First in Class or Best in Class


Characterized by extremely high product development costs, extremely low success rates for new products, heavy regulation and serious IPR risks, China's pharmaceutical industry is no business for the faint-of-heart. In this issue of The LINK, Roche R&D Centre China General Manager Andreas Tschirky (EMBA 2005) tells why this challenging sector is attracting investment from the world's industry giants and how Roche plans to beat the odds.

By Laurie Underwood

Consider these odds: a 1-in-100 chance of a new product concept actually reaching the market, product development costs up to US$1.5 billion per new drug, and a product-to-market lag-time of 15 years. Add to this mix a skittish operating environment caused by fierce competition from international and domestic players, serious IPR concerns, government regulations and a full picture of one of China’s most challenging industry sectors comes into view.

Welcome to the not-for-the-faint-of-heart world of pharmaceuticals in China - an industry which, not long ago, was challenged by IPR concerns and constraints for Western brand-name medicines. Why then are the world’s biggest pharmaceutical companies aggressively investing into China?


TESTING THE MARKET: When Andreas Tschirky recommended that Roche launch a full-scale R&D centre in China, despite IPR concerns, he argued that the benefits outweigh the risks. Other Big Pharma companies are also investing in research, driven by predictions that China will be the world's #1 pharmaceutical market by 2020.



The bottom line: pharmaceuticals is one of the fastest growing, highest potential industries in China. From 2000 - 2005, the value of domestic nation’s market for prescription and OTC drugs doubled to US$13 billion and is expected to double again to US$26 billion by 2010, according to Boston Consulting Group. At present, China is the world’s 10th largest pharmaceutical market and analysts believe it could emerge as the world’s largest by 2020. Meanwhile demand for medicines is growing fast. On one hand, demand is rising among China’s urban middle-class consumers, who are gaining spending power quickly as wealth increases. On the other hand, the market for pharmaceuticals also is being boosted by Chinese government initiatives to make good healthcare more accessible for the rural population.

For all these reasons, Big Pharma companies are aggressively blazing trails into China. One such industry pioneer is Andreas Tschirky (CEIBS EMBA 2005), General Manager of the four-year-old Roche Pharmaceutical R&D Centre located in Shanghai’s Zhangjiang Hi-tech Park. Tschirky proudly declares the facility to be the first fully integrated pharmaceutical R&D center to open in China.  “Here at this centre, our researchers have access to the entire Roche global information which allows our scientists to conduct world-class research as our peers do at Roche R&D centers overseas,” says Tschirky. “That shows the company’s trust and confidence in operating in China.”

During its first four years, the Roche R&D Centre China has focused on developing medicines in several different disease areas. The founding of the centre is part of Roche’s China strategy to focus on its core competencies on pharmaceuticals and diagnostics. The centre was expanded rapidly, now employing a team of nearly 100 employees, including 78 researchers, and focusing on oncology, virology, metabolic disease related drug discovery projects.

As of early 2008, the centre had been an “innovation contributor” for Roche through several dozen international patent applications. Tschirky says: “We are very, very productive and very, very successful. I am proud of the organization and proud of the R&D team.”

Today, Roche’s business focuses on prescription drugs. “This is our strength and our competence,” says Tschirky. “We provide innovation in pharmaceuticals and diagnostics.”

This spring, TheLINK visited Tschirky along the well-groomed streets of Zhangjiang High-Tech Park, to gather his insights into leading R&D, protecting IPR, instilling innovation into Chinese staff, and beating the odds to release new medicines in China.

TheLINK: Roche recently underwent a large-scale reorganization of its China operations. How does the Roche Pharmaceuticals R&D Centre fit into the company’s overall China strategy and what are your goals for the centre?

Andreas Tschirky: For Roche, we are focusing on two categories with our company: One is the so-called “first in class,” that means you go into a new area, develop a medicine with a new mechanism of action. Or you are the “best in class,” which means your product is superior competitors’ in terms of efficiency or safety or different features.
Going forward, we want to work with China’s top universities, research institutes, hospitals, and biotech companies to develop drug candidates. One specific area of focus is oncology (cancer). Cancer is one of the major killers of people worldwide - the medicines we are researching will serve the Chinese people but also definitely benefit people worldwide.”

TheLINK: Given China’s history of IPR infringement, did Roche have concerns about opening a large-scale R&D center in China? What arguments persuaded them to go for it?

Tschirky: Of course IPR protection was one of the major questions our top management addressed to us before establishing the R&D Centre. To make a commitment to such a research center, you open all the treasure boxes. The real value of the company, the backbone of the organization, lies in our expertise and IPR.



China has demonstrated a strong commitment and fast improvement to the legal framework for IPR protection. Innovation is increasingly important for China as a country, and the government has a strong commitment to protect the IP of companies.

We have to acknowledge that China has about 10 years of IPR law history. I cannot imagine that you can achieve such progress in any other country. I don’t mean that all the problems have been addressed, but I do want to stress that progress has been made. If you compare the situation in China and India, you realize that China has made significant progress.

One urgent issue is to fight those criminals producing fake medicines. This outrageous practice poses a serious health hazard. In China’s major cities, the hospitals have clear distribution channels for medicines; in rural areas, the challenge is greater. There the government is working very hard to assure that people obtain the authentic products. The solution must come from government, with the support of the industry players. This requires a national- level approach.

TheLINK: China has experienced several high-profile cases recently in which international pharmaceutical companies faced legal disputes regarding protecting their IPR, for example,  Pfizer’s case for Viagra. How did Roche react to such cases? Have these cases dampened Roche’s confidence in being able to protecting patents here? 

Tschirky: I believe your experience in China depends on how you approach things. Pharmaceuticals is the most regulated industry - we need approval from government constantly. If you are openly and pro-actively communicating with the government, you can avoid difficulties. Roche continuously maintains very good interaction with the Chinese government - that is crucial for our business.

It is also important that you are recognized as a good corporate citizen - that you really show your commitment to benefit Chinese people. You have to show that what your company is doing in China is not just good for your company but is also good for Chinese society. If you act too selfishly, you won’t be supported.

TheLINK: Roche is known for its good partnership relations with government. How much time and effort does Roche put into government relations? 

Tschirky: For government relations, we work with Shanghai Roche Pharmaceuticals, our commercial organization - it has dedicated teams to work with the different government offices. It is critically important for any company in the field  of pharmaceuticals  to talk continuously with the different government stakeholders to show win-win situations for China and Roche.

Personally, I definitely spend time on government relations. As a representative of the company, I am very positive and always emphasize on the balance of interests. In China, the government seeks to build up an innovation-based biotech and pharmaceuticals industries but faces a limited budget for healthcare expenditure. For the government, this is the balance they seek to achieve.

Also, the Chinese government wants pharmaceutical companies to help provide the big population with access to good healthcare. They also hope to encourage MNCs to invest in pharmaceutical R&D. From our side, as a company, we have to generate profits so we can re-invest into R&D in China and benefit Chinese patients. In order to reinvest, we must first consider the products in our portfolio, including developing and marketing some high potential products. So we strike a balance - as MNCs, we can assist the Chinese government by providing the big population with access to good healthcare, but also by  developing high-potential medicines for the Chinese and world-wide markets.

TheLINK: What other main challenges do you face now in your China operations?

Tschirky: If you are completely an innovation-based company, you try to assure a constant flow of projects through the R&D pipeline, from the early stage towards successfully entering the market. Hopefully a few will enter the market. In our industry, the attrition rate of projects from the starting point to finished medicine that has been approved by authorities is very steep. What you try to do is very early to make an assessment regarding which products have the potential become a new drug

RIGHT FORMULA - Tschirky says talented personnel are the "core asset of a research-based company." He has kept turnover at a low 5% yearly due to "a high level of commintment to career development."



TheLINK: In an innovation-based business, hiring the right personnel is critical. How serious is your struggle to hire and retain the right team?

Tschirky: In China, competition for the best talents is fierce and any organization that wants to attract and retain the best people has to show a high level of commitment to career development in order to retain talent. Talent is the core asset of a research-based company. I am very happy to report that we have a very low turnover rate below 5% - which is a very low number compared to the market.

TheLINK: How do you keep the people you need?

Tschirky: One very important way to retain staff is to establish two-way communication. Next, we offer different layers of training and career development opportunities - that is a key element to keeping talent.

TheLINK: What changes do you expect to see in China’s pharmaceutical sector in the next few years?

Tschirky: Traditionally, China’s pharmaceutical industry has been generics-based - domestic companies simply produce generic medicines after the patents expire. In the next few years, we will see domestic companies cooperating with academic centers and even with international biotechs and MNCs that are strong in drug discovery. This will be a very good development.

TheLINK: If you could, what would you change about the operating environment for pharmaceuticals in China?

Tschirky: Lately, I see a lot of progress in the effort to speed up clinical trials for testing new pharmaceuticals. The approval and review of clinical trials still takes a longer time than in Western countries. On the other side, in China, with its big population and efficient hospital network, you can more quickly reach patients if proper procedures are in place.

TheLINK: You are the only foreigner in the centre. What advice do you have for other laowei managers in China?

Tschirky: Foreigners should respect Chinese culture, which does not mean saying, “Yes, I understand Chinese culture but we are still going to do thing the Western way.” You must work with the team and develop new ways of operating. Chinese are very smart, they are eager to contribute to the success of an organization. If you as a foreigner are open, respectful, flexible and are also working hard, you will succeed concerning the productivity of your organization.

Another thing: You must also enjoy living in China. As a foreigner, do not live only within the foreign community - this is far from the real China. 95% of my friends in China are Chinese, I do that on purpose - I interact with the Swiss community but not exclusively. China is very exciting and if you want to live here long-term, you have to show a serious interest in making local friends.