China ready to compete in drug market

Eight years ago when Pittsburgh entrepreneur John Oyler was setting up a Beijing biotech company, he was warned that China was the wrong place to try drug development. “You can’t do anything innovative there,” reluctant investors told him.

Oyler put in $10 million of his own money to get BeiGene off the ground. Then President Xi Jinping’s government began overhauling regulations in the country’s $122 billion drug market. Money rushed in, and now investors point to China’s health care sector as the possible birthplace of its next juggernauts.

BeiGene is worth about $9 billion on Nasdaq, a multiple of about seven times its 2016 IPO, and its experimental cancer drugs are being closely watched globally. Its sudden ascent is emblematic of the dramatic shift in the fortunes of China’s pharmaceutical industry, which for decades made only cheap copycat drugs.

In laboratories across China — from BeiGene’s shiny research centers to the sprawling biotech parks that dot the country — scientists are racing to catch up with and then overtake their Western counterparts. They’re working overtime on everything from cuttingedge cancer therapies to genetic engineering, and they’re getting a boost from the Communist Party, which wants to build homegrown champions in the drug industry. Investors are piling in with the hope that the Chinese economic machine will remake the fortunes of this fledgling sector. Venture capital investment in China health care rose from $1 billion in 2013 to $11.7 billion last year, according to McKinsey & Co.

“There’s a belief here that we can compare with anyone anywhere in the world,” said Oyler, who’s now BeiGene’s CEO. “When the government ... says let’s make sure this industry grows properly in China, you wind up with global leaders.”

As China battles rising rates of cancer, heart disease and diabetes, sales of medicines are expected to hit as much as $175 billion by 2022, according to researcher Iqvia Holdings. China is the world’s second-largest pharmaceutical market after the U.S.

Chinese companies like BeiGene are hoping to grab a bigger slice of that pie from global drugmakers, who have dominated sales of innovative therapies in China. If that works, the firms are hoping to take their drugs around the world.

Their plans are getting a boost from the government’s move in 2015 to overhaul regulations that had for decades slowed drug approvals and stifled innovation. These days, innovative new drugs can reach the Chinese market in a fraction of the time the process once took.

Beijing’s “Made in China 2025” initiative, intended to upgrade the country’s manufacturing industries, highlights plans to develop new therapies, antibodies and vaccines while working toward breakthroughs in areas like stem cells.

That is helping Chinese companies move quickly on cutting-edge technology like CAR-T, which uses human immune cells to fight cancers. While CAR-T was invented in the U.S., where it is already on the market, there are about as many clinical trials in China as in the U.S. for such drugs. In sensitive fields like gene editing, Chinese labs also face fewer ethical and policy restraints on applying the new technologies to human beings.

The Chinese government has a lengthy history of elevating industries it deems important. At the turn of the century, firms like Alibaba and Tencent were little known. But within a decade, the growth of the internet, a flood of private money and favorable policies transformed them into some of the world’s most powerful technology companies.

Optimism that the drug industry could see similar expansion has put Chinese biotech stocks on a tear, even with a recent pullback. Genscript Biotech, a maker of CAR-T therapies, has shot up to more than 16 times its value since the beginning of 2016. Wuxi Biologics Cayman, which develops and manufactures biologic drugs for clients, has risen about threefold in the year since its Hong Kong IPO.

Oyler is among those who acknowledge the risks of an emerging biotech industry: When things don’t go well, investors unfamiliar with the complexities of drug development tend to flee. Meanwhile, more money is expected to flow into China’s biotech sector.