Nature Biotechnology | Trade Secrets

Looking for China money for your biotech venture?

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While vacationing in the US during the Chinese New Year

early February, I attended a Bay Area event organized for VCs (venture

capitalists) and medical device entrepreneurs. I was a bit surprised by the

sentiment voiced by the panelists and the audience that “there is plenty of

venture money available in China”

and “given the tough funding environment in the US,

companies should look to China

for alternative sources of venture money”. “Aren’t the roads there paved with

gold?” a Chief Medical Officer for a Bay Area biotech startup jokingly asked

me. As an active healthcare VC in China in the past few years, I know

this view is far from accurate.

It is not hard to understand why investors and entrepreneurs

might view China

as a bountiful source of financing. At the end of 2010, China held over

$2.8 trillion of forex reserves. The Chinese government has played white knight

in an effort to help stabilize the Euro zone economy, by buying

euro-denominated Portuguese and Spanish debt. These facts have been widely

reported in the US press,

and I’m sure that US biotech entrepreneurs have also heard about the

hyper-active PE (private equity) and VC industries in China.

There is no comprehensive list of all the PE and VC funds with

a focus on China

who are actively investing. However, there are probably over a thousand of

these funds, and it is quite possible that more than half of them probably

raised fresh money over just the past two years. Statistics from ChinaVenture

suggest that such funds raised more than $12.3 billion in 2009, and over $30

billion in 2010 alone.

Moreover, the Chinese government’s 11th and 12th

five-year development plan spanning from 2006-2015 places a high priority on

biotech. As a result, dedicated central government funds have been allotted to

incentivize new drug development, and dozens of biotech parks have sprouted

around major cities to support biotech companies.

So is China

a good place for your biotech startup to look for money? Think again!

Over the past two years, I have come across a fair number of

entrepreneurs from North America and Europe,

with deals ranging from pre-clinical or phase I/II therapeutics to

prototype-stage medical devices. Many of these entrepreneurs had included some

sort of China-related story in their business plan. But most of them have

ultimately not been able to implement the Chinese dimension of their plan, even

after half a dozen trips to China

and many meetings with local investors and bio-parks. As a consequence, they

have left the country empty-handed — though after a series of eye-opening

experiences, and probably a sense of repletion after several elaborate banquets.

So the people I met at the Bay Area event are not so very

different from many bio-entrepreneurs who came to China with high hopes but major

misconceptions. Many of them appear to believe that: 1) there is plenty of VC

money available around China

for biotech startups; and 2) startups can get free funding from the government

and local bio-parks.

Unfortunately, I can tell you that if you are a starving

early stage biotech startup, chances are slim for you to get funded in China.

In next blog post, I’ll be explaining why.

(Karen Liu is a healthcare investor at a leading China based PE

and VC fund. The views and opinions expressed here are entirely personal and may

not represent those of her firm.)

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Karen Liu

Comments

  1. Report this comment

    Janette Dixon said:

    Karen, do you have any thoughts about the extend to which there is finance available to ex-China biotechs and small pharma through partnerships with Chinese pharmaceutical companies?  I’ve recently been involved in two such deals that involved licensing the China rights to drugs in exchange for the Chinese pharmaceutical companies contributing a significant part of the development costs, with the licensor retaining all rights to use development data in ex-China regulatory filings.

  2. Report this comment

    David Wilson said:

     Being a Bay Area guy myself I have always heard about the availabiity of capital in China for startups, so I came here 10 months ago and will be starting my blog based on my personal experience as a non-returnee bioentrepreneur in China.  In response to this post from Karen, I wholehearted agree.  There are plenty of VC’s running around looking to invest, and there is lots of money.  Getting them to understand your business concept and operating model is not something that most understand.  The predominant bioinvesting environment currently in China is looking for the low hanging fruit, the fast buck, the flip-it, re-package-it, re-sell it.  Finding a VC that offers strategic guidance, problem-solving capability in this environment, strong government relations, and a strong network of potential third-party alliances to quickly build your business are far and few between.  I remain a big booster of China’s potential to innovate and augment the Life Science Industry, but there is no basis for unfettered optimism.  It’s my current adventure and the experience of a lifetime, but not for the impatient, self-important, superficial, braggered that our industry has accomodated in the West.

  3. Report this comment

    Karen Liu said:

    Many established Chinese pharma companies, those mostly selling generic drugs in the past, are trying to build a new drug pipeline through in-licensing clinical stage assets from the West. I have seen a number of such deals and the Chinese pharmas seem willing and able to put up some capital to support development in exchange for China market rights.  I woud say most of these deals are funded directly by the pharma company, not by VC.  I am not aware of many deals where VCs are backing a company based on one or two drug candidates licensed from the West.  However, there are a few new start up companies, such as BeiGene and Hua Medicine (VC backed), that are taking a portfolio approach — they try to bring in a portfolio of drug assets from large to medium western biotech company in order to develop them further in China through a largely virtual pharma business model.

  4. Report this comment

    Andrew Marshall said:

    While I appreciate every region of China is different from the next, I am wondering whether there are particular areas that represent opportunities for startups in China. For example, the capacity, infrastructure and scientific output in genetics and genomics is already quite impressive…is this likely to translate into innovative startups focusing on diagnostics or the application of sequence variation insights in animal and plant breeding? From my limited number of visits, I’ve been struck by China’s ability to spawn innovative entrepreneurial startups in the area of plant biotech, entitites that are thin on the ground in the West.