How to do business in China

(Hyacinth Empinado/STAT)

Biotech is booming in China, giving stateside companies a bevy of new opportunities to market their products, find investors, and run clinical trials.

But as STAT’s Kate Sheridan reports, a mutual interest in cutting-edge science doesn’t mean the two nations are automatically on the same page when it comes to business, culture, and communication. She talked to a bunch of experts on doing transpacific biotech deals about the nuances between nations and vast importance of a little patience.

“Americans think that there is a shortcut and that you can be casual about getting to know people — you can send a quick email or have a forthright phone conversation,” said Jennifer Lawrence, president of Cambridge Corporate Training. “It’s virtually impossible to build trust in a Chinese context unless you’re willing to sit down and do it face to face and let some time go by.”

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Buybacks are bad, according to data

Since 2014, the biggest biotech companies have spent more than $100 billion in cash to buy their own shares. Leerink analyst Geoffrey Porges ran the numbers on those purchases, and it turns out they’d have been better off not even bothering.

The rate of return on those investments is negative 6 percent, Porges figured, which is to say Big Biotech effectively set $12 billion on fire. So why do management teams keep doing buybacks? Perhaps because each one had a positive effect on short-term earnings per share, which is fun to say on a quarterly conference call and also happens to be good for meeting the goals that determine executive compensation.

But investors shouldn’t be fooled by that short-term bounce, Porges warned. Buybacks make sense in businesses where long-term profits are predictable. It’s the opposite case in the upper echelons of biotech, in which the one-two punch of patent expirations and competition makes the future vastly uncertain. 
 

Amarin’s slippery fish oil situation

Amarin says $450 million was spent over a decade to develop and secure FDA approval for its prescription-grade and proprietary formulation of omega 3-containing fish oil, called Vascepa. The investment paid off with positive results from a large clinical trial showing Vascepa cut the risk of bad cardiovascular events like heart attacks and stroke.

As you’d expect, Amarin is eager to profit from its Vascepa investment in the form of blockbuster sales. And just as predictably, the company is turning to its lawyers to police the fish-oil world. Amarin filed two federal lawsuits yesterday, each against a different maker of dietary supplements, seeking to stop what it says are false and deceptive claims equating their fish oils to Vascepa.

Amarin is prepared to file as many lawsuits as needed to protect its Vascepa business, its chief counsel says. But with so many marketing loopholes and lax FDA oversight of the nutritional supplement business, Amarin’s legal watchdogs might find themselves stuck in a frustrating game of omega 3 whack-a-mole.

The IPO fountain might be drying up

Yesterday, amid yet more headlines about a swoon in biotech stocks, we asked readers whether the next billion-dollar IPO can break out and trade up once it hits the Nasdaq.

And the majority were pessimistic. About 61 percent of respondents predict that Orchard Therapeutics, a gene therapy company seeking a $1.4 billion valuation, will trade down once it goes public this week. The rest expect the company to do the opposite.

For whatever it’s worth, the last three biotech companies to go public at valuations exceeding $1 billion all had positive first days on the market. On the other hand, biotech’s IPO class is underwhelming in the aggregate: The average return is just 3 percent, and the median offering is down 12 percent.