BORN in the United States, Thomas Kelly started his career in the pharmaceutical industry in China 17 years ago, when he joined Xian-Janssen in Shanghai.

He became general manager of Novo Nordisk's China division in 1998 and two years later was appointed general manager of Schering-Plough China.

In 2006, Kelly joined the China subsidiary of Sanofi-aventis SA, France's largest pharmaceutical company. He now serves as the company's vice president of Chinese mainland, Hong Kong and Taiwan and general manager of Sanofi-aventis China.

Earlier this month, the French drug maker established its first regional research center in Shanghai.

In addition to deepening its collaboration with local research institutions and hospitals, Sanofi-aventis has established a joint venture with Zhejiang Minsheng Pharmaceutical, hoping to take advantage of its partner's retail channels. The deal is still undergoing regulatory scrutiny. The company hopes the venture will become operational by the end of this year.

Pharmaceutical research organization IMS Health said in a March 16 research report that China will become the world's third-largest pharmaceutical market in 2011, behind the US and Japan. Drug sales are expected to exceed US$40 billion in 2013.

Kelly sat down in an interview with Shanghai Daily to discuss China's pharmaceuticals market.

Q: How do you balance the need to deliver top-quality research with the need to show sales growth as quickly as possible?

A: We have just set up our Asia Pacific R&D in Shanghai, which means we're going to bring a lot of expertise and resources to Shanghai. Actually our R&D strategy is different from other multinational drug makers. Instead of building R&D facilities, our focus is on partnerships. Instead of us trying to hire all of the researchers, we believe collaboration is the most effective way. Firstly we have the opportunity to reallocate our resources and focus on multiple collaborations. Secondly we're working with scientists who are also entrepreneurs at the same time, and they probably don't like working in a large company in very rigid environments. Our goal is to leverage the innovation in the basic research in China and combine it with our expertise. We recognize that no one has a monopoly in innovation. Our goal is to become the first multinational drug company that completes truly home-grown research and clinical development in China. We're not Western-centric. We're also looking at epidemiology in China, and we hope to meet the unique medical needs here, not necessarily in US or Europe.

Q: You had wide experience with multinational drug companies before you joined Sanofi-aventis. How has that shaped your decision-making in China?

A: I've been working in the pharmaceutical industry for 17 years, and all the companies I've worked for are very good ones. Sanofi-aventis has nearly 30 years of history here. There is a continuous passion for and involvement in the Chinese market at the most senior levels. It's critical as manager for Sanofi-aventis's subsidiary in China to know that you have the commitment from the highest level of management, who believe in the long-term strategy of China. Some companies have to balance between opportunities and risk. But we never talk about the risk because of the high quality of our Chinese strategy.

At the same time, we have a very decentralized management. Since I joined the company, I've never reported to Singapore, where our headquarters for the Asia-Pacific region lies, because given China's size and importance, someone in Singapore can't help you make decisions. I report directly to the vice president who overseas operations in the Asia-Pacific.

The result of all this is that we are able to move very fast in decision making, and that's important in a market like China that is changing quickly.

Q: How do you view the competition you face in China?

A: I look at competition in two dimensions: First, who can preempt and adapt to the changes in the market? Second, who can win the war of talent?

I don't highlight a single company as a competitor. That's not because I don't respect my peers, but rather it reflects the fact that the biggest company in China's prescription pharmaceuticals has only a 2 percent market share, which is very unusual in the global market. There are also some competitive Chinese companies emerging now, so we won't focus on any particular company as our rival.

Currently we have a No.1 market share in the combined markets in developing countries. That reflects our rule that no country is too small for our presence.



Q: What market concerns and regulatory problems do you have to deal with as a manager?

A: One of the most important points about the market is the Chinese government's efforts to upgrade its health care system, which includes ongoing reforms, the implementation of the new essential drug list and the building or upgrading of infrastructure in rural areas as well as in the primary health care system.

China is complex. You can no longer have one business model if you really want to be a diversified leader in health care and look beyond the 2 percent market share.

We all acknowledge China's tremendous economic growth, rising disposable income, huge demand for innovative medicines and the big funding from the government. The question for multinationals as well as local companies is how to gain access to a much broader population than before.

Part of our strategy in trying to adapt to change is not to look at business in terms of how many products we're offering, but rather to look at how many consumers we are reaching through various channels. We need to get closer to consumers to know what their needs are.

Q: How do you plan to expand your channels to consumers?

A: China is already the second-largest consumer health care market in the world and has got 200,000 retail pharmacies. That is a channel where we're going to have a very significant footprint in the next few years and it is critical in reaching more consumers.

There are 27,000 hospitals, ranging from level three to clinics. In urban areas, we think there will be two markets: a market for primary health care in clinical health care centers and another market for consumers with basic medical insurance. We have to serve both of these two markets effectively and provide the right products to the right customers.

Then the next issue is rural health care. This is something I'm personally very interested in and excited about. We still have a lot of uncertainty to sort out in this area, but it's certain we're going to find partners to help us to reach the population that we're not able to reach currently. The Internet is also a very important channel. To be successful in China and serve a large population, there is no one fixed business model anymore. Companies have to be very agile and be able to execute multiple business models. In many cases we will have to identify new partnerships with Chinese institutions, companies and the government because we can not do this alone.

Q: How do you view the pharmaceutical industry in China?

A: I believe consolidation will be very important and significant in the next five years, driven by market forces and increased quality standards required by regulatory authorities. There are over 3,000 local pharmaceutical companies and around 60 vaccine companies. The market remains extremely fragmented compared with other parts of the world. Through this process of mergers and acquisitions, there will be tremendous opportunities for establishing new partnerships.

Q: How do you choose your partners?

A: We're currently in talks with different companies in different regions and provinces in an effort to find new partners.

In terms of building partnerships, it's sometimes difficult for both parties to define their strategic visions and find alignment in a relationship.

Most companies in the past 10 years came to China by establishing joint ventures with local ones, adhering to regulatory rules. They often didn't come together because they shared the same vision and or similar strategies. Both Chinese and overseas companies are more mature now, and the new joint ventures are no longer established out of mandatory regulatory rules but rather because they share similar values. I think the truly successful ones will be companies that have the ability to form partnerships. At the end of the day, if you want to really expand with multiple business models, not only with the 2 percent market share, then you have to be very open-minded. That is a key skill for managers at multinational drug companies as well as Chinese ones.

Q: What's your motto?

A: Embrace complexity; excellence in simplifying.

You have to enjoy complexity in dealing with the Chinese market. In China sometimes you look at something and say this is too complicated, but that means you may lose an opportunity unless you really go deep. You have to not be afraid of complexity and explain it clearly to your higher-level directors. Sometimes I do find it difficult to explain all the health care reform and the market changes. You have to go through a very complex thought process and lay everything out in the simplest way possible so that the management team can understand it.