[Follow Up] Who Is Up for Another Round of Joint Ventures?

Thursday, September 20, 2012 7:49

Following up on my post last week Who Is Up for Another Round of Joint Ventures?, both Pfizer and Merck made an announcement that they have both entered into JV agreements with local firms to distribute their generic drugs in China”

On Sept. 13, the world’s largest drug company Pfizer and China’s Zhejiang Hisun Pharmaceutical Co jointly set up a new company based in the city of Hangzhou. With a registered capital of US$250 million, Hisun owns a 51% stake in the joint venture, while Pfizer owns 49%

According to a separate piece by  the China Perspective announcing the Merck deal

Merck owns 51% of the Shanghai-based joint venture and Simcere Pharmaceutical the remainder, and both companies will use their facilities in China to produce the drugs.

Both deals having characteristics that I feel are important to highlight:

  1. Both deals are structured around generics.
  2. Both deals ultimately represent a structure that plays off the strengths of each firm.  foreign brand, process, and QC … local distribution
  3. Both deals will insulate the firms from any decline in market, as well as speed up their entry to the market
  4. Both deals will insulate the firms from a number of risks, not the least of which his the legal risks brought on by the well documented business practices that take place with in the industry.

Characteristics that exist in several other key markets where I am seeing similar activity …. auto, insurance, and energy.  Which is to say that while JVs are not ideal for many reasons, the firms I have spoken with about the potential for JVs feel there is a time and place for the vehicle when done properly.

Particularly if it can insulate risk, increase speed to market, and be kept separate from other investments / products in China

Let’s just hope that these partnerships are being built better than they were 8-10 years ago.

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One Response to “[Follow Up] Who Is Up for Another Round of Joint Ventures?”

  1. Chris Devonshire-Ellis says:

    September 21st, 2012 at 3:10 pm

    I concur with this view. In fact you’ll see a lot more foreign investment in pharma, China is aging and that sector is ripe for FDI. We are also seeing more JVs (and some RO and WFOE) in that sector, and you specifically mention above one of our clients. JVs have always been the preferred vehicle for MNC investment into China, largely because they are looking at developing the China market on a national basis, and again because they need to acquire local knowledge of specific areas in China. Having a JV partner has always made sense in such cases. It’s something I pointed out recently in fact: http://www.china-briefing.com/news/2012/07/18/joint-ventures-back-in-vogue-for-accessing-chinas-central-regions.html with particular emphasis on the inland and western regions, where a JV partner can be of great assistance when looking at developing a regional market. – Chris