Biotech in China

A couple of weeks ago I visited Shanghai as part of a UK Trade & Industry (UKTI) BioPharma Mission. The initiative aims to open new gateways for UK biotechs to partner with companies based in China, understand better the Chinese regulatory environment and introduce new sources of funding. There were 14 UK organisations participating in the mission, all of which are active in the life sciences field.

We visited a range of public and private sector organisations in Shanghai and the mission provided a fascinating window on life science developments in China, the scale of which takes some digesting:
·         In 2009 healthcare spending was US$15B but this year it is set to reach almost US$400B. Over last 3 years the government spent US$125B to extend basic healthcare access to 95% of the country’s 1.3B people.
·         The Chinese pharmaceuticals market is US$56.7B and growing at 15-20% p.a. It is now the 3^rd largest market worldwide.

Traditionally the Chinese pharmaceuticals market has been dominated by generic products and Traditional Chinese Medicine (TCM) but more innovative approaches are rapidly coming to the fore. GSK has set up its global neuroscience R&D centre in Shanghai with an investment of more than US$100M, which has resulted in 6 compounds in clinical development.

Hutchison MediPharma is an indigenous company founded to exploit TCM knowledge to find novel botanicals and NCEs. They recently licensed a novel drug candidate to AstraZeneca, the first deal of its kind in China.

The government is providing grant support to local companies to fund R&D into innovative drugs. It is also pumping US$6B into the academic sector to stimulate innovation. Last year China overtook the UK for number medical journal citations and is now ranked second worldwide after the US.

A new policy now allows academics to spin out companies and the government is providing funding for scientists returning from the US/EU (‘sea turtles’) to set up companies. Regional funding is also available for these companies to locate in high tech clusters.

Local venture capital funds have been established (e.g. Nanjing VC) and are actively investing in medical diagnostics, TCM etc. Government funding for local VCs is also coming on stream. International fund managers are also active in China e.g. Sequoia Capital, which plans to invest 30% of its local funds in healthcare. The UK VC SPARK Ventures now has an office in China and is looking at ways in which the Chinese government could fund innovative projects originating from UK scientists for exploitation in China.

Some UK biotechs, such as ImmunoBiology and CompanDX, have already successfully sourced funding from China and I am sure that this is the start of a trend given the current investment climate in Europe

There seems to be plenty of business development opportunities for UK biotech companies in China. In a 2011 report the EU SME Centre in Beijing identified three main areas of development opportunity: medical devices, pharmaceuticals and healthcare services.

The UK has a strong reputation in China for its 60-year experience of running the NHS as well as a reputation for clinical excellence and strong private sector expertise. Synergy Health, a UK healthcare services provider, has been running commercial operations in China for three years providing outsourced sterile services to hospitals and clinics. This was a novel concept for China but the NHS spearheaded this practice in 1996 as a way to improve quality whilst driving down costs through economies of scale and public-private partnerships. Synergy now expanding from its original site in China and is embarking on 3 new projects in key cities including Shanghai.

UKTI is keen to stimulate inward investment by Chinese life science companies into the UK. In this respect we were disappointed to hear one of the local pharmaceutical companies tell us that when accessing Europe they tend to do deals in Germany, Denmark or Sweden. Their perception is that the business environment in the UK is constantly changing, and is not a stable environment in which to do business.

This is a clear message to the UK government that whilst China presents lots of business opportunities for UK companies, there is still a lot for the government to do improve the business climate in the UK to attract significant inward investment from China.