SHANGHAI - Merck & Co. affiliate MSD signed an agreement to form a joint venture July 21 with Simcere Pharmaceutical Group that will see both companies expand access to critical lifestyle drugs across China.

Initially focusing on cardiovascular and metabolic diseases, the JV company will market products from both companies' portfolios, including Merck's Zocor (simvastatin), Cozaar (losartan) Renitec (enalapril), and DPP-4 inhibitor Januvia (sitagliptin), approved in China in April 2010.

Simcere, which is based in Jiangsu Province and listed on the New York Stock Exchange, will also contribute its newly launched products Xinta (levamlodipine) approved in 2009 for hypertension and angina, and Shufutan (rosuvastatin), a generic version of AstraZeneca's cholesterol treatment Crestor, which it acquired from local company Tianjin Tianda Pharmaceutical in 2009 (Also see "Simcere Acquires Manufacturing Rights For Generic Crestor In China; Hopes Sales Force Will Provide Edge Over Competition" - Scrip, 16 November, 2009.).

As China expands healthcare access to its citizens across the country, the JV is designed to raise the standard of care among patients for needed medicines and positions both companies for growth, according to Merck.

The partnership combines MSD's expertise in marketing, sales, research and development and pharmaceutical manufacturing with Simcere's sales network and insight into the Chinese market with a focused approach on tailoring strategies to individual regions and provinces.

"By combining our strengths in this way the two companies will be able to gain access to more remote, small- and medium-sized cities throughout China and meet patient demand for innovative, high-quality medicines in more Chinese regions," Merck spokesman Ian McConnell said.

Financial details were not disclosed by the two companies, and the formation of the JV is subject to satisfying certain anti-trust and other Chinese government approvals, according to Merck. Merck will hold a 51% stake in the JV and Simcere will retain a 49% stake. The JV is expected to be operational by 2012, McConnell said.

"This deal is more than a sales and marketing deal. Down the line it describes development, registration and manufacturing," he added.

Simcere's President Zhang Yehong was likely a driving force in hammering out the agreement. Zhang worked for over 12 years at Merck in the U.S., China, and other regions. During his tenure, he held positions of responsibility in product manufacturing, supply chain operations and business development. From 2007 to 2008, he served as President of MSD in China.

Local Partners Critical To Entering China's Outlying Cities

Merck will also gain access to Simcere's existing 2,000-plus sales team covering 600 Chinese cities to promote its drugs. At the same time, by getting maximum usage of its sales team, Simcere can increase promotion for its new products such as Shufutan and Xinta but at a much reduced cost.

After Zhang joined Simcere, the president has been in charge of transforming the company's sales structure to build up its in-house sales force. Last year, Zhang added another 200 employees to its 2,000-plus sales team (Also see "Simcere Beefs Up Sales Force, Carves Out Provincial Sales Strategy To Drive Growth In China" - Scrip, 16 August, 2010.).

"Simcere has a really powerful network of distributors and sales reps within the provinces, so Merck is fairly strong in the cities, and this really provides another facet to our business over there," McConnell said.

China's tier-two cities are seeing even faster growth than tier-one cities like Shanghai and Beijing, and MNCs will need local partners to access those areas. Although China's central government has established guidelines for the way healthcare reform is supposed to look, in actuality it has pushed down responsibility for funding and implementation to the provinces.

"What it means for a company, if they do decide it is worthwhile to go after those smaller cities, they have to go province by province," said Pfizer Senior Director for International Trade Paul Neureiter during the PharmAsia Summit last year. "It is getting much more difficult and much more complicated for [multinational companies] to make sure their drugs are available throughout the country" (Also see "Will China Healthcare Reform Drive Higher Rewards For Innovative Drugs?" - Scrip, 19 November, 2010.).

The JV could potentially drive sales volume through Simcere's sales network for Zocor and Cozaar, which saw recent price cuts in China. Zocor's price was cut by 50% when it listed on China's Essential Drug List and Cozaar, which is on the National Drug Reimbursement List, also saw price cuts in March (Also see "Big Pharma Takes Another Haircut As China Slashes Drug Prices In Two Largest Therapy Fields" - Scrip, 8 March, 2011.).

Simcere May Share Marketing Expense Through JV

The move to partner with Simcere should not surprise China watchers, as analysts have long said that Simcere, with its large sales force and focus on innovative medicine, should be a "partner of choice" for MNCs.

For example, former Oppenheimer & Co. analyst Katherine Lu was bullish on Simcere, saying in a note in March that "We expect Simcere's strategy to focus on innovative products (proprietary and first-to-market generics), and a favorable mix shift will help the company to leverage China's improving medical insurance coverage and mitigate some pricing concerns."

"We view Simcere as a partner of choice for multinational companies," Lu added, "poised to benefit from MNC's aggressive China expansion plans" (Also see "China's Simcere Looks To Move Past Vaccine Troubles, Focuses On New GMP Requirements, Partnering With Big Pharma" - Scrip, 10 March, 2011.).

Simcere is also co-developing BMS-817378, a small molecule MET/VEGFR-2 inhibitor with Bristol-Myers Squibb Co., the company's first co-development partnership with a multinational company. Simcere will retain exclusive marketing rights in China (Also see "Simcere Will Co-Develop Cancer Drugs With BMS; A New R&D Model Between China And U.S.?" - Scrip, 16 November, 2010.).

In 2009, the company in-licensed OSI-930, from OSI Pharmaceuticals Inc., now part of Astellas Pharma Inc., for lung cancer and ovarian cancer (Also see "China's Simcere Signs Novel Licensing Agreement Covering U.S.-based OSI Pharmaceutical's Cancer Drug" - Scrip, 27 October, 2009.).

Merck EM Strategy Takes Shape

The deal also signals Merck's partnering strategy in emerging market for its branded and innovative products, especially in Asia. The company expects EMs to contribute 25% of its global sales by 2013. Currently EMs represent 18% of Merck's global sales (Also see "Merck Emerging Markets President Kevin Ali On The Branded Generics Business: An Interview With PharmAsia News (Part 1 of 2)" - Scrip, 11 July, 2011.).

Just two weeks ago, Merck signed a co-promotion deal with Korea's Daewoong Pharmaceutical Co. Ltd. to sell Merck's Vytorin (ezetimibe/simvastatin) in Korea. Daewoong already sells Merck's Januvia and Fosamax (alendronate) in the country since an agreement was struck in 2008 (Also see "Merck Turns Again To Daewoong For Co-promotion In South Korea" - Scrip, 7 July, 2011.).

In India, the company partnered with Sun Pharmaceutical Industries Ltd. in a deal under which Sun will develop and market innovative formulations of branded generics. Merck has another deal with Sun under which Sun will market Merck's Januvia and Janumet (sitagliptlin/metformin) under different brand names (Also see "On Heels Of Emerging Markets Deal, Merck Ropes In India's Sun Pharma To Boost Januvia Sales" - Scrip, 25 April, 2011.).

And in China last summer, Merck signed a memorandum of understanding with China's largest pharma distributor Sinopharm to co-develop human papillomavirus (HPV) vaccine Gardasil. Under the agreement Sinopharm would market other Merck vaccines and other potential products in China (Also see "Merck Teams Up With Sinopharm On Vaccines As It Gears Up For Gardasil Approval In China" - Scrip, 29 July, 2010.).

Pfizer Inc. also signed an MOU last month with Shanghai-based Zhejiang Hisun Pharmaceuticals to develop a JV to sell branded generics (Also see "Pfizer Looks To Ramp Up Branded Generics Via MOU With China's Hisun" - Scrip, 2 June, 2011.).

The recent moves by Pfizer and Merck to partner with Chinese companies will test the ability of Chinese companies to deliver high-quality finished products.

"This partnership between Simcere and Merck is not only strategically significant for both organizations, but also a landmark event for Jiangsu's biopharmaceutical industry," said Luo Zhijun, secretary of Jiangsu Province.

"Biopharmaceuticals is an emerging industry of strategic importance for Jiangsu Province and this partnership will bring additional momentum to the development of this industry. It will help Jiangsu in providing more quality pharmaceuticals to China and the world."

Luo led a delegation this week to the U.S. that includes leading Jiangsu Province pharma companies, including Simcere. The parties broke away from the delegation to sign the deal at Merck headquarters in New Jersey.

- Dai Jialing (j.dai@elsevier.com) and Tamra Sami (t.sami@elsevier.com)

[Editor's note: This story has been corrected. It originally said the JV would help Merck widen its access to rural China, but the deal in fact helps Merck widen access to China's outlying cities.]

Merck, Simcere Form JV To Expand Access To Lifestyle Drugs Across China

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