Pfizer to Build $350-million Biotech Center in China

Pfizer’s first biotech center in Asia by 2018

Source: Company's Website
Source: Company’s Website

Drug behemoth Pfizer Inc. (NYSE: PFE) has joined the list of pharma industry giants looking to step up presence in China, the world’s second-largest drugs market, with the aim of securing faster approvals for its products. Pfizer will invest $350 million to build a plant for biotechnology drugs in China’s eastern Hangzhou region, as reported by Bloomberg on June 28th, 2016. The China biotech center is Pfizer’s first such center in Asia, and is expected to be completed by 2018. Pfizer is investing in China despite slowing economic growth in the country and rising pressure on reducing prices for generic medicines from the government.

New facility to focus on biologics

The new facility will manufacture biologics, or complex medicines made from living organisms, as well as biosimilars for the Chinese and global markets. Biosimilars are copies of biologic drugs that usually go through a complex manufacturing process. Biologics are underutilized in China, accounting for 4% of medicines prescribed in the country, compared with 22% in the U.S., according to Pfizer. The medications made at the Hangzhou plant will help cancer patients and those with other ailments, as well as enable China to deal with the emergence of non-communicable diseases and an aging population.

Pfizer wants a chunk of China

Drug giants are looking for a slice of China’s healthcare market, estimated to be worth around $185 billion by 2018, as per IMS Health and as reported by Reuters on June 28th, 2016. As a result, pharmaceutical manufacturers are making a beeline for China by setting up facilities as well as investing in acquisitions, licensing deals, and joint ventures, with the aim of gaining an edge in dealing with domestic regulators and government bodies.

In this regard, Pfizer is looking to work closely with local regulators to bring biologic drugs to market as soon as possible. Other pharma firms have not been successful in setting up their operations in China, and have complained about the slow process of getting drug approvals in China, while others have run up against regulatory roadblocks. Pfizer has already had a taste of regulatory hurdles when it had to cease its Chinese vaccines sales operations on April 2nd, 2015, after an import license for Prevenar, an anti-bacterial treatment, had not been renewed. Pfizer has over 9,000 employees in China working in business segments including research and development, prescription drugs, and consumer health products.

Despite the fact that China’s overall healthcare spending is set to hit $1.3 trillion by 2020, the country’s drug market growth has slowed to a low single-digit percentage pace since the Chinese government is looking to drive down prices of generics. Hence, drugmakers including Pfizer, GlaxoSmithKline PLC (NYSE: GSK) and AstraZeneca PLC (NYSE: AZN) reported lower sales in 2015. However, the slow pace of growth in China did not stop Novartis AG (NYSE: NVS) and Merck & Co. Inc. (NYSE: MRK) from investing in China. Novartis opened its $1-billion third major research center in Shanghai on June 1st, 2016, while Merck opened its $120 million pharmaceutical manufacturing facility in Hangzhou in April 2013.

Q1 FY16 financial results

Pfizer reported its Q1 FY16 on May 3rd, 2016. The Company’s overall revenues grew by 20% to $13 billion, reflecting a 26% operational growth driven by 28% operational growth from the Innovative Products business and the inclusion of legacy Hospira Inc. operations, which Pfizer acquired on September 3rd, 2015. Excluding legacy Hospira operations, Q1 FY16 revenues increased to $11.8 billion, reflecting a 15% operational growth. Adjusted income grew 30% to $4.15 billion, or $0.67 per share, while reported net income grew 27% to $3.01 billion, or $0.49 per share, during Q1 FY16. On account of the strong Q1 performance and favorable impact of recent changes in foreign exchange rates, Pfizer has raised its FY16 guidance for reported revenues by $2 billion and adjusted diluted EPS by $0.18.

Stock Performance

P2Pfizer’s stock stood at $34.44, up 1.89%, at the close on Tuesday, June 28th, 2016, having reached an intraday high of $34.47 and a low of $33.92 during the session. The stock’s trading volume was at 23,737,509 for the day. The Company’s market cap was at $208.87 billion as of Tuesday’s close.

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