BGI, the world's largest rapid gene sequencing center, in Shenzhen, China, is on a quest to discover the genes governing human intelligence.
Separately, China's Shenzhen SiBiono Gene-Tech introduced the world's first gene therapy drug, Gendicine, for head and neck cancer, attracting foreign and Chinese patients eager for treatment.
This month, Beijing-based Sinovac Biotech announced a successful late-stage trial of a hand, foot and mouth disease vaccine that may soon add to the company's roster of vaccines for hepatitis, prevalent among Chinese.
Meanwhile, global pharmaceutical giant Merck announced its intentions to build a US$1. 5 billion research and development (R&D) center in Beijing, beating Novartis's US$1.2 billion centers in and around Shanghai.
One of seven priority industries championed by China's 12th Five-Year Plan, China's biopharmaceutical sector is on the go. Once predominantly focused on producing generics and performing contract research for Western companies, the industry is developing at a rapid clip in China. Spurred by generous government investment and the return of thousands of China-born, Western-trained researchers and managers, more Chinese companies are now engaging in new drug discovery, and foreign pharmaceutical companies, large and small, are clamoring to set up partnerships with them.
Yet, say experts, even as China is emerging as a new center for pharmaceutical research, the industry is still in its early days. Its aspirations of becoming a world-class innovator are unlikely to become a reality soon. "China is still in a stage where there's a lot of work to be done to catch up in innovative content," says Zhihao Yu, a biotechnology industry analyst at Boston-based Lux Research, which tracks innovation in China. Still, "with so much investment going on now [in the biopharmaceutical industry], these pieces will all fall into place eventually," says Sarah Frew, director of business and commercial development at Malvern, Pa.-based TetraLogic Pharmaceuticals, co-founded by former Princeton University microbiology professor Yigong Shi, now Dean of Tsinghua University's School of Life Sciences in Beijing. Multinational pharmaceutical companies, facing patent cliffs and weakening R&D portfolios, see significant potential in China, says Frew, who holds a Wharton MBA and a Ph.D. in cancer biology from the Massachusetts Institute of Technology and has written extensively about the Chinese industry.
Stephen M. Sammut, a Wharton School lecturer and biotech venture capitalist, takes a measured outlook also: "We may be five to 10 years away from seeing something [in China] that begins to duplicate what is happening elsewhere [in the U.S., for example]," he says. "For the foreseeable future, the U.S. will benefit not only from the momentum it built up over last three decades, but also from its biotech ecosystem — the base of accomplished managers and the research of commercially oriented scientists that took a generation to build. The science on which biotech is based has no borders, but it will take time to build the necessary human resources to make the industry work."
Serving the Chinese Population
Yet, Chinese companies have plenty on their plate now, creating drugs to serve the Chinese population, often in partnership with foreign companies. "There's a great desire in China to see Chinese-developed molecules targeting the Chinese population, rather than Big Pharma dictating what drugs get developed and bringing them to China," says Robert Nelsen, the Seattle-based co-founder of ARCH Venture Partners, a major investor in Shanghai biopharmaceutical company Hua Medicine.
At this point, the ability to come up with breakthrough innovations is "not the issue," agrees Charles Hsu, advisor to Shanghai-based venture capital firm Mustang Ventures. Rather, the focus is"to meet enormous unmet needs in China," he says. "You don't need the next Avastin or Herceptin, but an effective and efficient way to deliver tried and true treatments to a billion people. It's not the same level of inventive science as in the U.S., partly because it doesn't yet need to be. But China is rapidly acquiring the ability to innovate — it's just a matter of time and priorities."In 2007, Hsu co-founded San Bruno, Calif.-based LEAD Therapeutics, focused on identifying more efficacious drugs for existing targets, while doing all the actual chemistry in China. The company was sold to BioMarin in 2010 for approximately US$100 million, on a total investment of about US$15 million.
Indeed, "one of the strategic issues for China and the Chinese industry is whether to focus on the disease burden of their own society or Western diseases for the purpose of selling overseas," says Sammut. "All indications are that they're focusing on needs of their own population, and if a particular drug has universal benefit, so much the better. That drug can be sold in the U.S. and Europe." Some of China's most ambitious startups, such as Shanghai's Hutchison MediPharma and Ascletis, operating out of Hangzhou and Research Triangle Park, N.C., want to develop drugs for both the Chinese and global markets. But many others are likely to cut their teeth developing therapeutics for China before taking on global ambitions.
China's aging population is driving the government to find cost-effective health care solutions, such as new drugs and vaccines. At the end of 2009, China had an estimated 180 million people over age 60, and that number is expected to grow to 400 million, or nearly a quarter of the total population, by 2050, according to the China Population and Development Research Center. Growing at about 22% annually over the last five years, China's pharmaceutical market is second in size to the U.S. and is expected to become the world's biggest by 2020, according to IMS Health, a health care market research company.
Bringing Back Talent
China's central, regional, and local governments are investing about US$40 billion a year into the sector, which, in turn, has helped to attract some US$10 billion annually over the last three years from venture capital, corporate investments, mergers and acquisitions, and initial public offerings, according to ChinaBio LLC, a Shanghai-based biopharma consulting firm. Meanwhile, government policies supporting the industry have reaped outsized benefits, too. In 2008, the central government launched the Thousand Talents program to bring back 2,000 high-level Chinese-born science and technology academics and professionals over the next five to 10 years. More than 2,000 have returned under the program so far, including star Princeton professor Yigong Shi, now at Tsinghua. Altogether, some 80,000 life science professionals have gone back to China, lured by heady opportunities and government funding in the sector, if not the Thousand Talents program itself, according to a 2010 Monitor Group study.
In turn, "the returnees have been a primary influence in changing the industry in China," says Greg Scott, ChinaBio's founder and a former Palo alto-based biotech angel investor who moved to Shanghai in 2007 to take part in the growing Chinese industry. "When a company's whole management team has Western experience, the company's focus, operations and ability to manage innovation and to build talent in China all changes." Now, a spate of cross-border partnerships, often led by Western-trained Chinese scientists and managers, are proliferating.
Some of the most innovative Chinese companies are products of East-West collaborations. Chen Li, former Chief Scientific Officer of Roche R&D Center in Shanghai, co-founded Shanghai's Hua Medicine to develop and commercialize novel therapies for the Chinese and world markets. To start, Hua Medicine is in-licensing for clinical trials Roche's glucokinase activator (GKA), a drug for Type 2 diabetes, prevalent among Chinese. Li had developed GKA while at Roche. Hua will focus on in-licensing and developing drugs for cancer, diabetes and the central nervous system. "The core technology is not necessarily invented in China, but the molecule can be developed in China for Chinese applications," says ARCH Venture's Nelsen, who serves as Hua's Chairman.
Similarly, Jinzi Wu, former U.S.-based GlaxoSmithKline vice president of global HIV drug discovery, made a splash when his new company, Ascletis, raised US$100 million from Chinese and other investors in 2011 to develop cancer and infectious disease therapeutics for both China and global markets. The company will start by in-licensing clinical stage compounds for development and commercialization for China, operating out of Hangzhou, China, and Research Triangle Park, North Carolina.
Another star scientist, Xiaodong Wang, left an illustrious academic and business career in the U.S. to return to China, co-founding BeiGene. Beigene, based in Beijing, is developing therapeutics for cancers common in Asia, such as liver and gastric cancers, which have been relatively neglected by Western drug companies. Its approach is to in-license and develop clinical-stage compounds, and also to engage in new drug discovery. Beigene CEO John Oyler is an American.
Shanghai-based Hutchison MediPharma, founded by Samantha Du, a former U.S.-based Pfizer global R&D executive and now a venture capitalist at Sequoia Capital China, focuses on drug discovery, development and commercialization for the global market. Its focus: Innovative therapeutics in oncology and autoimmune diseases.
Building Bench Strength
Western-trained scientists and global-spanning partnerships can help accelerate China's drug development acumen, but China is far more behind when it comes to nurturing the deep bench strength required for basic research and blockbuster drug discovery. Few of China's universities and research institutions teach or practice the risk-taking mindset that has fueled U.S innovation in life sciences, though China is starting to establish a few such institutions, say experts. They include the Shanghai Advanced Research Institute, established by the Chinese Academy of Sciences and the Shanghai municipal government, and the National Institute of Biological Sciences in Beijing, run by Beigene co-founder Xiaodong Wang. Modeled after the Howard Hughes Medical Institute in the U.S., National Institute's returnee scientists are "given funds … to create interesting science around drug development," says ChinaBio's Scott.
Creating a truly innovative biopharmaceutical sector requires further development of the entire drug and health care system, in addition to the education and nurturing of scientific talent. "Right now, the principal issue is solving the problem of the ecosystem," says Wharton's Sammut. That includes building the drug regulatory system, intellectual property protections and a health care system that can encourage and absorb new technologies, he says. The government, which dictates drug pricing, for example, must balance the need to incentivize drug innovation with the need to provide care to the rural and urban poor.
In addition, though China's State Food and Drug Administration (SFDA) has made strides in providing a regulatory framework encouraging innovation, it is still a young agency that needs to build its staff and capabilities. "The U.S. Food and Drug Administration has thousands of people working on projects," says Lux Research analyst Yu. "The SFDA has less than a hundred people doing that work." Indeed, the SFDA has been plagued by scandal over contaminated Chinese-made blood thinner heparin, causing several deaths in 2008, and the execution of former SFDA chief Zheng Xiaoyu in 2007 for taking bribes in exchange for product safety licenses.
Still, the addition of China to the world biopharmaceutical industry is a plus, says TetraLogic's Frew. "[Multinational pharmaceutical] companies are not replacing drugs going off patent with an innovative pipeline," she notes. "We need to expand opportunities where innovation will come from. This is not taking away from scientists at MIT and Harvard and giving to scientists at Beijng and Tsinghua Universities. It just expands the pie to take advantage of all [the available] brain power."