Riding on booming drug sales, AstraZeneca forms $133M China joint venture

AstraZeneca is doubling down on China, which represents a fast-growing market for the drugmaker, by establishing a new drug development joint venture with a state-backed private equity firm.

The new company, Dizal Pharmaceutical, will be owned equally between AstraZeneca and the Chinese Future Industry Investment Fund (FIIF), which is managed by private equity firm China Sate Development & Investment Corporation (SDIC) Fund Management Company, one of the largest PE funds in China that manages over 60 billion Chinese yuan ($9.1 billion) of capital.

According to business information registered with the Chinese government, the new company has a capital of $132.5 million and is located in the city of Wuxi, where AstraZeneca stations a supply facility, an R&D and production base for innovative small molecules.

RELATED: GSK to shutter central neuroscience R&D hub in China

Under the deal, AstraZeneca will transfer the R&D capabilities of its Innovation Center China (ICC)—one of AZ’s four R&D sites, responsible for the Asia-Pacific area—to the JV, including exclusive rights to three preclinical drugs in oncology, cardiovascular and metabolic diseases and respiratory. FIIF will provide funding and expertise in establishing strategic partnerships in China.

ICC chief Xiaolin Zhang will become Dizal’s CEO, and all ICC staff have been invited to join the new company.

The news came just a few months after GlaxoSmithKline ended its neuroscience research center in China, leaving only the development capabilities behind, and as Eli Lilly shuttered its R&D center in the same area in Shanghai.

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Such a team-up model means that the entire scientific knowhow comes from AstraZeneca, and it is not often seen in China. Licensing and M&A deals aside, such joint ventures are usually formed between two biopharma companies. For example, the Chinese JV fellow Big Pharma Pfizer just pulled out of was formed with Zhejiang Hisun Pharma; Fosun Pharma also has an ongoing JV with Kite Pharma to develop CAR-T products in China, including recently FDA-approved axicabtagene ciloleucel; Teva, after basically being pushed out of a JV with Kunming Pharma, was said to be looking for a new JV with Guangzhou Pharma.

AstraZeneca suffered greatly from exclusivity losses of Crestor and Seroquel XR in its most important market, the U.S., whose sales for the first nine months of 2017 dropped 23%. European sales for that same period also dropped 6% at constant exchange rate, and Crestor’s European patent is also slated to expire next year. China, on the other hand, delivered 10% growth on CER. The country’s $2.14 billion revenue now constitutes 15% of the company’s total sales.

Besides quick approval of Tagrisso in China, the British pharma recently got five products—Onglyza, Iressa, Brilinta, Faslodex and Seroquel XR—onto China’s National Drug Reimbursement List, meaning the Chinese government will help patients cover their costs. During the third-quarter earnings call, CEO Pascal Soriot named the enlistment alongside launching of seven new products as two “big growth” drivers that could deliver for the company’s top line.

“By joining forces with the FIIF, we aim to accelerate the local discovery and development of innovative, affordable medicines for patients in China and around the world,” Soriot said in a statement.

Massive regulatory changes recently spearheaded by the Chinese government are widely considered a new boost for the country’s pharmaceutical market, which is already the world’s second largest. Foreign drugs are expected to enter the country in larger scales in the future, a trend that biopharma companies like AZ are likely to capitalize on.