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Despite the rapid development of China's biotech sector, experts suggest the industry is still in its infancy and, as a result, remains too weak to attract foreign venture capital (VC).
"We are starting to pay close attention to the Chinese mainland's biotech industry, but I do not think we will find some suitable projects to invest in over the next five years," said a senior director of a US-based VC giant, on condition of anonymity.
He made the remarks on the sidelines of the "Medicine in the 21st Century Tri-Conference and Bio-Forum 2004," which was held late last month in Shanghai.
Some major VC giants and foreign investment experts -- including those with the New York Stock Exchange (NYSE), NASDAQ and International Finance Co-operation -- were invited to the event.
The forum was organized by the World Biotechnology Forum, a New Jersey-based non-profit organization.
"Compared with Singapore and Taiwan Province, the Chinese mainland still lacks human resources, GMP (good manufacturing process)-certificated plants, a fair environment and good intellectual property right (IPR) protection for drug innovation," said Mark Tang, co-founder and managing director of the World Biotechnology Forum.
"Those are major obstacles blocking foreign venture capitalists' efforts to pour their money into China's biotech sector."
Statistics indicate China has more than 20,000 life-science researchers, and more than 300 public laboratories nationwide. But the overall research level remains quite low.
"Although numerous overseas researchers and scientists have returned to the Chinese mainland in recent years, the nation still needs talented people to upgrade its overall level of drug innovation," said Li Min, president of the Sino-American Pharmaceutical Professional Association.
Experts also note China's IPR protection remains weak.
"Since China's WTO (World Trade Organization) accession in December 2001, the IPR laws and some regulations have been amended to comply with TRIPS (Trade-Related Aspects of Intellectual Property Rights)," said Maria C. H. Lin, with the New York-based Morgan Finnegan law firm.
"But implementation of the laws and regulations in Chinese regions outside Beijing and Shanghai has not been good."
Lin specializes in China's patent laws.
Compared with the overcautious attitude of foreign venture capitalists, domestic investors have been quite active in the biotech industry. Funding by State-owned firms has been a major force in the sector.
Statistics indicate the Chinese Government plans to invest 12 billion yuan (US$1.45 billion) between 2001-05 to boost the development of the nation's biotechnology industry. Various levels of local governments, which regard the sector as their future economic pillar, will also contribute.
Experts predict China's pharmaceutical market will grow tremendously over the next 10 years, especially given the State's preferential policies that support biotechnology and the sector's huge potential.
In some cities -- such as Shanghai, Beijing and Shenzhen, where most biotech resources and enterprises are situated -- biotech investments have paid off.
The third phase of clinical trials of H101 (gene engineering adenovirus injection), an anti-cancer medicine developed by Shanghai Sunway Biotech Co Ltd, has just been finished.
"H101 will quickly enter the market. It will be the first oncolytic drug in the world to stop the metasis of cancer cells," said Hu Fang, president of Sunway.
The company, which has US$15.34 million in registered capital, is backed by State-owned Shanghai Alliance Investment Ltd.
Shanghai Alliance has invested about 100 million yuan (US$12 million) in Sunway since 1997.
Chengdu Venture Capital Co Ltd, in Southwest China's Sichuan Province, is another example of success.
The State-owned company, established in 2001, has invested in two "seed" biotech projects. One project generated profits of 16 percent in the first year.
Fu Qin, secretary of the company's board, said the firm's courage and success is due mainly to its government background.
"It usually takes us more than one year to carefully investigate and pick up one project, since there are great risks in investing in the biotech industry, which has quite a long life circle," Fu said.
"Private venture capital ... has a difficult time entering such a market."
Others in the sector agree with that assessment.
"Many venture capitalists came to our company with great interest in developing biotech products. But after we explained how long R&D (research and development) took to develop a new drug, an average of eight years, the possible great risks and the huge investment needed, they just left," said a general manager of a Guangdong-based bioscience company which is listed on Shanghai's stock exchange.
China's incomplete market system and unequal taxation policy, combined with the difficulties in withdrawing investments, have created obstacles for venture capitalists eager to invest in the nation's biotech industry.
Meanwhile, small companies have little or no access to capital when they are starting up, because banks generally turned down their applications for loans. Yet, the vast capital in the stock and insurance markets has, for all intents and purposes, been frozen.
Despite US-based venture capitalists' lukewarm attitude towards China's biotech sector, domestic entrepreneurs are trying to find ways of accessing foreign funding.
"They can get funds at the very beginning of R&D, rather than selling their products," Li said.
"As most of the costs of drug development occur during the clinical trial stage, young Chinese entrepreneurs will likely seek foreign co-operation," suggests Nicholas Franco, global head of BD & L Primary Care of Novartis Pharma AG.
"They can run initial screening of compounds, and then co-operate with giant pharmaceutical companies."
(Business Weekly August 17, 2004)
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