Jonathan Hernandez Asia St: 2511 Prof.

Mark Lee Ford Synmosa Biopharma Corporation Profile Operations Two regional subsidiaries in Hong Kong and China whom distribute market pharmaceuticals and OverTheCounter (OTC) products, mainly focusing on market development. According to the website, SB is, looking to expand into developing markets, new products, investments, and partnerships. Exports -Japan, China, Hong Kong, Thailand, Singapore, Israel, and Pakistan Besides Hong Kong and China, exports are typically the provision OEM/ODM (Original Equipment Manufacturer, Original Design Manufacturer) products. SB is seeking regional partnerships internationally. Licensing (of others products) SB has built a strong sales team and expertise in selling, marketing and promotion medication and health care products in Taiwan (where SB is based), Hong Kong and China. They have established, distribution channels in medical centers, regional hospitals, district hospitals, clinics and drug stores with over twenty years marketing and sales experiences (SB). Pharmaceutical Contract Manufacturing Commercial Factory is cGMP certified by local and international regulatory agencies for pharmaceutical manufacturing, and is currently contracted by Boehringer Ingelheim, based mainly in the production of human pharmaceuticals, and Kyowa Hakko Kogyo, mainly based in research and development, for regional markets. SB Currently provides custom manufacturing in: -Solid Dosage: Tablet; sugar coating, film coating, SR. Capsule; powder, granule, pellet -Liquid: solution, suspension, syrup/elixir, aqueous nasal spray -Ointment, Cream, Effervescent Dosage Markets (Medical Therapeutic Areas) -Cardiovascular -Respiratory -Central Nervous System -NSAID (Non-Steroidal Anti-Inflammatory Drugs) -Hormone Replacement Treatment -Metabolic Therapeutics -Oncology

Market Evaluations

Japan To date, between 2004 2009 Japanese Imports of Medical Products have increased from $7,103,563,000 with a total market share of imports of 1.6%, to $14,253,208,000 with a total market share of imports of 2.6%. In 2008 alone, sales of prescription medicine amounted to $76 Billion (JETRO). Health-care in Japan is Socialized, current estimates say government spending on social security will rise in 2015; 42% higher than their levels in 2006. Though medical care costs in Japan are growing, the government is working to make it affordable and possible for the elderly to receive the care they need. Since health-care is socialized, the governments actions will have a great impact on the possibility of the booming elderly population to receive their necessary healthcare. Recently, changes have been made to make employers foot some of the costs after their employees have retired. (Kingston 58) Additionally, the Japanese enjoy some of the longest lives in the world; averaging 86.05 for women and 79.29 for men. Holding an estimated 10% of all of the countrys personal financial assets, Japan has about 7 million baby boomers on the verge of retirement. Also, 80% of the countrys financial assets are held by those aged 50 and older (Kingston 57). For the market, this means a large segment of the population will become dependent on pharmaceuticals. Socialized health-care and the demand by the ever-increasing elderly has created a huge domestic demand for generic pharmaceuticals and effectively diverted many Japanese drug companies from developing export markets in order to meet the increasing demand at home. However, corporate re-structuring and mergers have brought forth companies more focused on developing export markets. Although the demand in Japan still needs to be met, one new business model is for pharmaceutical firms to outsource business to bio-venture companies, a move that is attracting much attention, (JETRO).

Fig. 1

Because of a quickly aging, and large, population, Japan is the worlds second highest healthcare spender in the world. Japans Pharmaceutical Market is valued at about $111 Billion (10.26 Trillion); Japans own consumption of prescription drugs accounting for 64.4% of the market. The government too has implemented a generic substitution system to increase the market share of generics to 30 percent in volume terms by 2012, up from (Parveen). As the graph shows, the market has open space for out-sourcing generic drug manufacturers who will be in demand by the Japanese Pharmaceutical corporations; this is a perfect way to expand SBs within Japan. Additionally, while many Pharmaceutical Companies are already located within Japan holding large market shares, SB has the added benefit of not having to create distribution methods or markets and simply cater to companies with a desire to expand their exports and out-source domestic drug production to develop a more efficient business model. SBs production capabilities for Cardiovascular, Respiratory, Central Nervous System, and Hormone Replacement drugs match up perfectly with the drugs needed by the aging and already elderly, who will be demanding products promoting longevity

and healthy living. Specifically, Recombinant protein drugs such as erythropoietin and interferon have the highest market share in the biopharmaceuticals segment. Erythropoietin, the largest selling product with a market size of around $1 billion, is expected to show continous growth, (Parveen). Because SB already produces erythropoietin; I would suggest they make the production of this a top priority within their exports efforts to Japan. As an added benefit, being located in Taiwan, proximity is not much of an issue; making transportation cost-efficient. Also, because of the Japanese peoples high life expectancy, market shares can be held on to for decades if favorable relationships involving trust and loyalty are developed between SB and the Japanese Pharmaceutical Corporations. Aside: In 2008 Daiichi Sankyo, a power-house Japanese corporation, purchased the Indian pharmaceutical manufacturer, Ranbaxy, for $4.6 billion. The buy was driven by a desire to both, provide pharmaceuticals to the Japanese market, while further expanding into foreign markets; partially, Asia whom is annually growing at approximately 10%. The move proved a costly one as Ranbaxy's products lost FDA approval from the US. Contagiously, the disapproval within the US, caused consumer distrust within Japan and hurt sales considerably. For SB, this is actually a huge positive. If Japanese Pharmaceutical companies learned their lesson, they would be more wary about acquisitions and look for contract manufacturers; a perfect need for SB to fill. If SB can prove the to the Japanese market the quality of their production; they can feel a longstanding and necessary need.

China and Hong Kong Chinas GDP has been steadily rising for years and is one of the quickest growing in the world; rising from $1.19 Trillion in 2000 to $4.327 Trillion in 2008 (World Bank). In 2009

Chinas Phamaceutical Industry grew by 26% and by 2013 it is expected to become the worlds third largest market behind the US and Japan. Though there has been growth, only 1/3rd of New Chemical Entities, between 1997 - 2008 have launched into China (See Fig 2). Because poor healthcare coverage can be a major deterrent to growth; the national government has committed itself to expanding national health coverage to 90% of the population by 2011 (IMS).

Fig. 2 China's efforts have attracted a lot of attention and investment. Between September 2009 and June 2010, 23 pharmaceutical and heath-care related companies have gone public in mainland China and Hong Kong, in total, raising $5.37 billion (Stein). One of the biggest successes, Sinopharm Group Co. raised $1.3 billion in their Hong Kong IPO. While there are bubble-esque threats from the occassional over-valuation of a company, I believe what this truly points to, is investor interest and support for China's growing Pharmaceutical Industry. This is due to these companies being, defensive plays whose prospects aren't subject to the ups and downs of banks, commodity stocks or other more-cyclical parts of the economy, (Stein). The risk for many companies looking to launch into to China is a lack of on-theground knowledge, of Chinas common ailments/diseases and pharmaceutical/medical

needs, which SB is fortunate enough to already have with their over twenty years of experience in marketing and developing distribution channels in Southeast Asia. In a complex and underdeveloped market like China, simply unveiling a first-to-market product is by no means a guarantee for success even if research demonstrates a huge potential market of tens of millions of people. In a country like China, the market for a new drug category must be built from the ground up, (Eleveld). The reality is Chinas healthcare system is evolving almost too quickly too measure and create a collective and understandable image of all the growth, leaving valuable historical information limited while key data is emerging (Eleveld). With SBs regional subsidiary in China already moving market pharmaceuticals and Over the Counter products through a, well-built distribution channels in medical centers, regional hospitals, district hospitals, clinics and drug stores; they would be a natural partner for outside investors and partners looking to expand into China (Synmosa Biopharma Corporation). For SBs operations within China, continuing to develop their target markets by utilizing their established distribution methods for maximum growth is extremely important. However, simply having established distribution methods will not win them the battle of market share and development. Within China, SB should focus on, distribution, education, and pricing. The distribution network is highly complicated and fragmented with 7,000 distributors in 660 cities and extensive rural areas in China. Products must be made available, not just at key city hospitals, but also at fast growing community health centers and retail pharmacies, (Eleveld). Distribution should adapt to the Chinas infrastructure as it is being built and expanding. As the distribution of pharmaceuticals begin to expand throughout the country, marketing via disease/ailment awareness and its treatments should be promoted. Because millions of people will be receiving the opportunity for treatment for the first time,

they may not know the symptoms and treatments associated with diseases that SB specializes in. Also, the reality is physicians, especially in rural areas, may not know all the treatment protocols and symptoms for certain types of diseases as well. I would suggest creating partnerships with Non-Profit Organizations aimed at disease awareness within China; also, partnerships and Aid to Medical Schools and Universities. Not only will it improve their public image; but awareness among the public about the types of ailments/diseases SBs products can treat. If the target market knows the problem, it puts SB in a better position to provide the solution. Pricing and keeping track of Chinas Purchasing Power Parity and Distribution of Wealth is extremely important. Unlike the current top two Pharmaceutical Markets in the world, the US (PPP of $43,500 in 2006) and Japan (estimated PPP of $32,700 in 2009), Chinas (estimated PPP of $6,600 in 2009) is much lower (CIA World Factbook). When China actually becomes one of the top three Pharmaceutical Markets, high profit margins will not be gained by charging the same kind of prices within the US and Japan. Affordability is key to this market. Also, China is a country of great disparity varying from region to region. Instead of selling all of SBs products within China at lower cost, newer and more costly products could be sold within the urban market at higher prices; while distributing generics and other lower cost products to the developing rural areas. Using this strategy SB could develop sizeable market-share footholdings and business relationships in developing areas; and if/when the areas become suitable for higher profit they can expand/change their product line and business model accordingly. On the Hong Kong forefront specifically, a rising affluent class is giving way to a market of customers who want to take care of themselves and their health; without cost being an issue (Stein). SB could work to further distribute their medicines into the hospitals of the upperclass. There is also an Over-the-Counter (OTC) market valued at $379.2 million as of 2009;

41% of the market is held by traditional medicines, accounting for about $155.5 million. The rest of the OTC market is held by vitamins, health supplements, and other unspecified products. The OTC market environment in Hong Kong is growing, however, studies show that Hong Kong resident consumers of OTC products tend to switch products and brands frequently (New Zealand: Trade and Enterprise). While SB could hypothetically expand its' operations to make vitamins, the rewards seem lower than if they just focused on expanding into the mainland moreso. In conclusion for China, SB should expand its market development efforts while searching out partnerships, investors, and licensing agreements from other countries or companies in an effort to broaden their reach within Chinas various regions. Almost all major pharmaceutical companies have opened institutions, mostly R&D, within China already; largely attributed to the relatively low cost of domestic clinical trials. SB has experience, with Chinese regulations and sales, on its' side, which is advantageous over many of China's pharmaceutical new-comers; they can shuttle themselves further than the competition. ODM/OEM should also be continued through partnerships or contracts with foreign companies within China as well. For example, Kyowa Hakko and Boehringer Ingelheim, whom SB is contracted by, each have a presence within China. SB has a major positive between being able to manufacture, or sell directly to the public. However, a sharper focus may be needed; and a choice between the two may be necessary, if they can't maintain both (Eleveld). Thailand The drug market in Thailand accounts for 1.46% of GDP, estimated total GDP $540.1 billion in 2009. Compound Annual Growth Rate (CAGR) estimates a 5.66% CAGR for pharmaceutical sales until 2019. In 2008 public sector spending accounted for $1.91 billion, 54% of the total market. Corruption is widespread in Thailand, in 2009 the Public Health

Minister resigned after his wrong-doings were made public. For SB, Thailand's consumer market should be avoided, and their current strategy of OEM/OCM for entrenched Thai Pharmaceutical Companies with market share should be maintained. The time, effort, and capital spent developing a a consumer market within Thailand would be money largely wasted as the majority of Medical spending is done through the government. Public Sector spending on healthcare rose from 47% in 1995 to 66.3% in 2007. An added benefit to avoiding the consumer market is in avoiding the political situation. Political instability could become a danger for foreign companies who come into the Market; added with the benefit of avoiding corruption and money politics (Thailand Business News). Singapore Singapore has established its position as a trusted and competitive site for biomedical manufacturing. Today, 8 leading pharmaceutical and biotechnology companies as well as 25 leading medical technology companies have invested in more than 50 commercial-scale manufacturing facilities, (Singapore Economic Development Board). Most companies in Singapore are looking to tap into the region's various markets. Also, it is a very pro-business environment; only taking 15 minutes to register a business online, and 24-36 months for a manufacturing facility to be operational (Singapore Economic Development Board). With Singapore's limited population and size, it would be foolhardy for SB to try to compete with the already entrenched pharmaceutical forces within the country. It would be possible for SB to cut out some market-share for itself if it attained the license for, or developed, a new and cutting edge product. However, as SB is mainly a manufacturer, and not a developer; this does not seem likely. I would advise SB to continue on its' path of assistive manufacturing for companies in Singapore on a OEM/OCM basis. However, as there are many manufacturing facilities already located on-site, SB's efforts could be better spent in other regions and markets (Singapore Economic Development Board).

Conclusion Synmosa Biopharma Corporation should do everything in its' power to expand their presence within both Japan and China as their top priority. Their other export markets should not be pursued or developed; and only worked with as long as the project does not take progress from Japan and China. Furthermore, Switching countries and opening on the Hong Kong stock exchange could benefit them greatly. There is a great soil within Asia from which a company like Synmosa Biopharma could grow. For this however, I believe their operation and/or partnerships must expand, especially manufacturing capabilities, with a large injection of capital and investment. They must also expand their persona; writing this paper is no easy task, largely due to lack of quality information. SB greatly lacks in information about itself; both in English and in Chinese on its' website. The information in English, simply is barely there, besides a brass tacks bio. The information in Chinese, is so old it doesn't provide a contemporary look at its' efforts; leaving its' corporate strategy unclear and largely hidden. Doing this, SB stigmatizes itself from investor and allied interest. Overall, SB is in a good position to scale up its' operations and possibly become a powerhouse; but it may not be possible for them to accomplish this alone. However in their defense, because SB is currently contracted by Kyowa Hakko and Boehringer Ingelheim (both companies having operations in Japan and China); they might be safe and sound where they are. It depends on how much they want to grow, and the scalability of their plans. If they seek further growth, as their website suggests, their future will be in new partnerships and/or investor support.

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