In an exclusive interview with Hong Qihua of China Business News, Kabir Nath, President of Bristol-Myers Squibb China (BMS), evaluated the impact on the company of rising labor costs and changing taxation rules and discussed the company's plans for China

China Business News: What is the key to BMS’s success in China so far?
Kabir Nath: Localization in terms of human resources plays a key role in our success. There are now 1400 employees under our joint-venture umbrella but only ten employees are foreign, and we have Chinese managers to administer the different departments. Over the next three to five years, we will introduce nine to 10 new drugs in China and hold more and more clinical studies in China. This will also help us cultivate domestic human resources.

CBN: What is the role of China in BMS’s global strategy?
KN: The Chinese market has increasing significance in our global strategy. We have developed our primary strategy until 2020 with more R&D and clinical studies in China. Outsourcing clinical studies to Chinese operations has contributed greatly to our global R&D by decreasing costs.

Ixabepilone, for example, is a new drug for breast cancer due to be introduced into China in 2008. Its R&D has involved cooperation between China and the US since the very beginning. Among the 878 patients that participated in the studies, 139 were Chinese patients participating in two important phase III studies in 12 research bases in eight Chinese cities. While the data generated from China greatly contributed to the drug’s development, it also served as strong support for Ixabepilone’s registration in China.

Similarly to other senior executives at multinational pharmaceutical companies, we realize China will become a very important market by 2015 to 2020. The clinical studies and new drug development we invest in now will contribute greatly to our global business in seven to ten years. This means that we will continue investing in existing business such as sales teams, clinical studies and the production capacity of baraclude [a prescription medicine used for treating chronic hepatitis B infection - TCP] in China.

CBN: Will the Beijing Olympics serve as a good opportunity for BMS?
KN: For BMS, the Olympic year is a very important year in which we will strengthen investment in R&D in five therapeutic areas – immune system, cancer, hepatitis B, cardiology and rheumatoid arthritis.

CBN: It has been 25 years since BMS first invested in production facilities in Shanghai. How do you view the city’s investment environment?
KN: In addition to changes to land and infrastructure, the greatest changes in Shanghai over the past few decades have been “soft” infrastructure changes, such as the improvements and optimization of the regulatory environment. BMS is now more confident about the government’s awareness of and protection of patents and intellectual property. Therefore, we are planning to introduce nine to 10 new drugs to China over the next three to five years.

If we are to build new production facilities, Shanghai’s commercial costs will be an important factor to be considered, particularly rising costs for human resources, which is a potential problem. However, Shanghai’s advantage lies in its talent pool, which can help BMS’ development. At the same time, if we are to establish a R&D center with a focus on value-added services, Shanghai would be one of the strategic locations to consider.

CBN: BMS has just announced the acquisition of Adnexus. Will BMS engage in similar acquisitions in China? How do you view M&A in China’s pharmaceutical industry?
KN: I still haven’t seen multinational drug makers engage in similar acquisitions in China. They may have acquired companies in over-the-counter drugs but no prescription drugs. Nevertheless, BMS is interested in those development-stage companies with innovative technologies and business ideas, such as Adnexus. This is the same principle we retain for potential acquisitions in China. If there are Chinese companies with unique technologies in strategic fields that we also operate in, we would employ the same acquisition attitude toward them as those in other markets.

In the next few years, I believe there will be M&A among innovative biotech companies in China. There will also be more foreign companies forging partnerships with these domestic companies.

CBN: You mentioned there are still no major acquisitions in China. Why?
KN: I think it is only a matter of time until acquisitions of Chinese companies will be initiated by multinational pharmaceutical companies. Generally speaking, China’s biotech industry is still relatively new and therefore of relatively small scale. Another reason is that listed Chinese pharmaceutical corporations are very expensive to acquire at the moment because of the rocketing stock market.

CBN: China plans to levy a new corporate tax rate starting in 2008. How will this impact companies’ profit margins?
KN: Changes are expected in every country’s taxation policy, especially those that have employed concrete measures to attract foreign investment. Therefore, we have expected major changes in China’s taxation policy for a long time and we are prepared. However, we don’t think the new corporation tax will generate much impact on our investment decisions or economic activities in China. I don’t think many multinational corporations will change their investment activities accordingly. This is a conclusion that I draw after communicating with many senior executives at multinational corporations.

This article was published in Chinese in China Business News on December 11, 2007. The China Perspective takes no repsonsibility for the accuracy of the original article.