Report: How global medtech & pharma corporates engage with Australia (MTPConnect)
Pharmaceutical and medical technology corporates increasingly rely on external innovation to supplement and bolster their innovation pipeline. BioPacific Partners and MTPConnect recently undertook research, including a series of interviews with key personnel within the largest multinational companies, to uncover current trends and their attitude toward accessing external innovation from Australia. Download the report here to read more.
Pharmaceuticals
The size of the global pharmaceutical industry is estimated at US$1.2 trillion. The cost of research and development for new drugs, the high risk of failure, and the significant exposure many large pharmaceutical multinational companies have to patent expiry of blockbuster drugs means big corporates are increasingly looking for external innovations to fill product pipelines.
“Innovation does not have a boundary. There is no border limit, wherever there is good science, we go for it,” says the head of business development from a top 5 pharma company.
Pharmaceutical corporates are very positive about the Australian industry. “Australia has a lot going for it because it has great education, great science, a similar regulatory environment, and a great market,” says an external innovation director from a top 10 pharma company. “If something is making headway there, there’s a whole lot of hurdles it has overcome and it makes me think I can pick it up and run with it elsewhere.”
Pharmaceutical multinationals are often not embedded within the Australian environment – they see the logistics and cost of maintaining a scout in the region as an unjustifiable expense. However, the distance from the USA and Europe reduces the frequency and ease of engagement, and these delays are a significant barrier.
“One really needs to scour the world for innovation. But unfortunately, isolation adds a barrier for people – the time difference is inconvenient to make calls, travel distance – it is reality, and although that’s kind of silly with modern communication, it is still reality,” says a BD boss from a top 5 pharma company.
“You need to go and smell the place, interact with people, and get a feel for how far along the technology is. That’s where feet on the ground is useful,” says a top 10 pharma BD executive.
“Geography means the bar has to be higher,” say an external innovation boss from a top 10 pharma company. This lack of presence means that these companies are unable to explore innovation opportunities through informal interactions, and are therefore less likely to be aware of potential opportunities.
Some corporates suggest that Australia is a ‘nice to have’, rather than ‘cannot leave out’. “But innovation wise, the region deserves to be in the place of being critical rather than being nice to have,” says the head of external innovation from a top 10 pharma company.
Australian innovators can overcome these barriers by attending international industry events with partnering platforms such as BIO – considered a necessity by multinationals for identifying innovations of interest and catching up with those they have been paying attention to.
“We can’t justify spending resource in Australia when we barely have enough resource to cover China and Japan…. We have to rely on chance meetings at BIO or research conferences,” says an external innovation director from a top 10 pharma company.
Another barrier raised by corporates is the perception that Australian innovators struggle to translate science into commercially attractive propositions. A lack of understanding regarding the risk, global regulatory requirements, and data required by multinationals means technology is often not packaged with a value position aligned to the requirements of a multinational.
“Technology transcends geography – but business culture does not,” says an open innovation director from a top 5 pharma company. “I would put Australia in the bucket of there is some technology available but the business friction is high.”
“You’ll get university professors that think it’s okay to work on the development of their company while keeping their full-time academic job, whereas here in San Francisco, people will leave their full-time job,” says an external innovation director. “It wouldn’t be a question, they’d just leave.”
Medical technologies
The medical technology industry – which includes medical devices, diagnostic and medical imaging equipment – is estimated to have a global market size of US$350 billion.
Like their pharmaceutical counterparts, medical technology corporates look externally for new technology. They say they have no hesitation accessing world-class innovation from Australia, but suggest it is easier to hunt for medical technologies in their own geography – they point to Australia’s relatively small number of companies compared to the United States and Europe to evidence this.
In contrast to the pharmaceutical industry where partnering with innovators at an early stage of product development is now the norm, most medical technology multinationals prefer to wait until a technology has regulatory approval and can demonstrate strong sales. This mitigates the challenge of registration and the considerable work involved convincing physicians and surgeons that an innovation is worth considering (and often retraining for) over existing alternatives.
“[We] will not acquire companies that do not meet all our criteria. And the universe of buyers is not bigger than it was last year, or the year before – it is smaller. That’s the biggest issue,” says a VP from a top 5 medtech company. “You could beat your head against the walls wanting to be acquired – instead, companies should be focused on building their business.”
Medical technology innovations are increasingly being developed for a consumer market, including mobile phone sensors, smartwatches, fitness trackers, apps – and data. This movement is causing great concern in the industry over where revenue will come from.
Explains BD VP from a top 5 medtech company: “I joke that I’m glad I am closer to the end of my career than the beginning because I’m not inherently wired to think this way. Belonging to the older generation of medtech, I had a gut feel, and it was pretty good. I don’t have that for the future… I think it is incredibly naïve to think that technology and digital won’t fundamentally change the sector.”
These changes, as well as disruption from advances in China, mean corporates are being forced to adapt their business models. Along with this, global tech giants including Google, Apple and Amazon have begun a move into medical devices.
Explains a BD director from a top 5 medtech company: “Someday I am going to need a new hip. I’ll go onto Amazon, where there will be a base one, and then ones with extra features… I’ll select my hip, pick my doctor, choose a hospital (after checking their reviews), and take my basket to the checkout. Somebody is going to figure it out.”
Unlike the pharmaceutical sector, medical technology events are far less partnering-focused than in the pharmaceutical industry. Most corporates attend these events for corporate responsibility, government affairs, meeting vendors, and for recruitment purposes.
In part, this is because the niche areas of interest to medical technology corporates mean that most are aware of developments in their space. “In certain spaces we know the activity so well – we are rarely surprised,” says a business development VP from a top 5 medtech.
But for Australian innovators, they encourage a direct approach. Says one executive: “95% of opportunities come from companies that have called us. We can quickly and easily gauge the pros and cons of technologies and companies.”
China Business: 2019 – Exchange securing a future (NZ Herald)
Tim McCready talks to James Fok, Head of Group Strategy at the Hong Kong Exchange
Herald: What sets the Hong Kong Exchange apart from other exchanges around the world?
Fok: We’re one of the top several exchanges in terms of market capitalisation in the world. We have been number one in IPOs in six of the last 10 years. In many ways, we have a fantastic business — particularly leaning on mainland China and helping Chinese companies from the 1990s onwards raise capital from international markets. Unlike many other cash equity exchanges around the rest of the world, we have quite a lot of growth in our core business. While in New York you’re seeing the number of listed companies fall year-on-year, we’re seeing the number of listed companies go up.
Going back almost 10 years now, we recognise that mainland China is also changing in the way in which it operates and is structured. The first H-share company [companies incorporated in mainland China that are traded on the Hong Kong Stock Exchange] to IPO on the exchange was Tsingtao Brewery Group in 1993. At that time there wasn’t a lot of capital in China, so if Chinese companies wanted to raise capital they had to come out into international markets, and Hong Kong was a place that enabled them to do that.
Herald: With China opening up over past decades, how has the Exchange’s relationship with China changed?
Fok: Today there is a huge surplus of capital in China — notwithstanding the economy slowing down. There is over US$25 trillion sitting in Chinese deposit accounts that has not been deployed into capital markets. We still see a big opportunity with China, not necessarily with Chinese companies coming out to raise capital — although they are continuing to do that — but to try and find a way for Chinese investors to be able to diversify their investment in international markets.
Chinese financial market needs are also becoming a lot more complex. Chinese companies and individuals are doing a lot more things internationally, and supply chains are such that they are making sure they squeeze every bit of margin out of everything. That means they have to hedge a lot of the input prices such as metals and commodities. China is rich in many ways, but in terms of natural resource commodities it is generally having to import to supplement its own domestic production. On top of that, doing more business internationally means that there is foreign exchange risk, interest rate risk on foreign currencies, etc.
The role Hong Kong needs to play going forward is a much more comprehensive one. Not just the capital formation centre that we have continued to be, but we need to become a wealth management centre and a risk management centre for China as well. International investors coming here continue to come here for the Chinese exposure. They now have the option of going to the mainland directly, but many still find challenges in going directly onshore.
Now, as well as bringing Chinese companies here directly to list, the exchange is helping to provide a channel in which investors on both sides of the border can access each other’s market without the product or company being directly listed there.
We are providing a gateway for people to go in using their broker in Hong Kong — without having to open new accounts onshore — allowing access to the onshore market in as frictionless way as is possible, where we manage the differences in market structure.
Equity is still a large piece of the business, but more and more we have been shifting towards different asset classes as well — the most obvious was our acquisition of the London Metal Exchange in 2012.
Herald: How are new advances in fintech reshaping how you’re operating?
Fok: Stock exchanges are the original fintech businesses. Technology has driven our business for a very long time. But what seems to be happening at the moment in the technology space is that we have a confluence of factors that are forcing a huge acceleration in the pace of change.
That change, in many ways, has been hugely disruptive. You only have to look at retail businesses and what Amazon has done to those to understand that. When you look at stock exchanges and you look at the fundamental business model — providing a centralised place for people to buy and sell securities — generally that model is very efficient. But in every other facet of our business — ranging from clearing and settlement, the ways companies communicate with their investors, through to the day-to-day operational processes — that is now disrupted.
When you look at the ability of robotics and artificial intelligence to replace a lot of fairly menial — and actually relatively sophisticated but process-driven jobs — it’s phenomenal. We have had to, like everyone else, look at how we adopt technology into our business to drive efficiency.
Many businesses do this as a way to cut costs. There is an element to which that is true for us, but actually it goes much beyond that. Because everyone investing in our market has to use us, if we are inefficient as a market and as an infrastructure, it imposes a significant cost on all the market participants which ultimately affects Hong Kong’s competitiveness.
Herald: How is the exchange helping to attract smaller start-ups to Hong Kong?
Fok: Last year we undertook the largest set of listing reforms we have done in 25 years. We launched three new chapters of our listing rules — all of which were targeted at new economy companies, but two in particular:
We launched a segment of our main board that caters to pre-revenue biotech companies. Many R&D companies when they come to market don’t have revenue, let alone profit. The biotech board allows companies from the biotech sector to come here and list. Prior to these changes companies had to at least have revenue.
The second component is to allow weighted voting rights. These allow founders to maintain control even if they are diluted below 50 per cent of the shareholding of the company. We didn’t offer these kinds of governance structures here, so we saw a lot of Chinese companies in the tech space find themselves in the US market.
We were number one for IPOs last year for the amount of money raised, and 32 per cent of that money raised came from companies listing under the new chapters.
Herald: The Hong Kong Exchange signed a Memorandum of Understanding with the NZX early last year. What was the purpose of this for the HKEX?
Fok: The long-term ambition for us is to develop the product offering in Hong Kong more widely. It is largely an equities market still today, and when you look at trading and market capitalisation, something like 80 per cent of turnover is on mainland Chinese companies. While this is precisely what attracts international investors, as we open up to more direct mainland China investors who already have a lot of China product to invest in onshore, we need to diversify our offering.
New Zealand isn’t the only country we have signed an MoU with.
Of course, on the stock side, New Zealand is not one of the highest priority markets — most Chinese investors looking to diversify will look to the US market. Instead, the purpose is to bring a more diverse range of products to the exchange. New Zealand has done very well in the agricultural milk future space — something that is potentially of relevance to mainland Chinese consumers, particularly given their consumption.
Promoting confidence
The NZX and Hong Kong (HKEX) exchanges signed a Memorandum of Understanding in January 2018 to further promote confidence and co-operation in Asia-Pacific markets. Under the terms of the memorandum, the exchanges seek to promote market development by considering opportunities in a range of areas, including foreign investment, derivatives, depository receipts, listed debt, dual listings and exchange-traded funds.
The NZX says:
- This global alliance supports NZX’s commitment to increase its international presence, and our desire to expand the reach and connection of the New Zealand market, because growth in New Zealand’s public markets will come from having a wider range of listed products and increased market activity. Global alliances we initiated and are continuing to build with the Hong Kong, Singapore, Shanghai and Nasdaq exchanges support this.
- NZX and HKEX have continued to work together since the memorandum was signed in January 2018. In April, NZX Regulation recognised the regulatory regimes and requirements for the Hong Kong, Singapore and Toronto exchanges. This allows companies listed on these exchanges to seek a secondary listing on NZX.
- Seeking new ways to retain and attract customers has been a priority for NZX. It is vital to growing New Zealand’s public markets. Over the past 12 months, we progressed alliances with global peers to ensure that an NZX listing connects New Zealand issuers with the world.
- Our relationships with the Nasdaq, Singapore, Hong Kong and Shanghai exchanges, and the transformation in our service offering to issuers, ensures we are developing a product that is relevant and competitive.
China Business: Why you can’t contain China (NZ Herald)
We’re in the midst of important structural shifts, says former World Bank President Robert Zoellick. Tim McCready reports
“China has had enormous progress over 40 years. It has had the most historic reduction of poverty in humankind,” says former World Bank President Robert Zoellick.
Zoellick, who led the World Bank through the global financial crisis and served as a US trade representative under President George W. Bush, points out that while Asian growth rates have been healthy, they have not been able to return to the levels they had before the 2008 financial crisis.
At the recent Asian Financial Forum he sent a message that the Asian growth model that was so successful for many decades would need to change.
Zoellick says Asian economic policymakers have traditionally had a longer time-horizon.
“The old model began by relying on manufacturing at the low end of supply chains. It then integrated upward — adding efficiencies, learning, productivity — but relied on the assistance of exports to developed economies.
“I think that perspective is especially valuable today because we’re in the midst of some very important structural shifts.”
Though Asia has accounted for two-thirds of global growth in recent years, markets are nervous as major shifts are taking place: the end of the quantitative easing experiment and transition to a tightening cycle, slower growth in real trade over the past decade compared to the 20 years before the financial crisis, productivity increases in Asia, and the ongoing trade dispute between China and the US.
“Trade policies and rising economic nationalism around the world have disrupted commerce and created a great deal of uncertainty,” says Zoellick.
“Traditionally, governments put tariffs on final goods, but from 2010 to 2016 they focused on temporary trade barriers, targeting cross-border supply chains for raw materials and components.”
But while President Donald Trump’s hefty tariffs may have been intended to help US manufacturers by making foreign goods comparatively more expensive, in reality, import taxes imposed on intermediate goods like steel and aluminium are pushing up prices of products manufactured in the US.
Belt and Road part of a new era
Zoellick says Japan, South Korea and Taiwan all offer cautionary tales — a bias towards incumbency and instrumentalisation has slowed the innovation process — and a rapidly ageing population and lower population growth are changing the dynamics. “We can see some of those trends in China today as well.
“One of the main challenges is: will Asia grow old, before it grows rich and wealthy?” he asks.
He says the new Asian model will need to focus on new and different types of supply chains, to meet the changing needs — first off — of the region itself.
He points to the Greater Bay Area as an example of how this transformation has already started in Hong Kong and China.
The Greater Bay initiative, established by the Chinese Government, links Hong Kong, Macau, and nine other cities within the Guangdong Province into an integrated economic and business cluster.
The 11 cities have a combined population of close to 68 million people — greater than the world’s largest city cluster of 44 million in Tokyo — and a GDP of around US$1.4 trillion (NZ$2.06 trillion).
The 55km Hong Kong-Zhuhai-Macau bridge-tunnel system which opened last year cut the drive time between the cities from up to three hours, down to just 30 minutes.
Zoellick sees the Greater Bay Area as a huge opportunity, but says the challenge for Hong Kong will be not only the hard infrastructure — railways, bridges, roads — but some of the soft connectivity to move capital, information, and people.
“Policies will have to focus on new cross-border logistics networks and the barriers that impede them, such as new infrastructure to facilitate trade, services, environmental conditions, energy access, standards, rules and a whole series of soft infrastructure issues, such as customs and tax procedures,” he says.
Zoellick says China’s Belt and Road Initiative could be an important part of the new Asian model — if it is correctly developed.
“Frankly, the world is still unclear about the real purpose of Belt and Road. Is it a move for geopolitical dominance across Asia?
“Is it a plan to export overproduction from some of the materials industries in China? Or is it a new corridor for development? How will other countries benefit?”
He says although it is important to focus on the new regional opportunities and obstacles of the Belt and Road Initiative, Asia must stay global in outlook. “For example, even with President Trump’s protectionism, consider the US economy.
“The private sector will continue to be the engine for innovation in the United States — whether it is big data, different business models, or biologics in medicines — Asia must keep linked into that to remain competitive and adaptive.”
A trade leadership vacuum
Zoellick says another important factor shaping trade in Asia is the way President Trump has seen the US abandon its previous role as a key player developing new rules for global trade.
“After some 70 years of a US-led system, I suspect that much of the world has taken the public good aspect for granted,” he says.
“People sometimes reacted against US behaviour and didn’t always agree with it, but because the United States is an innovative economy working at the cutting edge, US officials had to press for new norms and rules to help adapt the international system — in areas such as services, intellectual property rights, transparency, anti-corruption, investment, and even currency manipulation.
“When you consider developments in big data, along with things like personal sensors and innovation in medicines, they can have huge effects on health and are significant business opportunities — but only if the world develops the appropriate legal framework.
“Traditionally, the World Trade Organisation could help do this. But today the WTO is adrift.
“It will not be able to negotiate new rules unless the United States, European Union, China and others can reinvigorate the WTO.”
Zoellick says China might offer an alternative system, but if they do, the world is more likely to end up with a managed trade system.
“The big powers will emphasise national champions, political priorities and sovereign protections over a rule of law framework in which markets will operate relatively freely,” he says.
“That has very large implications for the small and medium-sized economies that have benefited enormously from a rules-based system over past decades.”
The ongoing trade war
Zoellick says that for the near term, he expects to see friction, accusations, and negotiations between China and the US become a fact of life and add to ongoing uncertainty.
But some of the tensions between the two economic giants go beyond Trump and are concerns held across the American political spectrum and among voters.
“A transactional deal would not address the fundamental issues which are causing widespread concern in the United States — including questions about the Belt and Road Initiative and the ‘Made in China 2025’ strategy, which has created anxiety that China intends to dominate advanced technology.
“These concerns are part of the political debate in the US,” he says. “The US cannot decouple from or contain China, but it can work together with China to make sure the rules are followed.”
Zoellick says that although Trump is a protectionist by nature, he will be sensitive to the market.
As he begins to think about his re-election — and particularly if the US economy slows down — he is more likely to do a deal.
“However, if there is a deal, I think we have to recognise that it is more likely to be a truce than a solution,” Zoellick says. “Part of my concern is that I’m not sure President Trump thinks in systemic terms. He thinks in deal-making transactional terms.”