Monthly Archives: April 2011

China’s biotech landscape

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resized yin.jpgSince coming to China in 2002, I have witnessed incredible growth within China’s biotechnology industry. The ecosystem has emerged from a collection of companies with mixed innovator/service business models and poor communication skills to a stratified, differentiated landscape with an international impact. Some of the players have since gone public. Others have raised VC rounds internationally. Deals between Chinese companies and global pharmaceutical and biotechnology companies are common. Many small private companies are thriving. China biotech has arrived.

Despite the significant advances and media attention, problems continue to plague the industry. Though China boasts a robust services segment, there are still relatively few true innovators. Most managers have little experience with multiple parts of the discovery and development value chain. IP, tax, ownership and other issues often come to the fore when due diligence is conducted by partners. Conference providers are often disappointed with the actual number of biotech companies that are truly international in orientation. Many incentives provided by the Chinese government have sustained and encouraged companies that would not be otherwise economically viable. The large sums announced by multinational pharma for China R&D investment sometime seem divorced from the reality of their actions. Still, China biotech has grown unabated.

In my opinion, China’s rise in biotechnology was predictable, if not inevitable. China has the academic infrastructure in place to create the supply of talent to the industry and China has the cost base to create competitive advantage in commodity-like biotech services. Returnees from the US, EU, and Japan have brought innovation, international perspective and management practice back to China. China’s national and regional governments have supported the industry, helping home-grown biotechnology companies and foreign companies desiring to make China a base.

China’s future looks bright for biotech services, and in the long run, for Chinese innovation. Multinationals now believe they must be in China for R&D or be left behind. China’s government has not wavered in its support for the fledgling industry. And despite wage inflation and a tighter labor market, China talent remains at a discount to developed countries. With such fundamental drivers in place, China’s future in biotech seems secure. Hold on tight for the next 9 years!

The China market for products

Aside from China’s biotechnology companies, one of the most significant developments since 2002 for the global biotechnology industry has been the staggering growth of China as a pharmaceutical market. When I arrived in China, the domestic market was a backwater for most of the multinational pharmaceutical industry. Today, multinationals are obsessed with growth in China and have been willing to invest significantly to grow market share. In the past, big pharma waited years before bringing products to China from developed markets. Now, not only do multinationals bring products as quickly as possible to China, but many have created business development teams in the country that focus on in-licensing products for the China market alone. This development has had an impact on biotechnology companies in China and biotechnology companies globally – they must now understand the market opportunity for their drug candidates in China as well as the US, Europe and Japan.

Helping biotechnology and pharmaceutical companies assess the China market for their candidates and do deals has become a focus for my firm. The process for valuing a molecule for China is different than for other markets. Patent protection is important, but more important are pricing events, tender events, and reimbursement on a national and provincial level. The product’s scientific merit may have an impact, but understanding the incentives within China’s healthcare system and positioning a product within that system is more important. Without an attractive price, incentives for market access and appropriate promotion, a product – no matter how innovative – will fail in China.

Such considerations help biotechnology companies understand the potential market value for their candidates in China. Some are pleased with the outcome of these studies – and some learn to reposition their products for the China market. In any case, when biotechnology companies are negotiating China or global rights for their candidates, they need China information in order to be in a position of strength. Without it, they are in a position of weakness. They may choose the wrong partners. And they fail their fiduciary duties to their investors. With the right information and the right positioning, even small biotechnology companies can cut attractive deals for China rights and enhance the global value of their candidates.

Final thoughts

China is an essential player in the international market for biotech services, and increasingly for innovation. It will continue to grow and thrive and will overcome its stumbling blocks. And for every biotechnology and pharmaceutical company, China has become a market that must be assessed early in development.

Matthew Chervenak

Can Brazil become a biotech superpower?

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As a scientist, professor and entrepreneur, I’ve been following and participating in the Brazilian biotech history for the last 12 years. Like many researchers in Brazil, I studied abroad – supported by the Brazilian Research Council – and understood earlier than some the difficulties in returning to Brazil. So I continued to perform as a researcher. But we do return!

My path, initially more naïve than realistic, was to create one of the first biotech companies in Brazil (1999). In the past 12 years, I’ve observed the fantastic number of Ph.Ds graduating every year in Brazil. The amount of research funds available multiplied several times. In 2010, more than 7.5 billion reais (US$4.7 billion) were invested in research just at the federal level. It’s also important to note that even during economic difficulties (2008-2009), there was a steady funding because of Fundos Setoriais, a special system created in 1999 that guarantees investments independent of the government’s annual budget.

So Brazil has prospered significantly in terms of number of Ph.Ds, publications and funding. But the big step, unique to biotechnology, is the link between science and entrepreneurship. The gap between industry and academic science is huge. To be able to transform science into innovation (which is just a cool way of saying transform science in wealth) requires new types of investment – not only economic but also philosophic. The Brazilian biotech industry is absorbing some of this knowledge, but it must also change philosophically. Until recently, it was absurd to think a company could be located at a university campus, and even now some people still think that entrepreneurs are there just to suck all the “wealth” that the university produces.

The problem is that if researchers only exercise their vanity by publishing in high-impact journals and do not transfer discoveries to industry, we as society will not benefit from the money invested into the researcher. (Of course we need to preserve academic research, which is fundamental for the applied science.)

But the winds are changing! Over the past 5 years, there was a fantastic change and stimulus to improve entrepreneurship among Brazilian scientists, mainly by creating programs that support new companies (Programa PRIME), venture investments (Program a Inovar e Criatec) and also by supporting companies to perform R&D and innovation (Subvenção Econômica).

Nevertheless, the established Brazilian industry is facing global competition and the need to innovate is urgent. Several traditional businessmen believe that in other to increase the technology of their companies, they only need to buy a new machine! The added value of technology is tremendous, but in the 21st century economy, technology and know how are key players on the value-added chain of manufacture.

This blog will be an excellent opportunity to present and discuss several points, not only affecting Brazil but also the global scenario.

  • Can the Sea Turtle China phenomena also occur in Brazil?
  • Can we create innovation with the current Brazilian R&D model?
  • Can Brazil overcome the regulatory pathway in other to become an international player?
  • Can we aggregate value with intellectual property produced in Brazil?
  • Can we link academic research to entrepreneurship?
  • Can biotech became a significant contributor to the Brazilian economy?
  • Can the recently created Brazilian Biotech Association (BR-Biotec) become a strong voice for Brazil’s path to biotech development?
The views and opinions expressed here are entirely those of Fernando Kreutz and may not represent those of his firms and associations.

Fernando Kreutz

Financing Know-Hows for Biotech Start-ups in India

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The early stage life science companies are an important engine for medical innovation and economic growth across the country. The Indian biotech industry is mainly dependent on private equity (PE) and venture capital (VC) funds. While Indian biotech has shown astounding growth, funding for the high-risk models have continued to be a challenge. In recent years, Indian start-up biotech companies have been threatened by the decline in early stage funding, as private investors move to later-stage investment strategies, due to the closed exit market and a lack of money to invest in new and risky projects. Irrespective of the business model, biotech startups require infrastructure, such as laboratories and manufacturing facilities, as well as skilled people  power, and legal and regulatory knowledge. They also will face serious challenges in finding early stage investment capital. To obtain financing, startups raise venture capital, partner with big pharma or rely on initial capital from angel investors or government grants.

In India, small and medium-size enterprises (SMEs) make up the bulk of the biotech industry that is either involved in basic R&D or is coupled to contract services. But there are a few important ways to close this critical funding gap and offer attractive investment opportunity for investors, given the business models of Indian biotech firms.

Early stage investing is a resource-intensive business, where every entrepreneur needs to build partnerships with local and global investors, and with corporations and government entities, hoping to gain enough runway to validate their business model, create value and become cash flow positive, before they look for additional funding.

Typically, the entrepreneurs leaving academia and wanting to start a company would have to:

Select a low-risk, high potential sector

With almost no angels, and just a handful of VC/PE firms proactive in Indian biotech, choosing an appealing area (drug discovery, vaccines, medical devices and diagnostics) becomes a priority for early stability. In the present market conditions, the funds are mostly focused on low-risk growth capital opportunities. In the post-genomic era, rational drug discovery is a major approach for discovering and designing new drugs. Academic institutes are invaluable sources of new therapeutic targets for diseases and biological assay techniques. For the early stage biotech to effectively move into the global biosimilars/ follow-on-biologics business, will have to collaborate with public institutions to leverage strengths in targeting a key therapeutic area or sub-segments.

This would attract the necessary early stage recognition for investment capital. Companies such as NovaLead, Indus Biotech, Sphaera and Incozen are involved in innovative medical research, and private investors such as Reliance, MPM Bioventures, ICICI Venture and Citigroup Venture Capital International are interested in innovative startups. The VCs in India lack the confidence to fund a startup to take its product to a next stage, and/or later license it to a big pharma company.

Become an attractive incubation target

Many pharma companies have acquired biotech companies, in the process solving the funding challenges of the early stage biotech. Similarly, in recent times, large Indian pharma companies have been taking interest incubating 4-5 years old, early stage biotech ventures. Generally, the biotech start-ups have a better track record in early stage scientific research and product development; but limited expertise in funding clinical trials, managing regulatory bodies and taking drugs to the market. Therefore, the symbiotic co-existence of Indian pharmaceutical and biotech companies would help both in attracting funds and necessary expertise from a common investor. Incubating a biotech company implies that the pharma company can add new products, product platforms and technologies, which would be more economical than to start from scratch.

Network with investors

The Association of Biotechnology Led Enterprises’ (ABLE) recent flagship networking conference, BioInvest’2010, was held in Ahmedabad, Gujrat, and mainly focused on life science companies, institutional investors and investment bankers on a common platform. Investment and partnership opportunities were explored for collaboration and growth by leaders from industry verticals (agbiotech, vaccines, and platform technologies). For example, Nadathur Holdings and Investments Pvt. Ltd. are promoters of Lifespring Ventures, which recently funded five drug discovery and development start-ups in India. SMEs that attended Bio-Asia’2011 in Hyderabad likely benefited from interactions with foreign investors. Networking during BIO International Partnering Conference in India will allow biotech companies to connect with big pharma companies, venture capitalists and bankers, and service providers from around the globe. India Innovation Fund (IIF) led by IT industry body Nasscom and ICICI Knowledge Park Trust is looking to invest in innovation-driven, early stage Indian companies focused on healthcare and IT sectors. Recently, it has invested about $0.75 million in Bangalore-based Mitra Biotech, a spin-off from MIT focused on personalized treatment of cancer, where Accel Partners and Kitven (Karnataka government-backed fund) are co-investors. Kitven has raised funding from a host of investors, including Karnataka State Industrial Investment & Development Corporation Ltd. (KSIIDC), Karnataka State Financial Corporation (KSFC), Small Industries Development Bank of India (SIDBI) and Karnataka Bio-technology & Information Technology Services (KBITS). It targets investments in IT, biotechnology, nanotechnology and other knowledge-based industries in Karnataka.

In my next post, I’ll discuss government funding and collaborating with global companies.

Viren Konde

The Cost of Developing a Drug: That Mythical Figure

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Biotech followers in 2003 were told that the time and costs for developing a drug are around 10 years and $800 million – thanks to a study from Tufts that suggested those numbers. That money figure has ratcheted up since then, as most assume that, along with everything else, drug development costs are also steadily increasing. 10 years and $1.2 billion is tossed around these days, and seems like a fair calculation of inflation. Now, a study in the journal BioSocieties has people talking about that figure again. The study suggests the median cost of developing a new drug is way below the Tufts estimate- all the way down to $59 million, though with several caveats. (The authors of the BioSocieties paper are Donald Light of Princeton, New Jersey, and Rebecca Warburton, a professor at the University of Victoria, in British Columbia, Canada.)

We’re covering that news in more detail in an upcoming issue of Nature Biotechnology, but Bruce Booth has an interesting blog post discussing the article.

The truth is that the figure can probably be fodder for parlor talk forever, unless every single drug developer opens its books and we get a look at detailed costs over the past 20 years, and that’s not going to happen.

Brady Huggett

Monoclonals in China

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In late 2009 a Chinese-American friend asked me if I might consider working on a project in China, to which I responded enthusiastically “yes.” The business concept is to develop a contract manufacturing organization (CMO) in China to capitalize on an emerging China market, take advantage of the lower costs of manufacturing that China’s skilled labor force has to offer, and produce products in compliance with FDA and EMEA standards for international and/or domestic distribution. As my simplistic generalization, I thought that since China manufactures so many products for the West, why not pharmaceuticals? At that time I was naïve in thinking this was a novel concept, because Big Pharma was already in China doing this and had been for years. (As an aside: I recently saw a quote from the new FDA commissioner stating that 40% of all prescription drugs sold in the US are produced outside the US.)

The difference is that there are no therapeutic monoclonal antibodies produced in China for international distribution. This is my focus, and the big initial hurdle was getting the financing to do this, which as it turns out, my business partner had already been scouring the landscape to find money. He looked for incentives in Beijing, Shanghai, and Suzhou with some success, but then he came upon China Medical City.

China Medical City is in Taizhou, Jiangsu Province, and is an initiative from the Central Government to build the largest Medical Science technology park in China. I was told that ¥100,000,000,000 (~$15 billion) was earmarked for this project, which will contain all aspects of product development, from R&D to manufacturing to marketing and distribution, both domestically and abroad. It is 85 sq km, with its own municipal government, police and a provincial office for the SFDA to facilitate regulatory filings. I first visited China Medical City (CMC) in May 2010, where we discussed some of the business terms as well as site selection to determine if this was an appropriate environment to set up a CMO. Not only did it appear that it would work, but there was a terrific amount of enthusiasm on the part of the CMC leadership, since it fit into the overall strategic vision for what China Medical City was to become.

In June a contract was signed to establish a cooperative joint venture with the local government and commit sufficient funding to build and staff a 20,000 sq. meter cGMP manufacturing facility. We would provide the Western management team with the required experience, and the Chinese government would provide the funding and infrastructure support to get the company up and running. I moved to China in August 2010, and since then have been working with design firms to engineer the facility, and I’ve been pounding the pavement to find potential customers and strategic partners to participate in and ensure our success. By the way, I did not speak Chinese before moving, but am slowly learning the language as best as my aging brain will allow.

In subsequent posts I will be happy to answer any questions to elaborate on my personal and business experiences in China.

David Wilson