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Thursday, 28 July 2016 12:00

‘Sea Turtles’ Give China’s Drug Startups A Shot In The Arm

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In 2001, a dozen Chinese
expats met one Saturday in San
Jose to trade tips on pharmaceutical
proteins and share career advice
over craft beers and garlic fries.
The gathering was a networking
session organized by two friends
originally from Wuhan who met in
the Bay Area as graduate students
in the 1990s. Fifteen years later,
many members of the group have
returned to China to start their own
businesses. And what had been an
informal networking circle is now
an exclusive industry group called
BayHelix that counts among its
members more than 300 senior executives
active in the Chinese biopharma
market.
Called hai gui, or “sea turtles,”
in their home country, these
returnees are trading on relationships
forged in the U.S. and tapping
the hundreds of millions in
venture capital flowing through
China. They’re building or backing
health-care startups and brokering
deals, all in the hope of giving
China an original blockbuster drug.
“Everything’s falling into
place,” says Nisa Leung, a managing
partner at Qiming Venture Partners,
a China-focused venture
fund. Leung, who studied at Stanford
and Cornell, has led investments
in more than 50 Chinese
health-care companies in the past
decade. Commercial investment in
China’s life sciences sector totaled
more than $30 billion in 2015, up
70 percent from the previous year,
according to ChinaBio Consulting.
China is the second-biggest
pharmaceutical market in the world
after the U.S., according to IMS Institute
for Healthcare Informatics,
which expects the country’s annual
spending on drugs to reach $190
billion by 2020, up from an estimated
$115 billion last year. To ensure
that not all that money flows
into the coffers of foreign companies,
the Communist Party has enacted
measures to foster national
champions in life sciences. Pharma
and biotech startups are eligible for
tax incentives and rent subsidies,
and their products qualify for expedited
regulatory approval. “We’re
at a tipping point in China,” says
Ge Li, founder and chief executive
officer of Shanghai-based WuXi
Apptec. “I personally believe that
we have another 10 to 20 years of
good growth ahead.”
Li gave up a six-figure
salary at New Jersey-based Pharmacopeia
in 2000 to start WuXi.
He had to improvise at first, hiring a kitchen manufacturer
to build him a lab because no qualified
vendors were available in
China. Now he presides over
11,000 scientists who conduct research
and assess clinical data for
other drugmakers. The company is
expanding into drug manufacturing
and has a venture capital arm that
invests in U.S. and Chinese startups.
Li took NYSE-listed WuXi
private last year but plans to relist
in China at some point.
In some respects, Chinese
pharma companies enjoy advantages
over their U.S. counterparts.
Bringing a drug to market in the
U.S. could cost as much as $4 billion,
according to Leung; in China,
it’s closer to $50 million. But all
face the same tough odds in that
only a fraction of drugs in development
ever reach market. “I will expect
that many of them won’t make
it,” says Kewen Jin, chairman of
BayHelix. “That’s the nature of
this industry. But even if a few
make it, that’s enough. A few winners
will take it all.”
Among the contenders is
Zai Lab, a two-year-old Shanghai
company backed by about $140
million in funds from Sequoia Capital
China and Qiming, among others.
Its founder, Samantha Du,
worked for Pfizer in Connecticut
before returning to China. Zai’s
focus is on anti-inflammation therapies
and oncology treatments. Du
says that while it’s a thriving time
to start a health-care business that’s
“global but based in China,” the
country has yet to amass the scientific
know-how to rival the U.S.
Ultimately that may depend
on whether other Chinese living
abroad follow in Du’s path. Chinese
made up almost a third of all
foreign students in the U.S. in the
2014-15 school year, according to
the Institute of International Education.
Steve Yang, a BayHelix cofounder
who once worked at AstraZeneca
and is now chief -
operating officer of WuXi, likens
the histories of many of the industry’s
top movers to DNA strands,
with combinations and recombinations
of networks built at U.S.
graduate schools, in Silicon Valley,
and now as entrepreneurs back
home. “In China, we have a saying:
‘It takes a long journey to test
how good your horse is,’ ” Yang
says, referring to trust built through
the years. “So it’s good we started
early in 2001.”
The bottom line: Investment in
China’s life sciences sector shot up
70 percent last year, to more than
$30 billion.

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