An Emerging Biotech Giant?

Opportunities for well-informed foreign investors
abound in China's growing biotech sector

by Matthew Chervenak

Quietly, China has slipped into an influential role within the global biotech industry. US and European life scientists may increasingly notice that many of the test tubes and tips and certain reagents in their laboratories are manufactured in China. But many executives may not recognize the name BioAsia Co.—a Shanghai-based bio-services provider that US biotech product and service giant Invitrogen Corp. recently acquired. They may also be unaware that SiBiono GeneTech Co., Ltd., the first company in the world to receive regulatory approval by any agency for a gene therapy, is based in Shenzhen (see Chinese Companies, Institutes Shoot Ahead).

Challenging global players, Chinese companies have begun to compete in lower-end bio-equipment, reagents, and consumables. Some local suppliers have moved into higher-tech equipment and analytical software and have begun to pose a greater threat to established companies.

Though most of the radical changes in China's biotech industry have taken place in the last seven years, this growth has its roots in reforms that began more than 20 years ago (see Evolution of China's Biotech Sector). China's biotech industry has emerged largely because of beneficial policy changes, increased program funding, low labor costs, and reorganization of China's science and technology system. Also, the quality of China's talent pool has improved as overseas Chinese with biotech training have returned to the mainland. And the creation of high-tech zones has helped put important infrastructure and tax incentives in place.

With excess capacity and compressed margins, many Chinese biopharmaceutical manufacturers may be good candidates for partnership or acquisition.

Today, more than 300—mostly domestic—companies in China are using molecular biology to create products, provide services, and research new drugs. China has also become the dominant force behind a number of fermentation-based chemicals such as citric acid and ascorbic acid (Vitamin C).

Government and private funding

Although estimates vary widely, analysts believe that the PRC government spends more than $600 million per year on biotech research and development (R&D) through its funding initiatives. China's national and local governments also pour money into quasi-venture capital companies that invest in technology enterprises. Some of these venture capital companies invest in biotech startups, though typical investment levels fall far short of the roughly $500,000 to $2 million that startups command in developed countries. Though funding for basic and applied research in China is modest compared with that in developed countries, it is important to note that because of the low costs of labor, certain equipment, consumables, and reagents, investors can realize more "bang for the buck" in Chinese laboratories. Foreign investment has flowed into China's biotech industry through a number of channels, including outsourcing, biopharmaceutical and lab supply manufacturing ventures, and in some cases, R&D-based ventures.

Evolution of China's Biotech Sector

In the early days of the PRC, the nation based its science and technology system on that of the Soviet Union. In the 1950s the government assigned basic science to the Chinese Academy of Sciences, assigned applied research to the state ministries of Agriculture and Health, and limited the role of universities to education, as opposed to research. The system helped Chinese scientists achieve notable successes, such as chemically synthesizing bovine insulin—important in diabetes research—by 1965. But as a result of internal power struggles within the PRC government and the disintegration of relations with the Soviet Union, working conditions for scientists in China deteriorated, collapsing completely as leaders suspended academic activity during the Cultural Revolution (1966-1976).

Deng Xiaoping's opening and reform policies in the late 1970s and early 1980s essentially restored China's science and technology system, and life sciences became a key area of government funding and attention. The National Center for Biotechnology Development, a coordination unit within what would later be called the Ministry of Science and Technology, was established in 1983. In the mid-1980s, the government initiated the National High Technology Research and Development Program of China—or the 863 Program—to provide funding to various science initiatives including biotechnology. These initiatives began to bear fruit with products such as Interferon a1b, which is used to treat viral infections and certain types of cancers, discovered by Professor Hou Yunde in 1987. Deng's reforms also helped to transform Shenzhen into a special economic zone where some of China's earliest biotech companies began operations. In 1993, China first granted patents for medicines, a critical milestone for the fledgling biotech industry.

Throughout the 1990s, biotech growth accelerated. Increases in funding, the reorganization of science and technology ministries, a movement toward a peer-review system in which scientists judge scientists, and the flow of government money into quasi-venture capital funds were all critically important. The number of biotech companies exploded between 1997 and 2002, inspired by China's participation in the Human Genome Project, China's sequencing of the rice genome, an influx of returnees with biotech experience, and more available capital.

—Matthew Chervenak

A wide range of investment opportunities

Bio-related technologies have applications in a wide variety of industries. New drug discovery and development applications receive the bulk of funding worldwide. In China, though investors also favor pharmaceutical-related applications of biotechnology, fine chemical, environmental, agricultural, and other applications play a greater role than in developed countries. This stems in part from China's cost advantages and the great local demand for environmental, food, and industrial products and services.

Biopharmaceuticals
According to government statistics, China's biological product market (which generally includes gene engineering drugs, vaccines, antibodies, and blood products) surpassed $2.5 billion in 2004 and is growing in excess of 13 percent per year. PRC authorities have approved more than 20 biopharmaceuticals and have granted more than 130 companies Good Manufacturing Practice certification. The nation's biopharmaceutical market is primarily generic, and most players are smaller domestic companies that compete on price (see the CBR, November- December 2004, p.16). Example products include the interferon series, erythropoietin, colony-stimulating factor series, tumor neurosis factor, insulin, growth hormone, and interleukin-2—all of which were or are widely used in developed countries. China's manufacturers are experienced in E. coli, yeast, and Chinese hamster ovary expression systems (a method of manufacturing useful proteins from cells). One company currently manufactures therapeutic antibodies and two others are expected to bring antibody production facilities online in mid-2005. Some firms export to other developing countries where biopharmaceutical-related patents have not been registered or are not enforced. Most domestic players have excess manufacturing capacity.
China presents many opportunities for biopharmaceutical and generics producers. But most international biopharmaceutical companies have yet to enter the market. With the right market-entry strategy and an informed plan for intellectual property (IP) protection, selected products could easily make inroads into the Chinese market. China is also an ideal location from which to base a global biologic generics player. Some global companies, such as Dragon Pharmaceuticals Inc. of Canada and GeneMedix plc of the United Kingdom, have already established a manufacturing base in China. With excess capacity and compressed margins, many Chinese biopharmaceutical manufacturers may be good candidates for partnership or acquisition.
New drug development
To develop new drugs, investors have helped form a host of startups in China over the last 10 years. PRC authorities have granted some, such as SiBiono GeneTech, approval for their therapeutic products developed in China. Many other companies have candidates in preclinical and clinical development. These startups focus on the discovery and development of their own IP, in contrast to most of the biopharmaceutical manufacturers, which mainly make and sell drugs invented elsewhere. Technology focus areas for these companies include gene therapy, antibodies, and traditional Chinese medicine (TCM) modernization. Some analysts believe that TCM modernization, including high-throughput screening and other techniques aimed at the discovery of active components, offers China a competitive advantage in drug discovery.
Opportunities for pharmaceutical and biotech companies include in-licensing (buying a license for the use of another company's IP or products) drug compounds discovered by Chinese biotech companies or institutes. Investors increasingly scrutinize companies with platform technologies or promising therapeutic candidates. Roche Holding Ltd. has opened an R&D center in China, and other pharmaceutical companies are following suit.
Lab supplies
Global suppliers of life science equipment, tools, services, and reagents have held dominant market positions in China's growing market for the last 20 years. Most of these suppliers, such as Invitrogen Corp. and Eppendorf AG, have distribution relationships with at least one of China's more than 200 life science distribution companies. Considerable change will occur in this area since China began allowing foreign companies to distribute non-pharmaceutical lab products directly to domestic consumers at the end of 2004.
Opportunities exist for companies to source from, partner with, or acquire Chinese biotech reagent, equipment, and consumables manufacturers. Many local companies are eager to partner with foreign firms with advanced technologies and products. From a revenue perspective, accessing China's growing market for lab products through direct sales, selling through a distributor, or acquiring a distribution channel are viable options.
Bio-services
Many of China's biotech companies provide important services for other biotech and pharmaceutical companies and research centers. These manually intensive but highly skilled outsourcing services include nucleotide sequencing and synthesis, protein expression, and library construction, among others. One service provider, Shanghai Sangon Biological Engineering & Technology Services Co., Ltd. (SSBE Sangon), has established offices in North America and elsewhere. The Beijing Genomics Institute (BGI) has conducted a number of whole genome sequencing projects (including its well-publicized sequencing of 1 percent for the Human Genome Project) that have launched BGI into the vanguard of sequencing facilities worldwide.
Multinational biotech companies, pharmaceutical companies, and research centers can reduce costs by working with Chinese bio-services providers. Global services companies should consider partnering with, building, or acquiring a local service provider. This is the strategy Invitrogen has taken with its acquisition of BioAsia. Invitrogen is using BioAsia to expand its China presence both in terms of distribution and to augment its service capabilities.
Chemicals and enzymes
Enzymes, proteins that act as catalysts inside cells, are used for numerous industrial applications such as bleaching, stone-washing, and brewing. China's market for enzymes has grown rapidly as a result of increased industrial demand.
Novozymes A/S and Genencor International Inc. (which was recently acquired by Danisco A/S) currently dominate the worldwide enzyme market. Both companies have manufacturing, sales, and marketing operations in China and have pledged to expand their presence over the next several years. Novozymes became the first global biotech company to open an R&D center in China in the late 1990s. The company's laboratory in Beijing focuses on the R&D of China-specific products and China-tailored versions of industrial enzymes.

Local players also compete in the enzyme market with less-technology-driven products. These companies tend to be smaller and more focused on price competition.

Smaller, foreign technology-based biotech enzyme companies have opportunities to partner with or acquire an enzyme production facility in China. Chinese facilities provide both access to China's market and a platform from which to export.

More than 500 enterprises produce fermentation products such as citric acid, lactic acid, vitamins, amino acids, and other fine chemicals in China. Competing on price, China's domestic producers have eaten heavily into the market share of global players during the last 10 years.

Opportunities for foreign companies include sourcing low-priced products from Chinese firms. Global players with fermentation technologies could acquire China-based capacity for global production.
Agri- and aquaculture
According to the International Service for the Acquisition of Agri-Biotech Applications, China ranked fifth in the world in terms of genetically modified organism (GMO) cultivated acreage in 2004. GMO plants developed or in use in China include pest-resistant cotton—China's largest GMO crop—and tobacco, sweet peppers, peanuts, papayas, and vaccine-carrying tomatoes. Many other plants are in development stages. China researchers are also investigating GMO animals for food and pharmaceutical production purposes and GMO microorganisms for animal feed.
China is by far the world's largest producer of fish from aquaculture, though most domestic farms are small operations that use only basic technologies. Though only in its infancy, the industry is moving toward higher density, high-tech farming techniques. Some entrepreneurial local enterprises have already begun capitalizing on the demand for higher-tech feeds and other products.
Environmental products and services
In light of water resource degradation and health risks associated with air pollution, the PRC government has stressed the need to improve environmental conditions in China. Organic fertilizer, aquafarming waste products and services, and organic pesticides have emerged as new areas for entrepreneurial activity.

Chinese Companies, Institutes Shoot Ahead

Many Chinese biotech firms and institutes have made significant advance in recent years and have, at times, beaten larger, more heavily financed international firms in the biotech race.

Thanks to state-sponsored centers such as the Beijing Genomics Institute (BGI), China was the only developing country to participate in the Human Genome Project. BGI, which was established as a nonprofit research entity in 1999 and is part of the Chinese Academy of Sciences, has since decoded a subspecies of rice and helped to sequence chicken, pig, and silkworm genomes.

Shenzhen-based SiBiono GeneTech Co., Ltd. received international recognition in 2003 when it developed the world's first licensed gene therapy medication. The PRC State Food and Drug Administration granted SiBiono permission to produce its gene therapy medication, now called Gendicine, after five years of clinical trials. The company's founder, chair, and CEO, Dr. Peng Zhaohui, believes the cancer treatment that fights tumors by injecting a tumor-suppressing gene into the body is a safe and life-saving product. Because the US Food and Drug Administration has not yet approved the sale of Gendicine (or any human gene therapy) in the United States, most likely because of unclear clinical trial results, some scientists in the international community are wary. The company receives state and private funding and is now working with New Brunswick Scientific Co., Inc., a US lab equipment supplier, to produce 150 million doses of Gendicine per year.

—CBR Staff

Troubles in bioparadise

Intellectual property and an underdeveloped capital market remain the largest barriers to biotech growth in China. Venture capital investors require portfolio company technologies to be protected and a waiting capital market for exit opportunities. While IP protection is improving in China, and exits are possible on the NASDAQ market through an offshore or US-based incorporation, most venture capitalists remain cautious. Moreover, political opposition from internal R&D departments often discourages biotech and pharmaceutical companies from seizing opportunities in China.

A lack of management and investor seasoning is also a hindrance to foreign participation in China's biotech industry. Though many returnees gain experience abroad before founding a company in China, few have prior executive experience. Because most Chinese biotech companies lack sufficient capital and most domestic venture capitalists lack an understanding of the biotech investment paradigm in developed countries, biotech companies are often forced to adopt complex business models that generate cash flow from a noncore activity, such as distribution. Often the noncore activity distracts the company from promising projects.

Bright biotech future

Despite the sector's weaknesses, China's strengths—low-cost, highly skilled technologists and scientists, a strong track record in life-science research, a high-quality returnee pool, advantageous policies and tax treatment, and China's entrepreneurial culture—all indicate a promising future. If China implements appropriate regulatory structures for IP protection and capital markets, which may take a long time, the industry's natural drivers will make China's emergence as a strong player in the field inevitable. Within many products and services sectors, China is poised for dominance.

Matthew Chervenak is president and founder of General Biologic, a Shanghai-based professional services firm that focuses on bio-business in China. The firm provides consulting, information, and transactional services to investors and biotech and pharmaceutical companies.

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	An Emerging Biotech Giant? Opportunities for well-informed foreign investors abound in China's growing biotech sector by Matthew Chervenak Quietly, China has slipped into an influential role within the global biotech industry. US and European life scientists may increasingly notice that many of the test tubes and tips and certain reagents in their laboratories are manufactured in China. But many executives may not recognize the name BioAsia Co.—a Shanghai-based bio-services provider that US biotech product and service giant Invitrogen Corp. recently acquired. They may also be unaware that SiBiono GeneTech Co., Ltd., the first company in the world to receive regulatory approval by any agency for a gene therapy, is based in Shenzhen (see Chinese Companies, Institutes Shoot Ahead). Challenging global players, Chinese companies have begun to compete in lower-end bio-equipment, reagents, and consumables. Some local suppliers have moved into higher-tech equipment and analytical software and have begun to pose a greater threat to established companies. Though most of the radical changes in China's biotech industry have taken place in the last seven years, this growth has its roots in reforms that began more than 20 years ago (see Evolution of China's Biotech Sector). China's biotech industry has emerged largely because of beneficial policy changes, increased program funding, low labor costs, and reorganization of China's science and technology system. Also, the quality of China's talent pool has improved as overseas Chinese with biotech training have returned to the mainland. And the creation of high-tech zones has helped put important infrastructure and tax incentives in place. With excess capacity and compressed margins, many Chinese biopharmaceutical manufacturers may be good candidates for partnership or acquisition. Today, more than 300—mostly domestic—companies in China are using molecular biology to create products, provide services, and research new drugs. China has also become the dominant force behind a number of fermentation-based chemicals such as citric acid and ascorbic acid (Vitamin C). Government and private funding Although estimates vary widely, analysts believe that the PRC government spends more than $600 million per year on biotech research and development (R&D) through its funding initiatives. China's national and local governments also pour money into quasi-venture capital companies that invest in technology enterprises. Some of these venture capital companies invest in biotech startups, though typical investment levels fall far short of the roughly $500,000 to $2 million that startups command in developed countries. Though funding for basic and applied research in China is modest compared with that in developed countries, it is important to note that because of the low costs of labor, certain equipment, consumables, and reagents, investors can realize more "bang for the buck" in Chinese laboratories. Foreign investment has flowed into China's biotech industry through a number of channels, including outsourcing, biopharmaceutical and lab supply manufacturing ventures, and in some cases, R&D-based ventures. Evolution of China's Biotech Sector In the early days of the PRC, the nation based its science and technology system on that of the Soviet Union. In the 1950s the government assigned basic science to the Chinese Academy of Sciences, assigned applied research to the state ministries of Agriculture and Health, and limited the role of universities to education, as opposed to research. The system helped Chinese scientists achieve notable successes, such as chemically synthesizing bovine insulin—important in diabetes research—by 1965. But as a result of internal power struggles within the PRC government and the disintegration of relations with the Soviet Union, working conditions for scientists in China deteriorated, collapsing completely as leaders suspended academic activity during the Cultural Revolution (1966-1976). Deng Xiaoping's opening and reform policies in the late 1970s and early 1980s essentially restored China's science and technology system, and life sciences became a key area of government funding and attention. The National Center for Biotechnology Development, a coordination unit within what would later be called the Ministry of Science and Technology, was established in 1983. In the mid-1980s, the government initiated the National High Technology Research and Development Program of China—or the 863 Program—to provide funding to various science initiatives including biotechnology. These initiatives began to bear fruit with products such as Interferon a1b, which is used to treat viral infections and certain types of cancers, discovered by Professor Hou Yunde in 1987. Deng's reforms also helped to transform Shenzhen into a special economic zone where some of China's earliest biotech companies began operations. In 1993, China first granted patents for medicines, a critical milestone for the fledgling biotech industry. Throughout the 1990s, biotech growth accelerated. Increases in funding, the reorganization of science and technology ministries, a movement toward a peer-review system in which scientists judge scientists, and the flow of government money into quasi-venture capital funds were all critically important. The number of biotech companies exploded between 1997 and 2002, inspired by China's participation in the Human Genome Project, China's sequencing of the rice genome, an influx of returnees with biotech experience, and more available capital. —Matthew Chervenak A wide range of investment opportunities Bio-related technologies have applications in a wide variety of industries. New drug discovery and development applications receive the bulk of funding worldwide. In China, though investors also favor pharmaceutical-related applications of biotechnology, fine chemical, environmental, agricultural, and other applications play a greater role than in developed countries. This stems in part from China's cost advantages and the great local demand for environmental, food, and industrial products and services. Biopharmaceuticals According to government statistics, China's biological product market (which generally includes gene engineering drugs, vaccines, antibodies, and blood products) surpassed $2.5 billion in 2004 and is growing in excess of 13 percent per year. PRC authorities have approved more than 20 biopharmaceuticals and have granted more than 130 companies Good Manufacturing Practice certification. The nation's biopharmaceutical market is primarily generic, and most players are smaller domestic companies that compete on price (see the CBR, November- December 2004, p.16). Example products include the interferon series, erythropoietin, colony-stimulating factor series, tumor neurosis factor, insulin, growth hormone, and interleukin-2—all of which were or are widely used in developed countries. China's manufacturers are experienced in E. coli, yeast, and Chinese hamster ovary expression systems (a method of manufacturing useful proteins from cells). One company currently manufactures therapeutic antibodies and two others are expected to bring antibody production facilities online in mid-2005. Some firms export to other developing countries where biopharmaceutical-related patents have not been registered or are not enforced. Most domestic players have excess manufacturing capacity. China presents many opportunities for biopharmaceutical and generics producers. But most international biopharmaceutical companies have yet to enter the market. With the right market-entry strategy and an informed plan for intellectual property (IP) protection, selected products could easily make inroads into the Chinese market. China is also an ideal location from which to base a global biologic generics player. Some global companies, such as Dragon Pharmaceuticals Inc. of Canada and GeneMedix plc of the United Kingdom, have already established a manufacturing base in China. With excess capacity and compressed margins, many Chinese biopharmaceutical manufacturers may be good candidates for partnership or acquisition. New drug development To develop new drugs, investors have helped form a host of startups in China over the last 10 years. PRC authorities have granted some, such as SiBiono GeneTech, approval for their therapeutic products developed in China. Many other companies have candidates in preclinical and clinical development. These startups focus on the discovery and development of their own IP, in contrast to most of the biopharmaceutical manufacturers, which mainly make and sell drugs invented elsewhere. Technology focus areas for these companies include gene therapy, antibodies, and traditional Chinese medicine (TCM) modernization. Some analysts believe that TCM modernization, including high-throughput screening and other techniques aimed at the discovery of active components, offers China a competitive advantage in drug discovery. Opportunities for pharmaceutical and biotech companies include in-licensing (buying a license for the use of another company's IP or products) drug compounds discovered by Chinese biotech companies or institutes. Investors increasingly scrutinize companies with platform technologies or promising therapeutic candidates. Roche Holding Ltd. has opened an R&D center in China, and other pharmaceutical companies are following suit. Lab supplies Global suppliers of life science equipment, tools, services, and reagents have held dominant market positions in China's growing market for the last 20 years. Most of these suppliers, such as Invitrogen Corp. and Eppendorf AG, have distribution relationships with at least one of China's more than 200 life science distribution companies. Considerable change will occur in this area since China began allowing foreign companies to distribute non-pharmaceutical lab products directly to domestic consumers at the end of 2004. Opportunities exist for companies to source from, partner with, or acquire Chinese biotech reagent, equipment, and consumables manufacturers. Many local companies are eager to partner with foreign firms with advanced technologies and products. From a revenue perspective, accessing China's growing market for lab products through direct sales, selling through a distributor, or acquiring a distribution channel are viable options. Bio-services Many of China's biotech companies provide important services for other biotech and pharmaceutical companies and research centers. These manually intensive but highly skilled outsourcing services include nucleotide sequencing and synthesis, protein expression, and library construction, among others. One service provider, Shanghai Sangon Biological Engineering & Technology Services Co., Ltd. (SSBE Sangon), has established offices in North America and elsewhere. The Beijing Genomics Institute (BGI) has conducted a number of whole genome sequencing projects (including its well-publicized sequencing of 1 percent for the Human Genome Project) that have launched BGI into the vanguard of sequencing facilities worldwide. Multinational biotech companies, pharmaceutical companies, and research centers can reduce costs by working with Chinese bio-services providers. Global services companies should consider partnering with, building, or acquiring a local service provider. This is the strategy Invitrogen has taken with its acquisition of BioAsia. Invitrogen is using BioAsia to expand its China presence both in terms of distribution and to augment its service capabilities. Chemicals and enzymes Enzymes, proteins that act as catalysts inside cells, are used for numerous industrial applications such as bleaching, stone-washing, and brewing. China's market for enzymes has grown rapidly as a result of increased industrial demand. Novozymes A/S and Genencor International Inc. (which was recently acquired by Danisco A/S) currently dominate the worldwide enzyme market. Both companies have manufacturing, sales, and marketing operations in China and have pledged to expand their presence over the next several years. Novozymes became the first global biotech company to open an R&D center in China in the late 1990s. The company's laboratory in Beijing focuses on the R&D of China-specific products and China-tailored versions of industrial enzymes. Local players also compete in the enzyme market with less-technology-driven products. These companies tend to be smaller and more focused on price competition. Smaller, foreign technology-based biotech enzyme companies have opportunities to partner with or acquire an enzyme production facility in China. Chinese facilities provide both access to China's market and a platform from which to export. More than 500 enterprises produce fermentation products such as citric acid, lactic acid, vitamins, amino acids, and other fine chemicals in China. Competing on price, China's domestic producers have eaten heavily into the market share of global players during the last 10 years. Opportunities for foreign companies include sourcing low-priced products from Chinese firms. Global players with fermentation technologies could acquire China-based capacity for global production. Agri- and aquaculture According to the International Service for the Acquisition of Agri-Biotech Applications, China ranked fifth in the world in terms of genetically modified organism (GMO) cultivated acreage in 2004. GMO plants developed or in use in China include pest-resistant cotton—China's largest GMO crop—and tobacco, sweet peppers, peanuts, papayas, and vaccine-carrying tomatoes. Many other plants are in development stages. China researchers are also investigating GMO animals for food and pharmaceutical production purposes and GMO microorganisms for animal feed. China is by far the world's largest producer of fish from aquaculture, though most domestic farms are small operations that use only basic technologies. Though only in its infancy, the industry is moving toward higher density, high-tech farming techniques. Some entrepreneurial local enterprises have already begun capitalizing on the demand for higher-tech feeds and other products. Environmental products and services In light of water resource degradation and health risks associated with air pollution, the PRC government has stressed the need to improve environmental conditions in China. Organic fertilizer, aquafarming waste products and services, and organic pesticides have emerged as new areas for entrepreneurial activity. Chinese Companies, Institutes Shoot Ahead Many Chinese biotech firms and institutes have made significant advance in recent years and have, at times, beaten larger, more heavily financed international firms in the biotech race. Thanks to state-sponsored centers such as the Beijing Genomics Institute (BGI), China was the only developing country to participate in the Human Genome Project. BGI, which was established as a nonprofit research entity in 1999 and is part of the Chinese Academy of Sciences, has since decoded a subspecies of rice and helped to sequence chicken, pig, and silkworm genomes. Shenzhen-based SiBiono GeneTech Co., Ltd. received international recognition in 2003 when it developed the world's first licensed gene therapy medication. The PRC State Food and Drug Administration granted SiBiono permission to produce its gene therapy medication, now called Gendicine, after five years of clinical trials. The company's founder, chair, and CEO, Dr. Peng Zhaohui, believes the cancer treatment that fights tumors by injecting a tumor-suppressing gene into the body is a safe and life-saving product. Because the US Food and Drug Administration has not yet approved the sale of Gendicine (or any human gene therapy) in the United States, most likely because of unclear clinical trial results, some scientists in the international community are wary. The company receives state and private funding and is now working with New Brunswick Scientific Co., Inc., a US lab equipment supplier, to produce 150 million doses of Gendicine per year. —CBR Staff Troubles in bioparadise Intellectual property and an underdeveloped capital market remain the largest barriers to biotech growth in China. Venture capital investors require portfolio company technologies to be protected and a waiting capital market for exit opportunities. While IP protection is improving in China, and exits are possible on the NASDAQ market through an offshore or US-based incorporation, most venture capitalists remain cautious. Moreover, political opposition from internal R&D departments often discourages biotech and pharmaceutical companies from seizing opportunities in China. A lack of management and investor seasoning is also a hindrance to foreign participation in China's biotech industry. Though many returnees gain experience abroad before founding a company in China, few have prior executive experience. Because most Chinese biotech companies lack sufficient capital and most domestic venture capitalists lack an understanding of the biotech investment paradigm in developed countries, biotech companies are often forced to adopt complex business models that generate cash flow from a noncore activity, such as distribution. Often the noncore activity distracts the company from promising projects. Bright biotech future Despite the sector's weaknesses, China's strengths—low-cost, highly skilled technologists and scientists, a strong track record in life-science research, a high-quality returnee pool, advantageous policies and tax treatment, and China's entrepreneurial culture—all indicate a promising future. If China implements appropriate regulatory structures for IP protection and capital markets, which may take a long time, the industry's natural drivers will make China's emergence as a strong player in the field inevitable. Within many products and services sectors, China is poised for dominance. Matthew Chervenak is president and founder of General Biologic, a Shanghai-based professional services firm that focuses on bio-business in China. The firm provides consulting, information, and transactional services to investors and biotech and pharmaceutical companies. Top of Page Table of Contents
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