Much Ado About Nothing

1. Healthcare Services REPORT Much Ado About Nothing China or no China sentiments in the US pharma market

2. Much Ado About Nothing Trade relations between the two superpowers in pharma are deeper than they appear to be. With a lot of investments at stake for US pharma big weights, new regulations (such as Protecting Our Pharmaceutical Supply Chain from China Act of 2020) may create hurdles in the long term but not in 2022. Although there are negative sentiments in the market, debates in the political arena, and social media outcry due to COVID-19 and its origin, nothing is really going to change in 2022. Based on SGA’s research, Chinese companies have started taking an alternate route and investing in start-ups in the US. In fact, in 2020, Chinese FDI in the US stood at the third position in pharma med devices at $625 million despite the scrutiny tied to FIRRMA (Foreign Investment Risk Review Modernization Act). “Go China,” “No China,” or “? China” The race for market share and cheaper operations drove US companies toward China. The impact was badly felt when the supply chain was disrupted in 2020 during the pandemic and the US realized its dependency on a particular market. There were public outcries on social media, fluctuations in the market, and negative sentiments floating all around the pharma world. Did it make any difference? According to a new Pew Research Center survey in Q12021, 9 of 10 US adults (89%) considered China a competitor or enemy, rather than a partner during the pandemic. The negative image of China became obvious last year. Sharp rise in share of Americans who view China negatively, driven mostly by Republicans % who Note: ‘Cold’ refers to ratings of 0-49 on a feeling thermometer. Thermometer was asked as: ‘We’d like to get your feelings toward some different countries in the world on a ‘feeling thermometer.’ A rating of zero degrees means you feel as cold and negative as possible. A rating of 100 degrees means you feel as warm and positive as possible. You would rate the country at 50 degrees if you don’t feel particularly positive or negative toward the country. How do you feel toward China?” Source: Survey of U.S. adults conducted Feb. 1-7, 2021. Q41h, Thermchina. “Most Americans Support Tough Stance Toward China on Human Rights, Economic Issues’ Source: pewresearch 2

3. Much Ado About Nothing Will the pharma world face any threat in 2022? The US-China trade relations are no longer the same. With the introduction of Protecting Our Pharmaceutical Supply Chain from China Act of 2020 it is expected that pharmaceutical purchases from China or products with active pharmaceutical ingredients created in China will be restricted in future. However, this requirement will be phased in over two years. The FDA may issue waivers if the active pharmaceutical ingredients are available only in China. It is also expected that no waivers may be issued after 2026. But it is a long way to go. Even if the investment in the Chinese market has taken a dip in 2020-21, the numbers are still high and stable compared to financial services. China stole US capacity to make drugs – we must take it back Senator Tom Cotton and Mike Gallagher (2020) The dependency on APIs (Active pharmaceutical ingredients) and antibiotics is still high and not changing in the near term. Even if things change after 5 years, the next few years will remain as it is. Hence, this perception- based negativity will not impact the market. “Go China and No China” will soon be replaced by “No clarity over China.” Annual US Venture Capital Investment in China by Target Sector* (Number of Transactions) Source: Rhodium Group based on Bloomberg. Pitchbook and other databases. ‘Includes China-headquartered venture capital fundraising transactions involving at least one investor ultimately owned by a US entity. The much hyped and talked about anti-China sentiments will not impact the global pharmaceutical industry for the next 2-4 years. By the time the China Act 2020 becomes effective, the leadership may change in the US. Whether the next government continues with it or puts an end to such a process, no one has clarity. Will the APIs be finally manufactured in the US? Will the contract manufacturing of drug gain momentum? We can’t say for sure. Yes, there was a lot of noise in the market and all we can say is that appearances are deceptive, but data is not. Unless the numbers speak otherwise, China remains the hub of drug APIs and ingredients. 3

4. Much Ado About Nothing About the Author Dr. Siddhartha Dutta • Practice Head, Healthcare Dr. Siddhartha Dutta has been working in the healthcare industry for the last 22 years. He has been involved with clinical trials, medical research, planning, and various roles in public and private healthcare domains. He has extensively worked in South East Asia (including Japan), and key markets such as Europe and the US. As a medical microbiologist, he began his career in hospital reference laboratories in the US & India, and has been helping industry clients since 2007. He is a writer, blogger and strategist and has represented his industry on various platforms of international repute. His current areas of interest are AI in Healthcare, vaccines, femtech, info-products, patient data convergence and market access. Disclaimer This document makes descriptive reference to trademarks that may be owned by others. The use of such trademarks herein is not an assertion of ownership of such trademarks by SG Analytics (SGA) and is not intended to represent or get commercially benefited from it or imply the existence of an association between SGA and the lawful owners of such trademarks. Information regarding third-party products, services, and organizations was obtained from publicly available sources, and SGA cannot confirm the accuracy or reliability of such sources or information. Its inclusion does not imply an endorsement by or of any third party. Copyright © 2021 SG Analytics Pvt. Ltd. www.sganalytics.com GET IN TOUCH New York | Seattle | Austin | London | Zurich | Pune | Hyderabad 4