A Fast Pace For Suzhou's R&D Hub

At a life sciences business conference in Suzhou, China, last month, the audience burst into laughter upon hearing this Freudian slip by an organizer: “Please note that there will be a shuttle bus taking you back to Los Angeles at 5:30 tomorrow afternoon,” the speaker said, quickly correcting that the bus would in fact be heading to Shanghai.

The slip came from Greg B. Scott, founder and chief executive officer of ChinaBio, a Shanghai-based company that organizes conferences, provides intelligence on China’s biotechnology industry, and supports Chinese biotech start-ups. A Californian, Scott can be forgiven for apparently confusing Suzhou and California, where China­Bio also organizes events. His audience at the BioBay Investor Forum in Suzhou was more or less the same assortment of lawyers, venture capitalists, consultants, and entrepreneurs attending similar conferences in the San Francisco Bay Area.

In an astonishingly short time, Suzhou has gained a reputation as an emerging health care industry cluster of world-class status. But the city’s success in attracting life sciences companies from China and the rest of the world is raising the possibility that such fast progress is unsustainable and that the start-up companies setting down roots in Suzhou today may not be around in a few years to generate profit, pay taxes, and bring new drugs to market.

As recently as 2006, BioBay, the biotech industry section of Suzhou Industrial Park, was little more than a PowerPoint presentation (C&EN, Oct. 30, 2006, page 23). Today, it’s an operating high-tech park that’s adding several companies every month. Yuwen Liu, the general manager of BioBay, says 134 life sciences companies have already set up in the park, and she expects about 200 to be there by the end of next year. The hub currently provides employment to 1,100 people, and Liu anticipates the total will rise to 3,000 in 2010. About 20% of those coming to BioBay hold a Ph.D., she notes.

“The achievement at BioBay so far is beyond our expectations,” Liu says. “My initial guess was that it would have taken four to five years to build an ecosystem here, a community of companies that can work together as each other’s customers and suppliers.”

BioBay is attracting not only numerous companies, Liu says, but also “quality companies” that conduct advanced research, raise money from private investors, and grow in size over time. And now BioBay is attracting companies that are larger than the early settlers. The 60 or so firms that Liu says will settle in BioBay before the end of 2010 will take up more than twice the space of the 134 that are already there.

At the investor forum, executives of life sciences companies operating in BioBay uniformly gave the hub high praise. Michael Xu, CEO of the drug developer PegBio, jokingly raised one minor drawback: Suzhou’s nightlife is not as exciting as Shanghai’s—a likely disappointment to young scientists. But this handicap is not all bad, Xu added, because it means researchers are less likely to leave the lab early. “Why should they go home if it’s just to go there and do nothing?” he asked.

Many cities in China are trying to attract life sciences R&D, ChinaBio’s Scott said during his formal presentation. Shanghai, for instance, still ranks far ahead of Suzhou in health care research, both in terms of number of researchers and number of labs operating. But “Suzhou is the best run, best organized cluster in China; it’s my true belief,” he said. In addition to newly built physical infrastructure and proactive support from BioBay administrators, companies settling in Suzhou benefit from numerous tax incentives and qualify for various funding schemes from the municipal and provincial governments.

BioBay has turned itself into the most hospitable life sciences park in China at a time when drug R&D is booming throughout the country. The R&D boom is happening not only because it’s cheaper to conduct research in China than elsewhere, but also because the size of the Chinese health care market is growing rapidly, Scott said. International venture capitalists, he added, are increasingly willing to fund health care research in China.

Despite many factors in Suzhou’s favor, it remains an enormous challenge for any city or region to successfully establish a self-sustaining health care cluster, warned Charles Hsu, a partner with the San Francisco-based venture capital firm Bay City Capital. Worldwide, he said, only five such clusters do not need government money. “There have been many failures, despite huge investments and huge resources devoted to the endeavor,” he said.

For a life sciences cluster to be economically self-sustaining, Hsu said, it usually needs to be located within a huge market. It’s no accident that three of the five successful clusters are in the U.S., he pointed out. In addition, a cluster needs to be close to academic centers. Suzhou is home to fewer academic institutions than Shanghai, Beijing, and even Nanjing, although the city has been trying to convince some prestigious universities to set up a campus in the city, “something that has not been done elsewhere,” Hsu said.

Another key element to a successful health care industry cluster is a critical mass of companies that can provide a pool of talent. “In San Francisco,” Hsu said, “it helps the overall growth of the cluster that companies are constantly raiding each other for talent.” Suzhou should do more to attract not only scientists but also the lawyers and accountants needed to launch high-tech start-ups, he advised.

With so many companies already operating at BioBay, “Suzhou is perhaps going too fast,” Hsu cautioned. He recalled that Germany’s BioRegio cluster suffered a “total collapse” earlier this decade, after six years of rapid growth, because it housed too many companies dependent on government support.

Not every health care research company that wants to set up in Suzhou should be welcomed, Hsu advised. He noted that Singapore’s Biopolis cluster was unlikely to succeed because most companies that set up there failed to attract funding from sources other than organizations affiliated with the Singapore government.

It’s indeed possible that Suzhou extended too warm a welcome to fledging biotech companies, BioBay’s Liu acknowledged after Hsu’s presentation. “We need to think whether it’s good to be known as China’s best service provider,” she said. “We should not be attracting companies that would be constantly relying on government support to survive.”

Liu vowed that BioBay will become increasingly choosy about the firms it welcomes. “We don’t want companies that are attracted by incentives, that set up an operation at BioBay, but whose key employees are elsewhere,” she said. And when it comes to identifying the prospects of start-up firms, BioBay will look more at indicators such as the firm’s success in attracting private capital. “It’s a follow-the-money approach,” she said.

Bay City Capital’s Hsu noted that although Suzhou may be doing too much too fast in its drive to become a world-class health care industry hub, it is making a critical choice by not attempting to compete with Shanghai. The two cities are less than an hour apart by train. And Shanghai’s Zhangjiang Hi-Tech Park remains far and away China’s leading high-technology hub. “It won’t be either Shanghai or Suzhou that will emerge as a health care research cluster,” he said. “It will likely be a Shanghai-Suzhou megacluster.”