Sea tur­tles give China’s drug star­tups a shot in the arm

Chi­nese bio­pharma ta­lent is leav­ing the Val­ley for Shanghai “If a few make it, that’s enough. A few win­ners will take it all”

Bloomberg Businessweek (Asia) - - CONTENTS - Natasha Khan

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 Chi­nafo­cused 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 co-founder 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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