The Boston-China Biopharma Connection
The Great Bubble is dead and gone, but like Elvis it’s still occasionally sighted. Daytraders, for instance, could have sworn it was gyrating across their screens when WuXi PharmaTech recently went public. The Shanghai-based company leaped onto the Big Board on August 9 after pricing its shares at $14 each. The stock quickly rose by a third, then went on to roar past $30 in less than a month. Yesterday the provider of outsourced pharmaceutical research (NYSE: WX) closed at $37.35.
WuXi has more going for it than did the bubbly biotechs of yore. For years China’s biopharmaceutical sector has been a crouching tiger, full of potential but held back by a dearth of venture investing, lax patent enforcement, and a lack of internationally experienced managers. Now it’s in mid-leap—hindrances remain but significant progress has been made in dealing with them. WuXi’s startling jump onto the world stage shows what’s coming. It was formed in 2000 by Western-trained pharmaceutical veterans—CEO Ge Li earned a Ph.D. at Columbia University and then co-founded Princeton, NJ-based Pharmacopeia before returning to his native China. Drawing on China’s deep talent pool, WuXi quickly emerged as a world-class contract research organization, or CRO, specializing in preclinical services such as synthesizing novel drug candidates. With a staff of about 2,000, the company is profitable and boasts customers that include 9 of the world’s top 10 drug companies, as well as major biotechs such as Cambridge, MA’s Vertex Pharmaceuticals.
Daytraders may be wowed by WuXi’s stock, but the company’s closest watchers are people like Christopher Perkin, who oversees Charles River Laboratories’ growing presence in China. In June, the Wilmington, MA-based CRO forged into China’s drug-development market by forming a 75 percent-owned joint venture with Shanghai BioExplorer, another hot Chinese CRO. “All the major multinational drug companies are making sizable investments in China, mainly to set up R&D operations,” says Perkin. As a result, “30 or 40 years of Western pharmaceutical-industry development is being shrunk into a few years in China.” Underscoring that, a Chinese company this summer won FDA approval for its version of an AIDS drug now sold in the West, paving the way for China to rival India as a global supplier of generic medicines. Indeed, China already has more drug trials underway than India does, according to the Financial Times.
A key part of China’s jack-in-the-box pharma story is the emergence of CROs in Shanghai and other cities that can meet the West’s stringent regulatory and quality-control standards. WuXi was one of the first, and when Charles River’s joint venture opens its doors in Shanghai next year, it will offer a wide array of FDA-compliant preclinical services, including drug-testing with the Massachusetts company’s crown jewels: its unsurpassed collection of animal models of human diseases.
The pursuit of lower costs, of course, has been a major driver of Big Pharma’s push into China as well as the rise of major CROs there—bright young chemists and biologists in China can be hired for less than a third of their Western counterparts’ salaries. Importantly, China’s talent pool also includes a growing number of “sea turtles,” or returnees trained abroad, many of whom are coming back as veteran managers and entrepreneurs. The top sea turtle at Charles River’s joint venture is Shanghai BioExplorer’s co-founder and CEO, Kewen Jin, who got a doctorate in molecular biology at Rockefeller University, studied finance at Columbia, and worked for seven years at Wyeth before co-founding the Shanghai company.
But low labor costs, which first drew Western pharma companies to China a decade ago, are no longer their main pursuit there. “Our customers are telling us they want to develop drugs for China” at their new labs there, says Perkin. “China represents a developing market (for Western medicines) that’s equivalent to North America and Europe combined.”
In fact, the rise of middle-class consumers in China willing and able to buy Western medicines is swelling its pharmaceutical market by some 17 percent a year, three to four times the U.S. market’s growth rate, according to IMS Health. When announcing plans to set up a $100 million R&D center in Shanghai, Novartis last year spelled out a strategy that a number of multinational pharma players are pursuing in China: The Swiss concern said it will develop novel therapies for diseases particularly common in China, such as hepatitis B and C, in part by applying modern research methods to discoveries made over thousands of years in traditional Chinese medicine.
To date, the biopharma land rush unfolding in China has mainly centered on oral, “small-molecule” drugs synthesized by chemists—the drug industry’s mainstay medicines. But a second wave focused on “biologic” drugs, such as injected proteins churned out by bioengineered cells, is rapidly taking shape. One of its architects is Frank Lee, formerly chief technology officer of Cambridge, MA’s Millennium Pharmaceuticals and now CEO of Dragonfly Sciences, a Wellesley, MA, CRO with a lab in Shanghai.
Lee is a second generation Chinese-American—his parents emigrated from southern China to California, where he grew up. Two years ago he formed Dragonfly to capitalize on China’s low labor costs and the fact that biotech companies increasingly outsource rote tasks such as cloning genes and producing monoclonal antibodies for preclinical research. “WuXi has really gotten big pharma companies comfortable with outsourcing chemistry to China,” he says. Now Dragonfly and others are doing the same for biologics. “At the beginning of last year, we were a just tiny company with a handful of employees,” he adds. “But all these big pharma companies were sending teams of senior VPs to visit us, looking for biology services.”
His CRO business was just for starters, though: Lee’s long-term plan was to use Dragonfly as a launching pad for an enterprise that would discover and develop new biologics—a Chinese Millennium. “Last year, I thought I might have the opportunity to start a real biotech company in five to eight years,” he says. “But things are changing so fast I’ve become convinced that the time is actually now. And I’m learning that I’m not the only one.” He declined to elaborate on his current plans, but it’s fair bet they’ll soon bear fruit—Lee’s clout with venture capitalists got a major boost last month when Bristol-Myers Squibb agreed to shell out $430 million for a biotech he co-founded before Dragonfly, Adnexus Therapeutics of Waltham, MA.
Despite its rapidly building momentum, China’s biopharma industry has a long way to go before Westerners’ medicine chests will be stocked with drugs made in Middle Kingdom—for one thing, U.S. and other consumers won’t soon forget the recent barrage of scary news about toxic Chinese toys and other products.
But it seems Western investors and corporations will have few reservations about banking on the emerging makers of such medicines—after all, it’s not often one gets to take a ride on a leaping tiger.
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