The Right Prescription: Marubeni’s Fobeni JV Helps Japan Pharma Crack Massive China Market
TOKYO – Ensuring compliance with fast breaking regulatory changes – while also building up business. Couple that with an industry that directly affects people’s health. Now throw in a foreign language, different business customs and an unfamiliar culture into the mix.
That’s an inkling of the issues facing Japanese pharmaceutical makers trying to break into or break out in the massive and rapidly expanding Chinese drug market, while their European and U.S. rivals move to expand on their already sizable foothold in the world’s No. 2 pharmaceutical market by revenue.
A joint venture between Japanese trading company Marubeni and Chinese healthcare giant Shanghai Fosun Pharmaceutical Group seeks to improve that dynamic by partnering with Japanese firms. Started in 2018, Fobeni Healthcom Pharmaceutical Jiangsu wants to give them a leg up with drug approvals, regulatory compliance, and marketing and wholesale distribution in China, and help Fosun expand its international footprint as well. Well-known in China, Fosun owns 51% of the joint firm, and Marubeni owns the rest.
Reiji Morishima, a manager from Marubeni taking a lead in the Shanghai-based venture, says that Fobeni serves as a bridge between the two northeast Asia neighbors.
“In China, the keys are understanding the regulations and dealing with the government. And there are cultural and language differences, so it’s very difficult for a Japanese company to directly navigate all of this,” he says. “Navigating that experience and understanding gap between China and Japan, that’s what Fobeni brings to the table.”
Aging and Higher Incomes Increase Medical Needs
Targeting the largest middle class on the planet, according to one metric, fits into that. While many foreign businesses mainly see China as a billion-plus market for smartphones, luxury cars, insurance and movies, it also has one of the most rapidly graying societies in the world. In the next three decades, the percentage of people 65 or older will double to about one-quarter of the forecast population of 1.4 billion, according to the United Nations.
More aged adults coupled with higher incomes in the $14 trillion economy have bolstered the need and financial wherewithal to expand healthcare. Diseases like diabetes and hypertension have jumped in tandem with the growing population of elderly and the less healthy lifestyles that come with increased affluence. Today, China accounts for about 11% of the $1.2 trillion global pharmaceutical market, and the domestic market is forecast to skyrocket by nearly two thirds to $234 billion between 2018 and 2024.
Fobeni President and CEO Phillip Lee says that lifestyle diseases have become fairly commonplace in the country today, including the so-called “Three Highs” of high uric acid, high blood pressure and high cholesterol, and the need for treatments for these and other illnesses has expanded remarkedly.
“With economic growth, interest among people regarding their health and for medical care has steadily increased. When our development was lagging, the problems were mostly malnutrition and communicable diseases. But in the past few years, the spectrum of diseases has expanded quite a bit,” he says. “As a result, Chinese are looking for effective drug and medical treatments. That’s why Fobeni was set up – to address these unmet medical needs.”
Treating the Hurdles
The potential for Japanese pharmaceutical firms is large in China. They’ve fallen behind, however, partly because of their risk aversion.
That caution stemmed from concerns including compliance in a rapidly changing regulatory regime, intellectual property protection for advanced drugs and the ease of and time involved for the approval of new ones. Underscoring the room for growth, Japan’s market share by sales is about 2% in China versus 5% to 7% in Europe and the U.S.
Fobeni is helping to deal with the concerns of Japanese drug makers, including compliance, and to enable them to build upon their cutting-edge drugs, as well as Japan Inc.’s well-established reputation for quality – one that’s built deep trust among Chinese consumers, whether that’s cars, electronics or in this case, pharmaceuticals.
“By explaining things, including behavioral patterns, like China’s policy and regulations to Japanese corporations, we have been able to gain their trust. It’s very important to have trust in each other, and by having that we can overcome a great deal of the misunderstandings and the risk,” says Fobeni’s Lee. “They’ve been very concerned about compliance, including IP protections. But as China is starting to align with international standards, that risk can be managed.”
Yifang Wu, Fosun Pharma’s president and CEO, says that in China’s market today the combined sales of the 40 to 50 Japanese drug makers doesn’t equal that of one U.S. pharmaceutical company. Yet he’s quite optimistic about the future for Japanese firms and notes the understanding that Marubeni brings with Japan’s drug makers, which is passed on to Fosun, will speed up decisions.
“Marubeni’s great ability to bridge and connect is so important. Because of that, I don’t think that we will need years for negotiations, as doing that means missed opportunities,” he says. “If Japanese firms join hands with us, instead of playing second fiddle to European and U.S. makers, I think taking the lead is a possibility for them.”
Indeed, the very first deal between Fobeni and a Japanese pharmaceutical company quickly yielded results. Kyowa Kirin China, subsidiary of Kyowa Kirin which is Japan-based specialty pharmaceutical company, doubled the sales of one of its main products, Regpara, just months after signing a co-promotion agreement in December 2018. The two inked a deal to promote Regpara through Fosun’s Group nationwide sales network.
“We needed to expand our sales territory coverage to forward Regpara to dialysis patients nationwide. That’s why we decided to join hands with Fobeni, a partner that could cover additional large areas of the market. It was clearly done much faster than we could have done by ourselves,” says Kyowa Kirin China Chairman and General Manager Kazunobu Mikawa, noting that the partnership was instrumental in understanding the market environment and regulations as well.
The Healthcare Pipeline
The sights of Fobeni and its JV partners extend beyond its current business and even beyond country borders.
Eventually, Marubeni wants to expand its drug and healthcare operations beyond China to include Africa and Southeast Asia, and grow the Fobeni business to encompass other healthcare, medical equipment, OTC pharmaceuticals* and even the manufacturing, research and development of new medicines. Over the long run and by tapping into Marubeni’s extensive network in Japan, Fosun wants to sell its most advanced drugs there and bring into China the latest Japanese medical equipment as well as well-honed medical practices, like health management and the system of regular checkups.
*OTC [Over the Counter] pharmaceuticals refers to pharmaceuticals that can be purchased without a prescription.
For Morishima, who built upon his own healthcare experiences in Indonesia and the Philippines, overcoming the hurdles that he faced, like many newcomers to the Chinese market, was worthwhile both professionally and personally.
“Being able to deliver the right drugs at the right time is a must, and Fobeni is becoming a critical piece of the healthcare infrastructure,” he says. “And personally being able to be part that, that makes the business really meaningful and fulfilling to me.”
(All information contained in this article is based on interviews conducted in December 2020.)
