Issue Date: August 29, 2011
Homegrown R&D Flowers In China
In a meeting room in a building resembling a residential home in Shanghai’s Zhangjiang Hi-Tech Park, Li Chen and John Choi describe the business plan of their new company. Called Hua Medicine, the firm will launch breakthrough drugs within four years, they predict. Hua will manufacture the compounds and sell them with its own sales force. It will also license its internally developed drugs to multinational companies.
Yet right now, Hua is a modest operation that employs eight people. Hua doesn’t have an R&D lab yet, let alone a manufacturing facility. It operates in a loaned building formerly used by the administrators of the industrial park.
Most entrepreneurs excel at talking convincingly about their new ventures. Over the past two years, optimistic executives and scientists have used these skills to launch research-based pharmaceutical companies in China that aim not only to discover and develop new drugs, but also to manufacture and distribute them.
It can be easy to dismiss such ambitious business plans as simply talk aimed at gullible investors or government officials handing out subsidies. Except several start-ups are led by people who have long track records of success. Moreover, the money financing these start-ups comes not from relatives and friends, but from savvy investors knowledgeable about the drug industry.
In addition, the start-ups are setting themselves up in a hot market. According to PricewaterhouseCoopers, the Chinese pharmaceutical market was worth $28.3 billion last year. The Shanghai-based life sciences market consulting firm ChinaBio says the market is growing 22% annually. The consultants expect the Chinese drug market to to become the world’s second largest this year—overtaking Japan—and to become the world’s largest in 2020 or sooner.
The new companies include BeiGene, a Beijing-based oncology firm whose president John V. Oyler, who is originally from Pittsburgh but has resided in Beijing for the past six years, has a reputation for raising millions over a cup of coffee. In Suzhou, Innovent Biologics aims to develop and manufacture biological drugs for Chinese patients. In Hangzhou, Ascletis has raised $100 million to create a drug company that develops, produces, and sells drugs in China.
Chen, chief executive officer of Hua, is the former chief scientific officer of Roche’s R&D center in Shanghai, the first drug R&D center launched in the city by a multinational company. Choi, in charge of business development, is a former venture capitalist who moved from the U.S. to join Hua.
Hua is backed by Robert T. Nelsen, a founder of the venture capital company Arch Venture who encouraged Chen to form the firm. Another of Hua’s backers is Ge Li, founder of China’s largest contract research company, WuXi Pharmatech. Hua is also receiving funding from Fidelity Growth Partners Asia, an affiliate of the giant mutual fund company.
“Our investors like the growth of the Chinese market,” Choi says. “They like the government support for the drug industry, and they like the tax incentives.”
So far, Hua has raised $50 million in funding, $10 million of which it has allocated to a neurodegenerative disease program. Hua will both license Chinese rights for drugs that are in the clinical stage of development elsewhere in the world and run early-discovery projects. In certain cases, it will license the worldwide rights of drug candidates that are still under development. It will perform much of its research in collaboration with Chinese contract research organizations but will also have a lab of its own. The company expects to be employing 40 people within one year and 300 in about three years when it builds up a sales force for its products.
China has great unmet medical needs, Chen says. “We need to bring truly innovative drugs to China to treat diseases for which there are currently no drug treatments available,” he says. “I talk to a lot of doctors in this country, and many of them are able to link patients’ needs to basic research concepts.”
In Beijing, BeiGene is also focusing on China’s unmet medical needs. Unlike Hua, which is disease agnostic, BeiGene is concentrating on oncology. “There is a clear oncology need in China,” says Oyler, BeiGene’s CEO. Adds George Chen, a medical doctor who is the company’s chief medical officer: “Chinese people are living longer as other health issues have been addressed; therefore the need for cancer drugs is increasing.”
BeiGene is ambitious. Within two years, it aims to be running between seven and 10 preclinical programs, as well as five or more drug development programs, predominantly licensed from other organizations. “In the U.S., a newly formed biotech company can afford to run only a few programs, and this makes it hard for management to be objective about killing programs because doing it is catastrophic to the organization,” Oyler explains. “At BeiGene, we will have a broad portfolio of projects.”
China has earned a reputation as being a difficult place to gain approvals to conduct clinical trials for new drugs. But the idea that Chinese authorities are unreasonable is exaggerated, Oyler believes. Unlike a multinational company treating China like just another market, BeiGene’s China-based researchers will directly present the science behind their drugs to officials at the Chinese State Food & Drug Administration. “If you thoroughly explain the science, scientist to scientist, and focus on things that are safe and relevant to China, it works better,” George Chen says.
Many of the managers of BeiGene formerly held senior positions in large pharmaceutical companies and have experience in selecting and managing successful research programs, Oyler says. For instance, Chen has been in oncology research for 12 years, including a position as chief medical and development officer for GlaxoSmithKline in the China region and global medicine development leader in the oncology area, also at GSK.
BeiGene’s president, Peter Ho, formerly headed Johnson & Johnson’s global oncology clinical development and was the head of GSK’s global oncology research and early development. BeiGene’s chief scientific officer, Pearl Huang, has 20 years of oncology research experience, in the course of which she managed development of the GSK cancer treatments lapatinib, sold as Tykerb, and pazopanib, sold as Votrient. BeiGene’s chairman is Xiaodong Wang, who is concurrently director of the Beijing-based National Institute of Biological Sciences, which employs 700 scientists and support staff.
“I think it’s a sign of the opportunity in China today that the company has been able to attract these people,” Oyler says.
Despite not speaking Chinese, Oyler says he can achieve goals in China that would be far more difficult to reach in the U.S. “In Cambridge, Mass., I’d be hard-pressed to assemble a world-class team like I’ve done here,” he says. “People at this level would just not join a newly formed company as it would only be undertaking one or two programs.” The company now employs 100 people, more than one-quarter of whom have prior experience in multinational or biotech companies.
BeiGene is currently funded by its founders and by an investment from Merck & Co. “One of the reasons people want to invest in us,” Oyler says, “is to learn more about the China market.” He won’t disclose how much BeiGene has raised so far, but he says the company will seek additional funding later this year when it completes the in-licensing of a few clinical-stage compounds.
In contrast, Jinzi J. Wu, CEO of Ascletis, a start-up based in both North Carolina and Hangzhou, proudly states that the company has raised $100 million. That’s the most that a China-based biotech company has put together so far, Wu says. He is investing the funds in a 30,000-sq-ft R&D center under construction in Hangzhou and in support of drug discovery and development programs.
The money came mostly from Jinxing Qi, a Hangzhou-based real-estate mogul. It would have been possible to raise funds from venture capitalists specializing in life sciences, Wu says, but it was easier to build trust with Qi, whom he has known for years. Qi’s rationale, Wu says, is that the real-estate market in China has matured, whereas the biotech sector offers bright prospects.
Before forming Ascletis, Wu headed a virtual biotech unit within GSK’s organization in Research Triangle Park, N.C. The unit, which in GSK parlance is called a Discovery Performance Unit, operated relatively independently, Wu says. But there were also times when the units “hit the GSK bureaucracy,” he says, when for instance Phase III clinical trials got under way or regulatory matters had to be considered.
Emil W. Fu, Ascletis’ Taiwan-born vice president of research, sees joining Ascletis as part of a grand adventure. “We’re basically continuing our careers in China, but at the same time we’re helping China to develop high-quality, affordable drugs,” he says. Prior to moving to China, Fu was vice president and head of U.S. drug discovery technology at Novartis in Cambridge, Mass.
Ascletis plans to become a fully integrated drug company that invents, develops, produces, and sells its own pharmaceuticals to patients in China. To speed up its evolution, Ascletis will license promising drug compounds from abroad and lead them through clinical trials in China. Ideally, the compounds will be in Phase II clinical trials and for the treatment of cancer or infectious diseases.
Compounds that gain regulatory approval will be sold by an Ascletis sales team to large Chinese hospitals. “Selling to big hospitals does not require a large sales force,” Wu says. He expects Ascletis will have its first drug on the market within five years.
To this end, the firm has assembled a team to help select projects with the best potential of gaining approval in China, Wu says. The team includes Allan Baxter, a scientist who previously managed 6,000 people at GSK as senior vice president and global head of the company’s late-stage development pipeline. Baxter agreed to join Ascletis as chief strategy officer because he found the company’s goals interesting. “He’s very selective about how he allocates his time,” Wu says. Baxter, who lives in London, is also involved in a number of other companies as an independent director.
At Hua Medicine, CEO Chen says the company has formed a portfolio advisory board to help it select the most promising compounds for licensing. In addition, Chen says he spends much of his time in hospitals talking to medical doctors interested in drug research.
Talking with doctors provides him insights about how a drug candidate and a disease will interact. “Drug R&D is not like rolling dice,” he says, disputing the notion that successful drug discovery and development is a numbers game, that the more programs a company pursues the better its chances of success.
Selecting the right drug candidate is also a prime concern for another new company, Suzhou-based Innovent Biologics. “Product selection is critical,” says Kevin Chen, the China general manager of the company. The company will choose its first product within three months, he expects.
Innovent nearly started life as a contract manufacturer of biological drugs, but it changed its strategy to become a company that launches in China improved versions of biological drugs that are already on the market in developed countries. The company seeks to license from the U.S. or other countries “biosuperior” compounds that have already reached the preclinical or clinical stage. Like Hua Medicine, Chen says, Innovent is partly funded by Fidelity, and it has “raised a substantial amount of funding.”
Innovent intends to open a plant in Suzhou that complies with the U.S. Food & Drug Administration’s current Good Manufacturing Practices (cGMP) standards as well as European regulatory standards. The plant will be built by Suzhou BioBay, a government-run biotech industry park, to encourage further development of the biotech industry in Suzhou. Innovent will also conduct process development work in Suzhou.
Chen contributes to Innovent a deep knowledge of the Chinese pharmaceutical industry. Upon returning to China from the U.S. in 1997, he set up and managed Novo Nordisk’s R&D center in Beijing. After that, he helped establish R&D centers in China for Novartis and the drug discovery service company Bioduro, which was previously headed by Oyler.
Despite the flurry of venture-capital-funded biotech start-ups emerging in China, Innovent, Hua, BeiGene, and Ascletis are hardly trailblazers. Chipscreen Biosciences has been operating for the past 11 years in the southern city of Shenzhen. It now has two compounds in Phase III clinical trials in China and one in Phase I in the U.S. The company operates its own cGMP manufacturing facility in Shenzhen.
Chipscreen uses chemical genomics to predict how compounds will behave in animals and humans, says Xian-Ping Lu, the company’s president. The approach, he says, results in a more efficient drug development process. The compounds that Chipscreen has brought to trials were developed in its own labs.
When Chipscreen was first launched, Lu recalls, it was not easy to raise money from venture capitalists. “We were the only biotech company in China, and venture capitalists interested in this sector in China practically did not exist at all,” he recalls. Today, Lu says, he regularly runs into people he barely knows who are willing to invest money in his company.
The ease of setting up drug companies in China is starting to make the U.S. appear less attractive, at least to these executives. “Costs for Phase II trials have rocketed in the U.S., trials have become lengthy because of the high number of compounds in development, R&D costs are higher, and the government is less supportive,” BeiGene’s Oyler maintains. “BeiGene can conduct world-class research in China for less, enabling us to pursue a wide portfolio of programs instead of just one or two.”
At Ascletis, CEO Wu is more blunt. “The cost of running a biotech in the U.S. is too high,” he says. “Many U.S.-based biotech ventures that have raised $100 million have failed. I prefer to run my $100 million biotech venture in China.” ◾
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