacture, and commercialize off-patent pharmaceutical products in China and global markets.

    The 51% majority share will be held by Hisun, which is pouring $295 million into the JV, to be called Hisun Pfizer Pharmaceutical. “Both parties could contribute selected existing products, manufacturing sites, cash, and other relevant assets after the joint venture is formed,” Pfizer says.

    An unidentified Pfizer spokesman, apparently asked how the Hisun joint venture fits into the company’s overall China strategy, offered this among answers to questions from Reuters: "We are exploring business development opportunities including partnerships with local companies that allow us to successfully expand into the generics segment of the market."

    Jason Mann, head of Barclays Capital's China healthcare & pharmaceuticals unit, told Reuters that the JV would benefit Pfizer because Hisun was a leading producer of active pharmaceutical ingredients. "There is a shortage of top-quality API manufacturers in China. India is a larger base of API manufacturing than China, but Chinese regulations and tax law favor drugs manufactured in China. So Chinese API can help penetrate the Chinese market in a more cost-effective way," Mann told the news agency. For Hisun, it's the prestige of working with the largest, leading pharma company in the world, he added. "Also the chance to gain technological and management know-how through the JV. This is a win-win arrangement."

    Pfizer hopes to build on recent success in China, where the company finished 2011 with an 18% increase in operational revenue growth, CEO Ian Read told investors on the January 31 conference call. As with Merck & Co. and other big pharma companies, Pfizer has been targeting China among emerging markets. It foresees growth in 2012, along with Brazil, Russia, India, Turkey, and Mexico.

    For Pfizer and the rest of big pharma, China’s attractions include much lower business costs, especially in manufacturing, and its growing population of researchers. Pfizer’s English-language Chinese website, which sports the slogan “Working Together for a Healthier China,” offers some details: Since establishing a presence in China in 1980, Pfizer has invested about $1 billion in business activity that has grown to two R&D centers (in Shanghai and Wuhan), eight manufacturing plants (in Salian, Suzhou, and Wuxi), and business operations in more than 200 cities with more than 9,000 employees.

    Pfizer’s success in China is not immediately apparent from a reading of the most recent emerging markets results, which did not furnish detailed China numbers. Revenues showed some weakness during Q4 2011, dipping 4% to $2.264 billion from the year-ago quarter, dragged down by foreign exchange, pressure by governments to contain prices, and nation-specific issues like changes in institutional purchase patterns in Turkey and Brazil, a currency devaluation in Venezuela, and the loss of patent exclusivity of Lipitor in Brazil and Mexico in 2010.

    But while biopharma revenues in emerging markets dipped 2% year-over-year to about $950 million in Q4 2011, biopharma revenues grew 6% to $4.2 billion for all of 2011. And Read labeled China, along with Japan, among “key markets” where Pfizer enjoyed “strong operational growth.”

    Also significant was the timing of the framework signing, which occurred during the U.S. visit of Chinese Vice President Xi Jinping at the Sino-U.S. Economy & Trade Forum in Los Angeles. Since his elevation to VP in 2008, Xi has been speculated to be the successor to President Hu Jintao. That speculation has increased during Xi’s U.S. trip, described by the Guardian newspaper as a “get-to-know-you” visit with President Barack Obama and other U.S. notables.

    --
    To read the Reuters report, click here.


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