Chinese biopharma talent is leaving the Valley for Shanghai.
June 27, 2016 — 6:00 AM HKT
$30 billion: Commercial investment in China’s life sciences sector in 2015.
Photographer: Ariana Lindquist/Bloomberg; Data: Bloomberg Intelligence
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 havereturned 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.
Calledhai 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 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.