Sign o’ the times? Drug discovery companies ramp up investments in China

SHANGHAI, China—Within a single week, two major players in the drug discovery instrumentation and reagent industry—Thermo Electron and Invitrogen—made moves to capitalize on the ever-strengthening Chinese biotechnology and pharmaceutical markets, further entrenching the southern port city of Shanghai as the next big center of drug discovery research and commercialization in Southeast Asia.

 

In early December, reagent and kit market-leader Invitrogen announced its plans to acquire privately held Bio Asia, a leading manufacturer and provider of gene sequencing reagents and supplies and CRO for the Chinese research community. The deal will involve an approximately $8-million all-cash transaction that received approval from both companies' boards of directors. Established in 1999 and with revenues of $5 million, Bio Asia operates out of three locations—Shanghai, Beijing, and Guangzhou—and serves a market that could grow more than 20% this year.

 

The company offers Invitrogen an extensive sales network, with 18 offices covering most major markets in China. The acquisition will also bring Invitrogen more than 170 employees and the capability to offer specialized products and services to China's fast growing biotech, pharmaceutical and traditional Chinese medicine industries.

 

Seven days later, Thermo announced the opening of a new 90,000-sq. ft. manufacturing facility that more than quadruples its manufacturing capacity in the region. When operating at capacity, Thermo's new center will add up to 300 new jobs. Initially, the facility will focus on 10 products, including atomic absorption instruments, plate readers, and sample preparation equipment, but the company expects to expand the number to 20 products by 2006. The Shanghai facility will also serve as a center for Asian operations and is expected to become an integral location for Thermo's supply chain management and logistics worldwide.

 

Although China only accounts for 5% of Thermo's total revenue, the company believes the Shanghai operation will allow it to continue to reduce global costs by moving manufacturing processes closer to low-cost suppliers.

 

These efforts are part of a trend that has seen a number of pharmaceutical and biotechnology companies open R&D and manufacturing facilities in Southeast Asia and, more specifically, in Shanghai. As Ken Berger, president of Thermo Electron China, explains, the movement of instrument companies to the region is more than a matter of suppliers following their customers.

 

"To achieve our global growth objectives, Thermo needs a better balance of capabilities in Asia versus North America and Europe," he says. "Our businesses are global businesses and our strategy is to develop our capabilities so that we are as comfortable doing all aspects of business—marketing, sales, manufacturing, and engineering—in Asia as we are elsewhere."

 

Similarly, Invitrogen's investment in Bio Asia builds on its existing commitment to manufacturing in China, according to Jeff Greenberg, the company's general manager of the Asia Pacific region. "This acquisition, we believe, gives us a head start in building a deep presence in the China market and the opportunity to localize the business factors much more rapidly than a green field operation would have allowed," he says. "This form of market entry may be possible for others but this depends on the particular field and willingness of the principles to understand the needs and motivations of each other."

 

"The management team at Bio Asia provided Invitrogen with an entrepreneurial, talented and focused leadership team that could form the basis of a solid business management team in China," Greenberg adds. "We had intended to go direct in China for some time and this team provided us with a reputable, proven team who could immediately provide market knowledge, manufacturing capabilities, service capabilities and operations in this key market."

 

According to Berger, many multinational companies are moving their Asian regional headquarters from Singapore, Hong Kong, and Tokyo to Shanghai, which has become a center of economic activity and growth for a wide variety of industries in Asia.

 

"Shanghai is a very international city with government officials who are pro-business and highly motivated to offer incentives to increase foreign investment, particularly from high-tech companies like Thermo Electron," he adds. "Perhaps most importantly, Shanghai provides Thermo access to a highly talented and educated workforce."

 

"The opening of the Chinese market to foreign multinational corporations has made this entire process more transparent and flexible," adds Greenberg. "This could not have happened as readily in the past. We are confident that the Bio Asia acquisition will provide a more effective solutions provider to the Chinese research and bioproduction markets than we could have achieved either through a joint venture or through establishing a green field wholly foreign-owned company."