Staff Writer

Editor's note: BioWorld Today explores the Chinese biotech market in this first of what will be an occasional series of articles.

Just back from China, Joshua Boger – founder in 1989 of Vertex Pharmaceuticals Inc., of Cambridge, Mass., and CEO until May 2009 – spoke with the enthusiasm of a new convert.

"Thirty years ago we heard China would be the next big thing," said Boger, who continues as a Vertex director. "It can get sanguine. But if I was there 30 years ago, I would not have seen see what I saw two weeks ago."

"It is happening now," Boger noted.

"It" is the long-predicted arrival of China as a major force in world biotechnology, the result of the combined impact of massive government investment, a seemingly insatiable appetite for capitalism, the return of many of the world's best scientists and the opportunities of an enormous market.

Boger was more than a tourist when he visited China earlier this month. The manufacturing site for starting materials for Vertex's hepatitis C drug Incivek (telaprevir) – which has a May 23 PDUFA date – is Shanghai SynTheAll Pharmaceuticals Co. Ltd., a manufacturing subsidiary of WuXi AppTec Co. Ltd., of Shanghai. (See BioWorld Today, May 17, 2011.)

Boger said lower construction costs had "almost nothing" to do with the decision to do business with WuXi AppTec, which agreed to build the new facility. "Suppliers all over the world were vying for the commercial manufacturing," Boger said. "Our criteria are quality and speed. Can they deliver?"

WuXi AppTec in 18 months built a new facility that Boger described as a city block long, half a city block wide and four stories high. In the West, it would have taken three-to-five years, he estimates. "There was not a single corner cut," Boger said. "You can eat off the floor. Everything over there is so much better coordinated."

Equally impressed after a trip to China was Ron Cohen, founder, president and CEO of Acorda Therapeutics Inc., of Hawthorne, N.Y. A member of the executive committee of the board of the Biotechnology Industry Organization (BIO) and chairman of BIO's emerging company section, Cohen was one of several U.S. biotech execs who visited Beijing and Shanghai in late March and early April as part of a BIO delegation. The group met with Chinese food and drug, intellectual property, health, science and technology, and commerce officials as well as life science business leaders.

"My overwhelming impression was a bit of shock and awe," Cohen said. "It was very much akin to the feeling that many people had when they saw the opening ceremony of the Beijing Olympics. The Chinese employed a mind-boggling number of people, synchronized, to do things that ordinarily you would not think possible. There is very much that feeling in medical research, biotech and science. China is clearly on the move."

The BIO contingent was "powerfully impressed with the power and determination and the extent of investment that the country is making to build itself into a world leader in the biopharmaceutical space," Cohen said. "If you go back 100 years and think about New York at that time, you can see a parallel. China appears to be on the cusp of where we were 100 years ago."

BIO president and CEO Jim Greenwood led the delegation as a preliminary to BIO's first China International Partnering Conference in October in Shanghai. "We're not the China Chamber of Commerce," Greenwood said. "Our role is to provide member companies with information about what is involved in doing business with China, what are the challenges, opportunities and risks. We want to most importantly be a conduit for information and help people make sound judgments."

Greenwood can recite a litany of reasons for his organization's interest in China: a massive market with potential for profit even at low margins; reduced manufacturing and research costs; access to all of Asia; opportunities for clinical trial work with vast populations of treatment-naïve patients; and possible financial incentives for Western companies to come to China, hire Chinese employees and bring innovative and scientific skills.

"The gross generalization is to say, 'The bridge they haven't crossed is original innovation,'" he said.

On the Cusp of Innovation

But Boger thinks it is a miscalculation to think of biotechnology in China today as mostly inexpensive manufacturing and CROs, and underestimate the speed at which Chinese innovation is approaching.

"They are putting together all the pieces. Every one of those Chinese companies that are doing services today says that, as soon as they can, they will start their own proprietary research," Boger noted. "And then they will not start it with 20 or 30 people, but with 2,000 or 3,000 people."

Boger said he thinks the absence of a robust venture capital mechanism and a later-stage capital system has caused Chinese companies to focus on services.

"There is not the full range of capital support that there has been in the U.S.," Boger explained. "The midstage capital and public markets are not there. Because of that, they created different types of companies. WuXi executives, for example, knew they could not start out as a drug discovery company and get capital, so they started as a services company, raised private capital and after only a few years went public on the New York Stock Exchange."

Indeed, WuXi AppTec was established in December 2000 and by August 2007 was listed on the NYSE. WuXi AppTec's co-founder, Chairman and CEO Ge Li got his PhD in organic chemistry from Columbia University, then was one of the founding scientists of Pharmacopeia Inc., of Princeton, N.J., before returning to China. Li is one of thousands of "sea turtles" – Chinese scientists who were educated in the U.S., worked for years in biotechnology and other sciences here, and returned to build a biotech industry in China.

"When you hear how fast they have been able to move, it is not so incredible," Boger said. "The leaders know exactly what it looks like."

Increasingly the growth of Chinese biotech is being fueled by a passion for capitalism and money from a Chinese government that is determined to develop more value-added businesses.

The Capitalist Genie

Cohen said that an experienced venture capitalist who is investing in Chinese start-ups told him a story that speaks volumes about China and capitalism. If the venture capitalist was meeting about funding an upstart U.S. company and the entrepreneur started talking about all the money he wanted to make, the entrepreneur would quickly be excused. But, the venture capitalist told Cohen, "If a Chinese entrepreneur does not talk about making money in the first few minutes, we show them the door."

The lesson, Cohen said, is that money is a motivator, and there is a huge hunger in China to make money. "They have let the capitalist genie out of the bottle," he said.

The genie, at least in biotechnology and a half-dozen other key industries, is being bankrolled by the Chinese government, which in March reported that it would try to accelerate "strategic economic restructuring" by investing a reported $1.5 trillion during the next five years to start a transition from cheap manufacturing to biotechnology and other high-value industries including energy conservation, environmental protection, new energy, high-end equipment manufacturing, new materials and new energy vehicles. The Chinese government has said it wants the value-added output of the strategic industries to account for 8 percent of the country's gross domestic product by 2015 and 15 percent of the country's GDP by 2020.

Can it be done?

Boger wouldn't be surprised after seeing Wuxi AppTec's new 300,000 square foot Suzhou nonclinical testing facility near Shanghai with 80 nonrodent and 28 rodent study rooms and a nonhuman primate housing capacity for as many as 1,500 monkeys.

"It's the package to get an IND started. There were mice and dogs and monkeys all over the place," Boger said. "The facilities were the best I've ever seen."

"It's running," he added, "and it didn't exist a year ago."

Coming up in the Biotech's Emerging Giant series: Strategies for Western biotechs and how "sea turtles" are a key to innovation in the People's Republic of China.