monitor china the life sciences leader of 2020 17 nov

8/8/2019 Monitor China the Life Sciences Leader of 2020 17 Nov

1/54

A UNIQUE CONFLUENCE OF FORCES SETS THE STAGE FOR CHINA TO TAKE A

LEADING AND POTENTIALLY DISRUPTIVE ROLE IN LIFE SCIENCE INNOVATION.

UNDERSTANDING THE DRIVERS, THE UNCERTAINTIES AND THE POTENTIAL IMPACT

WILL BE DECISIVE FOR FIRMS AIMING TO LEVERAGE CHINAS BURGEONING ROLE

AND BUILD NEW SOURCES OF GLOBAL COMPETITIVE ADVANTAGE.

THE LIFESCIENCESLEADEROF 2020

BY GEORGE BAEDERAND MICHAEL ZIELENZIGER


2/54

Copyright 2010 Monitor Company Group Limited Partnership.

All rights reserved. Reproduction in whole or part is prohibited without permission.

ABOUT MONITOR

Monitor works with the worlds leading corporations, governments and social sector organizations

to drive growth in ways that are most important to them. Monitor Group offers a range of services

advisory, capability-building and capital servicesdesigned to unlock the challenges of achieving

sustainable growth.

ABOUT THE AUTHORS

GEORGE BAEDER

George Baeder, based in Monitors Shanghai office, leads the firms Life Science practice in Asia,

covering pharmaceuticals, medical devices, over-the-counter medicines and health care delivery.

He helps clients anticipate fundamental changes in the market and competitive landscape, and

he has led numerous corporate market entry, product launch and in-line growth strategies across

a wide range of therapeutic areas. Over more than three decades in Hong Kong, Singapore and

China, George has worked across consulting, investment banking and private equity to advise

senior executives of leading Western and Asian firms, as well as government policy makers, on

the development and effective implementation of innovative strategies. He can be reached at

[email protected].

MICHAEL ZIELENZIGER

Michael Zielenziger, a Pulitzer-prize finalist for his reporting from China, works with Monitor

Group analyzing issues related to Asia and globalization and is a visiting scholar at the University

of California, Berkeley. The former Tokyo bureau chief for Knight Ridder Newspapers, Zielenziger

is the author of Shutting out the Sun: How Japan Created its own Lost Generation (Nan A. Talese/

Doubleday) which described the social malaise and economic decline that now confronts an aging

Japan. As a consultant, he advises corporations and governments on developing strategic priorities

and discerning emergent trends. He is also a former John S. Knight Fellow at Stanford Universitys

Graduate School of Business. He can be reached at [email protected].

monitor


3/54

TABLE OFCONTENTS

EXECUTIVE SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

CHINA, THE LIFE SCIENCES LEADER OF 2020

Beijing, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Life Sciences Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Forces Shaping the Life Sciences Future . . . . . . . . . . . . . . . . . . . 8

The Global Implications of Chinas Emergence . . . . . . . . . . . 13

A Dual Crisis Demands a Search for New Models . . . . . . . . 13

For Chinese Scientists, a Historic Opportunity . . . . . . . . . . . . 16

The Central Role of Chinas Government . . . . . . . . . . . . . . . . . 26

A Latecomers Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Building the Pharma Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Potential Risks to Chinas Life Science Boom . . . . . . . . . . . . . . 43

INTO ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

CHINAS LIFE SCIENCES FUTURE: SCENARIOS

1. Wild Flowers Bloom: 20092012 . . . . . . . . . . . . . . . . . . . . . . 22

2. Planting the Garden: 20122015 . . . . . . . . . . . . . . . . . . . . . . . 23

3. Cultivating the Seedlings: 20152020 . . . . . . . . . . . . . . . . . 24

4. Steady Harvest: 20202025 . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ADDITIONAL INSIGHTS

How China Changed the Semiconductor Game . . . . . . . . . . . 10

A Life Science Entrepreneur Leverages Chinas Model . . . . 18

One of a Thousand Talents Returns to Beijing . . . . . . . . . . . . . 28

The Health Minister Speaks for Innovation . . . . . . . . . . . . . . . 30

Manufacturing Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

monitor

AUNIQUE CONFLUENCE OF FORCES SETS THE STAGE FORCHINATOTAKE A

LEADINGANDPOTENTIALLY DISRUPTIVE ROLE INLIFE SCIENCE INNOVATION.

UNDERSTANDING THE DRIVERS, THE UNCERTAINTIES ANDTHE POTENTIAL IMPACT

WILL BE DECISIVE FORFIRMS AIMINGTOLEVERAGE CHINAS BURGEONINGROLE

ANDBUILDNEWSOURCES OF GLOBAL COMPETITIVE ADVANTAGE.

THE LIFESCIENCESLEADEROF 2020

BY GEORGE BAEDERAND MICHAELZIELENZIGER


4/54

2 CHINA, THE LIFE SCIENCES LEADER OF 2020

EXECUTIVESUMMARY

China today is rapidly positioning itself to become

an importantand hugely disruptiveplayer in

the Life Sciences industry and, within a decade,

a global leader in drug discovery and innovation.

A confluence of forces insufficiently recognized

by many Western firms is fueling Chinas rapid

emergence and offers the industry unusual

opportunities to create partnerships and develop

new sources of competitive advantage.

Quietly, and without great public anare, Chinas lie sciences indus

try is today gathering a critical mass o highly skilled talent, savvy and

ocused venture investors, and growing government support as its mar

ket or drugs and medical devices takes o. As it marshals ambitiousgovernmentled investments with pragmatic collaborations, China may

soon possess the potential to create a more vigorous pipeline or new drugs

than the traditional Western model, where competing actors oten work

at crosspurposes, and where the costs o new drug approvals have become

unsustainable. Moreover, at a time when large, vertically integrated phar

maceutical rms are being compelled to rethink their scale, scope and core

expertise, thousands o topight Westerneducated scientists are beginning to

see China as the premier destination to pursue unprecedented commercial and

research opportunities.

Global pharmaceutical leaders already oresee explosive growth occurring within theChinese market, which is on track to become the worlds second largest by 2012. Yet

other orces will accelerate the pace o development:

monitor


5/54

monitor

CHINA, THE LIFE SCIENCES LEADER OF 2020 3

China will unleash US $124 billionbetween 2009 and 2012 to build

community health centers as well

as new municipal and countylevel

hospitals as part o its broadbased

health care reorm.

Central and provincial governments

will allocate millions to induce lead

ing scientists to repatriate; to develop

biotech science parks; sponsor lie

science startups and reinvigorate Chinese research institutes.

Chinese leaders clearly recognize that

their nation is getting older and less

healthy even aster than its population

is gaining wealth, and must attempt to

develop new and innovative therapies

at consistently lower prices.

Moreover, as the Big Pharma model o

drug discovery continues its rapid deintegration, ambitious Chinese scien

tists and entrepreneurs see the chance

to develop important new commercial

opportunities along the value chain o

drug innovation. Just as a small com

munity o Chineseborn, Western

educated engineers dramatically reshaped

the global semiconductor industry two

decades ago, so too are Chinese heritage

bioscientists poised to turn China into a

vital cog in the global system o design

ing, testing and manuacturing next

generation compounds and vaccines. Teexplosion o Clinical Research Organiza

tions (CROs) in China within the past

ve years points to this emergent trend.

Tere are risks to this orecast, includ

ing the economic uncertainty across

the developed world; Chinas ability

to implement sweeping reorms and

enorce intellectual property protection;

and a tendency within China to ocus

on shorterterm commercial gains at theexpense o longerrange investments in

lie sciences research.

Still, as China emerges as a new magnet

or lie science innovation, Monitor has

ound that:

At least 80,000 Westerntrained PhDs

in the lie sciences sector have already

returned to China to work in the

industry or in academic institutes. Tepace o repatriation o these highly

skilled scientists is likely to accelerate

over the coming decade.

An exclusive Monitor survey o

Chinese lie science proessionals now

working in the United States nds

that ully twothirds contemplate

either returning to China or good

or becoming sea turtles: lie science

proessionals who constantly circulatebetween China and the U.S. in pursuit


6/54


monitor

o commercial and research opportunities. Such sea turtles and the hybrid

rms they create will become impor

tant drivers o Chinas lie sciences

innovation.

Unburdened by outdated legacy

investments, Chinas ambition to

build a wholly new medical inrastruc

ture oers a wide range o opportuni

ties to create the robust genomic and

disease databases that will be increasingly important as personalized medi

cine becomes a dominant trend.

Tese ndings suggest that opportuni

ties in drug discovery, process innovation,

clinical trials and collaborative research

will be qualitatively dierent in Chinathan in other emerging markets and

could, in time, break more new ground,

more rapidly.

Other global industries, ranging rom

textiles to automotive parts and consumer

electronics, have tended to underesti

mate Chinas potential to transorm their

industries. Savvy liescience rms will

make the investments required to get

China right.


7/54


On an overcast Thursday in May, the director of the

drug development bureau of Chinas Ministry of

Science & Technology (MOST) convenes an intense,

three-hour briefing. Arrayed around the austere

conference room in the capital are the heads of

Chinas three largest disease experiment hospitals,

the director of Tsinghua Universitys molecular biology

department, and clinical directors from two of the

worlds most distinguished clinical research labs, both

based in nearby science parks. Joining the meeting is

James Liang, the chief executive and scientific director

for Dongshan Pharmascience, a seven-year-old life

sciences startup with 300 employees based in Shanghai.

Even beore MOS representative Wang Li Jang calls the meeting to order,

Liang is condent o what this ormal session will nally ratiy: that Ala

sapt, the worlds rst biologic therapy designed to block the ormation o the

reeoating proteins that trigger Alzheimers disease, a molecule developed by

his rm with the active support o all these players, is ready to enter ullscale

commercialization. Te ocus o Liangs research eorts over the past nine years,

it seems a oregone conclusion that Alasapt will win nal endorsement rom this

room lled with his most powerul promoters, especially since, as a Chinacreated

molecule, it has already received preerential, asttrack approval rom the State Food

and Drug Administration (SFDA).

Yet its impending arrival on the global market also reects a surprising new reality. As

the pipeline or new drugs in the West continues to suer rom disappointments and

poor investment decisions, a new and more cooperative model or drug development and

approval in China is gaining powerul new traction. Alasapt, the rst blockbuster devel

oped through this emerging Chinese system, not only has the potential to vastly improve

BEIJING, 2020.

monitor


8/54


monitor

the lives o patients across the globe. Itwill almost certainly cause new headaches

or Western pharmaceutical rms which

have no competing compound to oer

in China and may soon nd their home

markets threatened by this new, Chinese

developed therapy.

Tis conclave also represents a moment

o special proessional satisaction or

Liang. Born in remote Qinghai province

in 1983, he earned his biochemistry PhDrom MI in 2007, ollowed by post

doctoral research at the U.S. National

Institutes o Health, and brie stints at

two U.S.based lie science research rms.

One o thousands o Chinese scientists

lured back home with research and busi

ness incentives, Liang knows he could

not have gotten this new compound to

market so quickly without the active

support o the drug development bureau,part o the MOSs highpowered new

initiative to speed up creation o indig

enous innovation along the rontiers

o hightech industry. Te lie sciences

program MOS runs has helped priori

tize the research ocus, gotten SFDA and

the Health Ministry to clear bureaucratic

roadblocks, and coordinated eorts by

government clinical hospitals to quickly

assemble a large pool o suitable patients

or Phase II and Phase III trials. It also

helped crat the partnership with the lab

at singhua, whose research team worked

closely with Dongshan Pharmascience toprioritize which drug leads to target.

With SFDA approval now rmly in

hand, Liang knows that support by the

U.S. Food and Drug Administration and

the European regulators is just a ew

months away. Ever since the SFDA was

dramatically revamped in 2014 to meet

the saety and certication requirements

o its American counterparts, and the

government launched a highly publicizedcampaign against countereiters, the sta

tus o Chinese manuactured pharmaceu

ticals has risen. A companion initiative to

ensure that Chinese production acilities

exceed the current Good Manuacturing

Practices global standard has also proven

surprisingly eective in attracting new

investment. So many U.S. drug manu

acturers are now using Chinese partners

to produce their drugs and vaccines thatChinese pharmaceutical plants are grow

ing in both their technical competencies

and productivity. Soon a dozen Chinese

actories will likely take over a major

share o drug production or the worlds

two largest pharmaceutical markets, the

U.S. and China.

Te only real issues to be resolved at

this congratulatory session are strategic

choices: How much o a premium shouldDongshan charge or licensing its new

blockbuster compound or sale outside


9/54


monitor

China? Te revenues generated romthe higher prices Alasapt can command

abroad will help reimburse the govern

ment directly or some o its initial

outlays or research and will also eec

tively subsidize the rate Fosun Pharma,

the lead Chinese producer, will pay to

Dongshan or its domestic manuactur

ing license. In China, however, Alasapts

retail price, while much higher than

that o an ordinary generic, will still becapped by National Development Reorm

Commission (NDRC) and the Health

Ministry to ensure it is broadly aordable.

o Dongshan Pharmascience, the ulti

mate mix o domestic and oreign prices

almost doesnt matter: Just the act that an

estimated 27 million Chinese likely will

become suitable candidates or this drug

in the rst year means their production

partner will rapidly develop the scale e

ciencies required to drive down produc

tion costs as prots climb.

Lets get started, Commissioner Wang

says, calling the meeting to order. Liang

knows this is going to be a good day.

Life Sciences Today

At a time when the global Lie Sciences

Industry aces an unsettling series o

scientic and business challenges, Chinais rapidly positioning itsel to become

an important and hugely disruptive

player in the industrys uture trajectory.

By 2020, we believe, it will be a criticalplayer in lie science development and

pharmaceutical discovery. By then, China

may well have developed its own, distinc

tive model or collaboration between

government research labs, top university

researchers and private rms. With ambi

tious investments and pragmatic col

laborations, China possesses the potential

to create a more vigorous pipeline o

new drugs than the traditional Westernmodel, where competing actors oten

work at crosspurposes.

Tis conclusion will strike many as

unexpected, or even disturbing. In 2010,

China oten commands headlines when

stocks o the blood thinner heparin are

ound to be atally adulterated, when the

saety o ood exports are questioned or

when oreign rms allege that Chinese

competitors brazenly appropriate theintellectual property o automakers and

electronics manuacturers to create their

own brandname products. Even many o

those working in China see the emphasis

on quick prots overwhelming the patient

investments and longterm strategic

planning necessary to nurture successul

innovation in the lie science eld. More

over, the ocus and concern over

China in the West tends to center on the

scope o its manuacturing capabilities

and the scale o its lowcost labor, not on

its potential or sophisticated worldclass


10/54


monitor

innovation. Chinese can only copy, mostbelieve, not invent.

Yet quietly, and without great public

anare, Chinas lie science industry is

today gathering a critical mass o highly

skilled talent, savvy and ocused venture

investors, and mounting government sup

port as its market or drugs and medical

devices rapidly expands.

Forces Shaping the LifeSciences Future

Te juxtaposition between the industry

dynamics in the West and China is strik

ing. Already aced with patent clis and

declining productivity, large, vertically

integrated pharmaceutical rms are being

compelled to rethink their scale, scope

and core expertisejust as a host o prag

matic and exible Chinese entrepreneurs

are quickly building the clinical research

organizations, manuacturing centers,

smallscale research labs and incubators

required to take maximum advantage o

the challenges Big Pharma aceas well

as the budding opportunities develop

ing within the domestic Chinese market.

As integrated Big Pharma is orced to

slim down, break apart or seek merger

partners to sustain growth, Chinese

actors are poised to play an outsized rolein the reconguration o the industry,

much as Greater China, through aiwan and Hong Kong, altered the value

chain o semiconductor design, testing

and manuacturing in the late 1980s

(see sidebar, page 10). As the integrated

device manuacturers o the semiconduc

tor industry were once orced to conront

new, narrowlyocused specialists, todays

looming deaggregation o the global lie

sciences value chain oers Chinese rms

analogous opportunities to become majorcompetitors and collaborators through

specialization and structured global

partnerships. Moreover, as technologies

shit, and as new sotware tools emerge

to speed the design and testing o thera

pies on the rontiers o synthetic biology,

Chinese rms could play an outsized role

in reconguring the design and pace o

biological innovation.

Says one venture capitalist deeply investedin the lie sciences industry, who divides

his time between San Francisco and

Shanghai: When it comes to innovation

in lie sciences, China will be the straw

that stirs the drink.

Tese conclusions would seem squarely

at odds with the conventional wisdom

currently expressed by leading global

pharmaceutical rms. Most are indeed

convinced that China will become apromising contributor to revenue growth


11/54

monitor


as the nation gains wealth, much like anyother emerging market. Tey ocus mainly

on how to better sell existing compounds.

I they recognize any potential competi

tive challenger, it is a Chinese rm that

leverages huge volumes to lower pro

duction costs or generics. Competition

rom Chinaproduced generics with

R&D ocused on improving processes

and quickly replicating western innova

tions commands serious concern. Chinese scientists are mainly copycats, they

believe, incapable o conducting world

class innovation in an environment where

raud and data manipulation is rampant.

Te lack o adequate intellectual property

protection remains a major disincentive

to invest in Chinese R&D. Moreover

the nation, broadly speaking, lacks the

inrastructure required to conduct unda

mental, groundbreaking research. Chinas

opaque and heavyhanded bureaucracy,

they contend, is not capable o making

smart investments in lie science research.

And the SFDA is so riskaverse it is

unlikely to approve or sale within China

any drugs not already approved by coun

terparts in Europe and North America.

While the impact o Chinas health care

reorm plan is not yet ully understood,

many wonder who in China might pay

or advanced new therapies command

ing premium prices at a time when thestate has signaled its resolve to drive drug

prices down.

In sum, this view proposes, integrated

Big Pharma will remain the leader in

global innovation and whatever enhance

ments are achieved in global R&D can

be careully and selectively transerred to

the China market.

Yet in counterpoint to that ocialuture, some core drivers are rapidly

coalescing in China to help speed the

nations rst serious orays into drug

discovery. Tey, in turn, suggest a vastly

dierent uture:

Chinacantaordtowaitor global

pharma rms to develop the medi

cal breakthroughs needed to provide

aordable solutions to the healthcare

needs o the nations projected 1.4 billion population in 2020. Nor do policy

makers seem inclined to replicate the

Wests vertically integrated corpo

rate model. Tey believe China has

no choice but to accelerate creation

o new models or drug research and

innovation to serve the needs o a

relatively poor population.

Continued on page 12


12/54


How China Changedthe Semiconductor GameTo understand how the rise of China could change the face of the global pharmaceutical

industry and drug development, it is useful to recall how Chinese investors, entrepreneurs

and manufacturers based first in Taiwan powerfully reshaped the semiconductor industry two

decades ago, taking advantage of technological innovations and entrepreneurial risks to create

a new global ecosystem.

The fact that the worlds iPhones and computers are today mainly manufactured in China is atestament to how rapidly the ecosystem of high technology evolved.

In the late 1980s, the semiconductor industry was known mainly through its behemoths: large,

integrated device manufacturers like Texas Instruments, IBM, Motorola and Intel, who designed,

built, tested, produced and ultimately marketed the processors that powered their own com-

puter products.

Today, however, firms like Intel and AMD now compete in a vastly altered semiconductor econ-

omy. So-called fabless design firms like Nvidia, Qualcomm and Broadcomm design specialty

semiconductors for high-speed graphics, video game machines or cell phones, but dont actually

manufacture these components. Tool houses like Cadence and Synopsys build the software tools

that permit niche firms like Nvidia to design, verify, and implement the creation of their electroniccircuits through computer simulations alone. Other firms package and test integrated circuits

fabricated by third parties. Meanwhile, giant foundries like TSMC and UMC in Taiwan, or SMIC in

Shanghai, bake the semiconductor chips for any firm that chooses not to make its own.

So dramatically has the gravitational flow within the semiconductor world been altered that in the

summer of 2010 the trade association for the chip industry, the Semiconductor Industry Associa-

tion, shuttered its headquarters in the Silicon Valley of California. While semiconductor giants like

Intel and AMD might still be headquartered there, the vast majority of the worlds chips are no

longer designed or made there.

Two fundamental agents of change brought about this rapid and mostly unanticipated de-integra-

tion of the semiconductor value chain. The first was a series of technical innovations that created

both the design standards and underlying software necessary for virtual chip design so-called

electronic design automation, or EDA. These new tools allow engineers to sketch and design

increasingly complex circuits on computers without having to actually build prototypes to ensure

they function.

monitor


13/54

monitor


The second crucial innovation was the recognition by a savvy group of Chinese-born entrepre-

neurs an earlier generation of sea turtles that specializing solely in the manufacture of

semiconductor chips without design or sales expertise could still generate significant profits.

Their creation of so-called pure play foundries helped create an entirely new industry, just

as a previous generation had assembled motherboards from chips built in America and air-

freighted to Asia.

The rapid breakup of the big chip ecosystem had its catalysts, perhaps none more important

than Morris Chang, a former senior executive with Texas Instruments, who, backed by the Tai-

wanese government, moved back to Taiwan in 1985 and founded the first pure play semicon-

ductor foundry, Taiwan Semiconductor Manufacturing Company (TSMC).

The creation of such reliable foundry firms like TSMC, and its rival United Microelectronics Corp.

(UMC) in turn allowed entrepreneurial chip designers and tool makers to contemplate leaving

large, highly integrated firms and setting up their own specialty design shops, mindful that they

would no longer have to acquire the huge capital and complex technological skills required to

actually fabricate their own chip designs. (When Chang first launched his efforts 25 years ago,

significant high-tech investments were not yet feasible in Mainland China. Today however, the

vast majority of Taiwans high-tech manufacturers have giant facilities in the mainland and mas-

sive investments across the Taiwan Straits have become commonplace.)

The result is that while firms like IBM and Intel still tightly integrate their design and manufactur-ing competences, many other successful firms like Nvidia or Broadcomm are able to specialize

in smaller and more focused segments of the value chain. The biggest firms no longer dominate

system architecture and innovation as they once did, and firms that specialize in designing chips

for specific uses have found new ways to compete and win. Moreover, as the foundries have

grown more proficient and efficient at producing chips, even the largest semiconductor firms

sometimes find it more profitable to hire the foundries to produce the chips they have designed.

An analogous trend may be developing within the life sciences sector. Not only is the life sci-

ences world trying to find ways to use software to develop reliable virtual testing regimes. But

already, key aspects of discovery, clinical testing and trials, manufacturing and marketing are

being carried out by smaller, nimbler partners of the giant life science firms. Indeed, many of

these firms are already locating in China.

For life sciences firms, the question to be considered is: Might history now be repeating itself?


14/54


monitor

Massivestateinvestments.New government unding or science parks, academic

researchers and the national health inra

structure is likely to boost opportunities

or collaborative work between academic

and corporate researchers and lure more

Chineseborn, Westerntrained experts

to return.

Newandnimbletechnology. Te accel

erated diusion o technology across

borders, the declining costs or genomicsequencing and other technologies and

the rapid maturation o the outsourced

research model in China mean rela

tively small and tightlyocused rms

will compete with increasing success in

drug discovery. Chinese rms are likely

to be key actors in the emerging value

chain o basic research, clinical tri

als, manuacturing and marketing as

virtual pharma rms begin to growmore inuential.

Learningbydoing.Te rapid outsourc

ing o clinical trials to Chinesebased

clinical research organizations (CROs) is

helping Chinese researchers gain deeper

experience in working with Western

models o drug development and raising

their credibility. Te cheaper and aster

dierentiator that led to the rst boom in

CRO investment is also likely to lead toknowledgebased improvements, as clini

cal centers rapidly move upstream into

more basic research and discovery.

Amagneticentrepreneurialsetting.Large numbers o top Westerneducated

Chinese scientists now see China as an

attractive site to set up entrepreneurial

rms ocusing on drug discovery or pro

cess innovation in areas like largemole

cule production. In addition, a surprising

number o Western scientists now see

research, as well as commercial opportu

nities, exploding across China and signal

a willingness to relocate. Over time, theperception o a very positive research

climate in China could make the nations

discovery engine increasingly selsus

taining, especially as Western drug rms

continue to impose cutbacks and layos

at home.

Deeperandmoreextensivepublic-pri-

vatecollaboration. Improved coopera

tion between government, academic and

commercial researchers within Chinacould lead to imaginative collaborative

models or research and development.

While these trends drive rapid change in

China, we also see other, more exotic and

perhaps more exciting lie science industry

models emerging in the next decades, mod

els that could turn the Westerncentered

model o drug discovery on its head and

create new opportunities or Chinese lie

science proessionals to orge ahead in exciting new ways.

Continued from page 9


15/54


monitor

Chinas emergence as a ormidable playerin lie sciences within the next decade

will have broad implications or the lie

sciences industry.

The Global Implications ofChinas Emergence

Te corporate response to Chinas

determination to become a leader in lie

science innovation will demand ocused

thinking, imaginative responses and

calculated investment, especially rom

multinational incumbents. Ater all, in

nearly every other industry in which it

has staked a claim - rom textiles to con

sumer electronics and automotive compo

nents - China has dramatically restruc

tured the global competitive landscape,

redening markets and undamentally

recasting the list o winners and losers.

Te challenge will be especially acute in

the lie sciences eld, where investment

time horizons can be long and placing

the right bets essential, especially in an

era in which the returns rom legacy

investments are switly eroding as patents

expire. Strategic choices made in lie sci

ences today hold the potential to reduce

risk in critical investment decisions, while

potentially generating signicant uture

returns. Without a clear and wellconsidered strategy, moreover, rms risk los

ing access to capabilities and potentially

dramatic industrychanging opportunities

today that may only be obtainable in the

uture at much higher prices - i they areavailable at all.

Global multinationals tend to relegate

China to a larger basket o emerging

pharmaceutical markets, which oten

include nations like Brazil, India, Rus

sia, Mexico, urkey and Indonesia, where

growth projections stir the imagination.

Not all emerging markets are the same,

however. China obviously alls into a class

o its own as the size o its pharmaceuticalmarket surpasses Japans to become the

worlds second largest. But in addition,

the research and discovery opportunities

as well as the entrepreneurial environ

ment rapidly developing within China

will demand separate, and, we believe,

special consideration. Whether the

choices are about inlicensing or invest

ment, partnering opportunities or uture

research portolios, internal alignment onChinaspecic goals and implementation

strategies will be critical to help navigate

new and uncharted waters.

A Dual Crisis Demands aSearch for New Models

Chinas likely emergence as a signicant

new orce in drug discovery and develop

ment comes at a time when two emerging

crises are virtually certain to create newand innovative responses. Te rst is a cri

sis in the lie sciences sector. Te second is

the crisis China itsel conronts.


16/54


monitorTe predicaments acing the lie sciences

sector seem readily apparent. In 2010,

the industry is not delivering signicantmedical breakthroughs at either the price

or the pace desired by payers. Te public

at large is increasingly dissatised with the

perormance and credibility o the phar

maceutical industry, and investors view the

industry as oering unattractive returns

and unsustainable levels o risk.

A ull decade ater the complete decoding

o the genomic sequence, the promise o a

new, protable biotech model has not yetmaterialized while commercializing a pipe

line o promising new drugs has become less

predictable. Despite billions in investments,

there has only been a slight improvement

in the odds that a sick patient can beat back

cancer while there is a growing backlash

against the high costs o drugs and medi

cal care. Te cost o moving a new molecule

rom the lab bench to a patients nightstand

has skyrocketed, while ailure rates o even

latestage trials are exceedingly high. Never

has drug development been seen as so costly

or so risky. And rising incidence o recalls

and ailed clinical trials have hardened

public sentiment against major segments

o the industry and undermined investor

condence.

While discovery has grown more costly,

revenues are under siege. As patents or

important drugs expire, governments across

the globe are determined to rein in the

annual growth o their health care expen

ditures, especially the cost o medications,

as populations age and lie expectancies

continue to increase.

China, meanwhile, has its own health care

upheavals to manage. Te government is

increasingly committed to nding ways todeliver a real saety net o medical care and

treatment to its 1.4 billion people at prices

that a developing nation might aord.

While most multinational rms have

ocused on the immediate implications o

this or their local business - like winning

inclusion on provincial reimbursed drug

lists, or nding more eective methods to

interact with physicians - the true impact

is potentially ar more proound. Chinas

rising needs and lie science ambitions will

likely trigger more determined eorts to

cut development costs and reduce retail

prices on even the most advanced treat

ments and medications.

Just on its own, the very size and acceler

ating growth now being observed within

Chinas domestic pharmaceutical industry

would be enough to drive major invest

ments in drug discovery by domestic as

well as oreign players. By 2015, China

is expected to overtake Japan to become

the worlds second largest drug market

ater the United States. In 2009, Chinese

consumers spent an estimated $23.8 billion

on pharmaceuticals while the domestic

market grew at a compound annual rate o

more than 20 percent. By 2011 its phar

maceutical market is projected to generate

revenues o $50 billion according to IMS

Health, and by 2025, it could be almost 10times higher, approaching $340 billion in

annual sales by some estimates. Tat sug

gests Chinas annual expenditures on drugs

would grow to become ourths the size

o Americas.


17/54


monitorAnd as it starts to assume a ar greater role

in helping to meet the health needs o its

1.4 billion people- 1.3 billion o whomalready have some orm o health care

coverage - Chinas government is poised

to spend vastly more on drugs, devices

and acilities to bring its health standards

closer in line with global norms. A rst cut

at massive health care reorm will lead to

US $124 billion o investment within the

next three years. (See China Healthcare

Reorm Goals below.)

Yet Chinas government also recognizes itcannot simply mimic a Western, private

sector approach that permits skyrocketing

health care costs to bankrupt its system.

It is hardly clear that China will be able -

or willing - to assume growing nancial

burdens without slowing the cost curve ohealth care. For unlike the United States,

China is getting older and less healthy

even aster than it is accumulating wealth.

While the diseases o afuence like dia

betes, hypertension and cancer every day

become more commonplace across the

nation, the consequences o the nations

onechild policy are coming home to roost

in the nations rapid aging. At the end o

2009, China had an estimated 180 million

people over the age o 60, according to

the China Population and Development

Research Center, but that gure will rise

Achieve Universal Healthcare

US $124 billion investment over the next 3 years

Improve accessibility and equality of healthcare to entire population:Public health insurance to cover 90% of population by 2011, and

universal coverage by 2020

High co-pay requirements

Improve public healthcare provider system

Build 5,000 township clinics and 2,000 county hospitals for rural

markets to establish true Primary Care in China

Establish 2,400 Community Healthcare Centers (CHC) in urban areas

Enforce hospitals public service roles and eliminate profit drive

Focus on basic needs

Manage healthcare cost

Establish Essential Drug List with government-set price

Enforce public tendering process

Encourage generics and phase out MNC price premiums

Encourage pharma industry consolidation in both manufacturing

and distribution

China Healthcare Reform Goals

1

2

3

Source: Ministry of Health


18/54


monitor

to more than 400 million by 2050 - and

that cohort will represent a ull quarter o

the nations population.

Mindul o these pressures, Chinas

central government is likely to do more

than simply monitor and closely regulate

its spending on existing medicines and

therapies, as it osters manuacturing o

lowcost, massproduced generics in order

to drive down costs. It is likely to push

aggressively or innovative breakthroughs

that can prevent diseases, while seekingremedies that can limit longterm gov

ernment expenditures on serious illnesses.

Tis element o the innovation

agenda - nding advanced and eective

treatments that can be sold at developing

world prices - is clearly on the minds o

Chinas leaders.

For Chinese Scientists,

a Historic OpportunityLong beore the nancial squeeze began

to orce giant multinational drug rms

to contemplate laying o their research

scientists and scaling back Research &

Development labs, young Chineseborn

scientists had already become integral

players in the abric o global bioscience.

oday, tens o thousands already work in

leading Western rms.

Yet while global pharmaceutical giants see

a landscape ridden with challenges and

dangerous landmines, many Chinese see a

new market brimming with opportunities

and are poised to press ahead. Schooled in

Western research and business practices,

these scientists and entrepreneurs already

discern a conuence o orces likely to

accelerate the breakdown o large phar

maceutical rms. In this moment o crisis,

they believe China can play a central

role in undermining and reorienting the

current system to the ultimate benet o

global health, their homeland, and them

selves. Te orces they perceive accelerat

ing the deintegration o large pharma

and challenging the existing Western

model o drug discovery include:

An explosion in the number o new

biological targets and drug leads based

on the rising importance o genom

ics, combinatorial chemistry and high

throughput screening.

Te increasing ability o small, ocused

startup rms to compete with relative

eciency against ar larger incumbents

in elds ranging rom drug discovery

to vaccine production.Rising costs associated with getting a

new drug approved in the West.

Rapid deployment and acceptance

o connective technologies like the

Internet to speed the diusion o

scientic knowledge across rms and

national boundaries.

A quantum leap in the role o

bioinormatics.

Te evolving political and economic

environment within China itsel.

One result o this conuence o demo

graphic, scientic and political realities is

that, having seen the opportunities being


19/54


monitor

created in the lie science industry, China

is rapidly amassing a critical mass o

worldclass lie sciences talent. Monitor

estimates that:

At least 80,000 Westerntrained

PhDs in the lie sciences have already

returned to China to work in the

industry or in academic institutes. Te

pace o repatriation o these highly

skilled scientists is likely to accelerate

over the coming decade.

China today has the highest numbero recipients o U.S. doctorate degrees

awarded in the biological sciences

among all Asian nations. In 2007

alone, some 4,500 Chinese students

received PhDs in lie sciences rom

Western universities.

In 2010, we estimate that China

will have graduated more masters

and Ph.D. students in the biological

sciences than the United States. Te

number o undergraduates studying in

the lie sciences surpassed U.S. levels

some ve years ago.

A Monitor survey o Chinese lie

science proessionals now working

in the United States nds that ully

twothirds contemplate either return

ing to China or good or becoming

sea turtles: lie science proession

als who constantly circulate betweenChina and the U.S. in pursuit o

commercial and research opportu

nities. (See chart below) Such sea

turtles and the hybrid rms they

create will become important driv

ers o Chinas uture as a lie science

innovator. (See sidebar: A Lie Sci

ences Entrepreneur Leverages Chinas

Emerging Potential, page 18).

When you think about your own professional future, do you think:

I expect to stay and work in the US for the long term

I expect to relocate and seek work in China

I expect to split my time between US and China

I expect to work in another Asian countryI expect to work outside of both the US and Asia

I already live in China

Source: Chinese-American BioPharm Society

N=66

SEA TURTLES PATH: AMONG CHINESE SCIENTISTS,

MANY LOOKING TO SPLIT TIME BETWEEN U.S. AND CHINA


20/54


A Life Science EntrepreneurLeverages Chinas Emerging Potential

If you want to envision how a focused, entrepreneurial and relatively nimble drug discovery

model of the future is likely to emerge from China, meet SOFIE QIAO. Shes already built such

a model oncethen sold off its first, promising molecules to a larger California-based firm for

what could turn out to be a handsome return. Now she intends to try it again, with more ambi-

tious discovery goals.

Not only does Qiao personify the rapid diffusion of technical expertise that will allow China to

compete aggressively in life science innovation with the United States in a decade or sooner. She

has already proven that harnessing Chinas growing technical talents can radically drive down costsand time-to-trial in drug discovery. A decade from now, important life science innovation is likely

to materialize from companies that represent a hybrid of both Chinese and American-educated

talents able to leverage the core capabilities of both nations to create new, blockbuster molecules.

LEAD Therapeutics, her startup discovery shop founded in 2006 and funded in 2007, employed

only eight people in the United States, along with another 30 in Shanghai on a contract basis. Yet

it was able to generate promising results for LT-673 (a PARP inhibitor designed to fight cancer) as

well as a glyco-peptide that could be used as an antibiotic to fight vancomycin-resistant pathogens.

LEAD was sold in February of 2010 to BioMarin Pharmaceuticals Inc. of Novato, Calif., for $18 mil-

lion in cash and up to $79 million in follow-on milestone payouts as the cancer drug passes through

a series of clinical and regulatory hurdles.

In less than three years investors got their money back, with a potential for attractive returns

down the road, says Charles Hsu, a partner in Bay City Capital, a venture firm which was an initial

investor in LEAD. Had we held on for another three or four years, I think we could have done a lot

better, but some of our partners simply wanted to cash out. What Qiao did, Hsu says, was go one

step beyond the traditional clinical research organization (CRO) by using Chinese researchers to

do discovery through virtual outsourcing.

We didnt intend to do big innovation by taking big risks, Qiao explains. Instead, we wanted to

succeed by taking less risk, by leveraging the emerging potential of China, where life sciences lab

work can be done at a fraction of the cost in the U.S. or Europe. We intended to be low-cost from

day one.

Born in Beijing in 1971, Qiao received her undergraduate degree in chemistry from Harvard where

she transferred after two years at Peking University, earned a PhD in organic chemistry from MIT,

monitor


21/54

monitor


did medicinal chemistry research at Genzyme, spent a year as a consultant at McKinsey &

Company, and worked for two life sciences firms before deciding to start her own.

Her discovery baby, as Qiao calls LEAD Therapeutics, was deliberately designed to be a fast

follower, not an aggressive bleeding edge life science innovator. From day one, her strategy

was to find promising drug targets for which significant research data already existed, and gen-

erate best-in-class molecules. We were looking for targets that we knew were pretty good, but

for which we knew there were clearly some defects, she says, referring to the PARP inhibitor.

We figured if we understood what those defects were, and a possible better direction to headin, then we could make some good progress, she says. She unleashed a large team of research-

ers at ChemPartners, a contract research organization in Shanghai, to conduct most of the dis-

covery and preclinical work. LEAD essentially took over a dedicated area of the ChemPartners

facility and dispatched one of its key staffers to Shanghai to oversee the discovery work.

Even LEAD, the name she chose for the firm, underscores Qiaos strategic focus: Leverage the

best of U.S. and China; Eliminate high costs and high risks by conducting R&D activities in

China on validated targets; Anticipate changes in China and global drug discovery by being at

the right place at the right time and delivering high-quality, early-stage drug candidates; and

Deliver high-quality results. Using researchers in China allowed us to reduce risk by taking on

multiple programs and reduce the cost for each program. Otherwise, this model wouldnt make

sense, Qiao says.

Her companys work on the glycol-peptides came about because one of the scientists she

recruited to her team, Daniel Chu, had spent more than 20 years at Abbott Labs, had expertise

in antibacterial research and is one of the worlds best in the field, Qiao explains. Personally,

I dont like the idea of licensing a potential drug target and then recruiting a team to work on it.

I prefer to hire a great team and see where the research leads us.

At the moment, most of LEADs scientific staff has gone to work for BioMarin, the acquiring

company. Qiao, however, is doubling down on Chinas potential in life science drug discovery.

She is now working as a consultant with Li Chen, the former head of the Roche R&D Center in

China, to find appropriate small molecule program targets for a truly China-based pharma-

ceutical firm. Hua Medicine, Chens new startup, is now being established in Shanghai withventure capital funds from China and the U.S.


22/54


monitor

Tese numbers alone oer dramatic evidence o the potential or major advances

by Chinese nationals. Yet oreign analysts

and business leaders sometimes ail to

truly appreciate not only how quickly

change is taking place across China.

Tey oten underestimate how economic

changes and the technological transor

mations o the past 20 years have dramat

ically altered the trajectory o opportuni

ties or its young people.odays 27yearold Chineseborn PhD

biochemist was only six years old when

the iananmen crisis o 1989 unolded.

Many o his mentors and lab instructors

may well have been street protestors. His

parents, in turn, saw their lives upended

by the Cultural Revolution o the 1960s.

Te ability to travel outside o China to

study at a university or research organiza

tion only became a concrete reality in theve years beore he was born - and then

or just a literal handul o Chinas best

and brightest.

But this generation has also experienced

the unprecedented opening up o a

statecontrolled system to investments in

technology, manuacturing industries and

new trade practices imported rom the

West. Tey have witnessed the emergence

o Shenzhen, Shanghai and Guangdong

as thriving centers o commerce to rivalMunich or Chicago, crammed with

highrises and actories that create the

nations enormous trade surplus. Tis is

the rst generation to grow up in a uni

verse o unparalleled economic growth

and opportunity.

No longer beneciaries o an iron rice

bowl, where jobs, housing and other

aspects o daily lie were rationed and

distributed by the state, young Chinesesee their nation rapidly emerging rom

years o isolation and underperormance.

Tough hundreds o millions remain poor,

tens o millions are becoming million

aires. Entrepreneurship and risktaking,

long central eatures o the Chinese char

acter, are once again being encouraged

and rewarded. As they see their nation

once again become a central player on the

globes economic stage, young Chinesehave also learned to appreciate the power

o engineering, math, science and tech

nology, rather than political advocacy or

social works, as instruments that can help

build their nation, while keeping them ar

removed rom the political vagaries that

entrapped parents and grandparents.

While the ow o Chinese students seek

ing advanced graduate degrees outside

China has accelerated, more telling is


23/54


monitor

the emerging brain gain, as Chinesewho have obtained important training

and experience abroad now see vast new

opportunities available by returning to

China. Chinese lie scientists who return

to their home country speak awless

English and have oten published impor

tant research papers in top peerreviewed

journals and have worked in multinational

pharmaceutical rms or leading research

based universities or a number o years.Tese topight proessionals hold the

vast majority o inuential research

positions at the nations top academic

and research institutions, or are orm

ing entrepreneurial rms in the nations

new lie science parks. Tey are intent

on upgrading the quality o teaching

standards, even as they are committed to

building worldclass labs to discover and

develop new kinds o drugs. (See One o

a Tousand alents Returns to Beijing,

on page 28.)

As the diusion o technological data

and research knowledge quickly spreads,

allowing China to develop its own drug

development agenda, the rise o Internet

based communication has also acceler

ated the Chinese rampup. Chinese were

quintessential social networkers, long

beore the term was invented. Yet the rise

o social networking sotware, especially

the businessocused social network cre

ated by LinkedIn, has rapidly leveraged

the tendencies o Chinese scientists andentrepreneurs rom across the world to

be in constant communication. Trough

LinkedIn, a vast network o senior Chi

nese working in academic institutions as

well as commercial research labs can scout

or jobs and discuss new technologies.

An industry networking group known as

BayHelix, comprised o senior Chinese

heritage executives in the pharmaceuti

cal sector, serves as an inormal advisorto key Chinese ministries, including

the Ministry o Science and echnol

ogy which choose which talents to lure

back to China as well as the SFDA,

which monitors drug trials and regulatory

approvals or new medicines and vaccines.

Tough BayHelix rst started in the San

Francisco Bay Area, the vast majority

o its key leaders have already returned

to China, joining a growing pool o sea

turtles who bring their Western expertise

and work experience with them.

In addition, groups o Chineseborn

employees o pharmaceutical research

rms and universities on both the West

and East coasts o the U.S. meet regularly

to network and discuss industry devel

opments. Hightech parks rom cities

like Beijing and Suzhou regularly invite

these researchers to banquet dinners and

conerences in a continuing eort to lure

topight talents to return back to the

mother country.



24/54


There is more than one way to imagine Chinas future

as a bioscience innovator, of course. Based on the

incremental, yet accelerating changes already visible

on the ground, here is a plausible view of what Chinas

discovery engine could look like.

1. Wild Flowers Bloom: 20092012China today is already embracing its first phase of building out the infrastruc-

ture necessary to sustain a serious commitment to life science innovation and

drug discovery over the next decade. The accelerating repatriation of sea turtles,

induced to return home thanks to both hard and soft incentives; growing seed

money funds accumulated by ambitious venture capitalists for early-stage life sci-

ence investment; and incentives for early-stage life science firms to set up research

operations in China can be seen as kick-starting the nations focus on drug develop-

ment. The maturing infrastructure for globally important life sciences discovery only

accelerates the pace and ambitions.

At the same time, the introduction of national health care reforms will continue to drive

commercial expansion of both domestic and international firms. The construction of

thousands of new hospitals and medical clinics will create enormous opportunities for

suppliers. The intention to create a single-payer government health coverage system,

and the potential creation of health care identity cards for citizens, will drive new invest-

ment in medical informatics, IT and systems integration. Foreign multinationals are likely

to continue investing in Chinese operations, even if they are mainly intended to serve the

domestic Chinese market rather than for global discovery projects.

The need by foreign firms to use China as a lower-cost center of testing and clinical trials,

moreover, will continue to drive investment and expansion by clinical research organizations,

while leading Chinese universities will continue to invest in deepening their capabilities to

perform independent research into globally vital areas of medical research. With the enormous

investment of BGI in top-shelf gene sequencing equipment, China could well become the sequencer

of choice for researchers around the world. As a result, its scale efficiencies could rapidly drive down

the cost curve of genomic analysis and make China a center for certain forms of genomic innovation.

Could China

Fundamentally Disruptthe Global Industry?

monitor


25/54


2. Planting the Garden: 20122015Buoyed by the promise of an estimated $100 billion in the nations 12th Five Year Plan (201115) for drug

discovery and development, the Chinese Academy of Sciences, works with the key Ministries of Health andScience & Technology to establish a dense network of researchers from universities as well as private labs to

focus on high priority diseases. A new biologic incubator in Shanghai begins connecting top Western and

Chinese researchers to focus on early-stage discovery. As China begins to roll out a standardized disease

reporting system across the nations major hospitals and health identification cards for its 1.4 billion people,

the Health Ministry also begins nearly real time tracking of disease clusters. The rapid collection of this

robust database helps researchers uncover potential biomarker patterns in the genomic structure of

disease sufferers and pinpoint theoretical treatment options.

Within a year of the creation of this new collaboration, the principals in the Silver Security initia-

tivea name chosen to reflect the rapid aging of Chinas societyannounces the renewed focus

of its 28 research teams. Because of the nations rapidly aging citizenry, the principals determine

that these teams will focus their initial investments on initiatives to prevent, or find cures for,diabetes and Hepatitis C as well as liver, stomach and lung cancers. These are becoming major

causes of disease and death in a nation whose diet now includes more protein and whose efforts

to limit industrial pollution and generation of greenhouses gases has only slowed the growth of

these noxious compounds, not reduced in absolute terms their production.

Even as compelling, however, the Chinese hint that they have developed a new system of coop-

erative research, in which the giant databases they are amassing from clinics and new hos-

pitals around the country are leading to groundbreaking insights into new disease pathways

and new targets for pre-clinical testing. This deep investment in database collection as well

as robust, often weekly, interactions between specialists in the field treating these diseases

and researchers in the labs, yields major new insight into target optimization and validation.

When government officials originally announced their plans to build nearly 4,000 new hos-

pitals, they did not really focus on the potential that the data collection and virtual confer-

encing technologies they built into each facility would have in accelerating the pace of drug

development. But these investments, as well as state-of-the-art data mining computers,

are quickly wielding impressive dividends. The initial research is going so well, in fact, that

the Health Ministry and SFDA agree to double to six the number of clinical testing hospi-

tals they construct across the country. This ensures that whatever new chemical entities

or large molecule therapies emerge from the Silver Security program are immediately put

into trials with willing patients.

The Silver Security program also offers the government another, globally significant

political trump card. As Western nations continue to battle against the scourge ofdeflation, and Chinas economy continues to produce more of the worlds manufactured

goods, Chinas investment in its domestic medical safety net is being trumpeted by

Chinese at G-20 meetings and other international conferences to symbolize how China

is spending billions of its own funds in order to boost domestic consumption. Whatever

reassurance the state can offer its citizens about the health of their later years, the For-

eign Ministry argues, gives Chinese consumers the liberty to spend more now on foreign

imports without fear for their futures.


monitor


26/54


3. Cultivating the Seedlings: 20152020By now, the Silver Security program is beginning to yield its first

attractive therapies.

An innovative new biologic that eliminates the risk of acquiring throat cancer for

90 percent of the Chinese population is deemed ready for large-scale trials. The quick

progress in creating this vaccine was aided by a new form of genomic sequencing

developed in China by BGI, now the worlds most pre-eminent genomic sequencer. This

sophisticated sequencing directly aided researchers find the genetic target for a treat-

ment thought to permanently disengage a protein that is believed to trigger the onset

of the disease. Another innovative new biological therapy, which seems to prevent the

formation of the proteins that leads to Alzheimers, performs surprisingly well in its first

clinical trials.

Suddenly, faced with a slew of potential commercial opportunities that could pour forth

from its own domestic labs, Chinese regulators rapidly work to reinvent the clinicaltesting process in order to make it more efficient and globally accepted. The result-

ing testing procedures announced by the Sino FDA enables the fast track testing of

Chinese-formulated compounds. Essentially, the new process dramatically abbreviates

the Phase I and Phase II trials used in the West and hugely expands the pool of subjects

used in Phase III trials. In some cases, moreover, the SFDA decides that if the initial Phase

I trials resolve toxicity issues, it will permit trial launch of certain experimental com-

pounds because it has created its own virtual, computer-based testing regimen that

simulates the effects of putting a specific new compound in the human body, much as

aerospace manufacturers test an airplanes performance on a computer simulator before

they ever build it. Scientists in England and the United States are also working to perfect

such a simulate and test model, but the Chinese insist they have lapped the competition

and are eager to fast-track drug approvals to help benefit mankind.

To minimize the reaction of foreign human rights groups, however, the SFDA also invites

international hospital monitors to visit China to guarantee that patients desperate to try an

innovative compound are properly informed of the risks before proceeding. Since the drug

treatments are free, Chinese researchers have little difficulty recruiting 5,000 patients for its

initial test of another drug just coming out of the labs, a small molecule compound researcher

believe can conquer some forms of stomach cancer.

In 2018, when the stomach cancer drug proves to be both safe and efficacious, a slew of licensing

executives from multinational pharmaceutical giants descend on China, hoping to win the rights to

sell the medicine, Yulizhen, globally. The auction is held under the auspices of the Chinese govern-

ment, which will gain a significant piece of the proceeds.

Winning the rights to test and potentially market this new blockbuster drug doesnt necessarily give

Western firms the right to sell Yulizhen, however. They still must complete three or four years of testing in

their home country, because the U.S. and many European regulators wont yet accept the SFDA data as suf-

ficient for local registration. Because of this gap, thousands of stomach cancer patients begin to fly to China

in search of treatment, while others go to Thailand and India, whose governments have accepted the SFDA

findings as sufficient to market the drugs in their own countries.

monitor


27/54


4. Steady Harvest 20202025Yulizhen is now the poster child of Chinas evolving success in drug discovery, with Alasapt, the anti-

Alzheimers therapy, gaining new converts. The international royalty fees these two drugs generate,

estimated to be about US $3.5 billion each year, help the Chinese government create more researchcenters while guaranteeing ordinary Chinese citizens that the costs of their medications will never

grow out of control.

Moreover, the Chinese model of collaboration and integration, which unites the rigors of basic scientific

research with the development of druggable targets for commercialization, is becoming a model for

success in creating a new pipeline of breakthrough therapies. Success yields more success. Increas-

ingly Chinese graduate students go abroad for study with the explicit understanding that they will

return to the motherland in four or five years, with lab positions awaiting them. Foreign venture

capitalists, as well as veterans within Chinas booming pharmaceutical sector, are eager to put

funds into pools of investment centered not on company-specific initiatives, but on disease-

specific research, where targets for lead optimization have already been identified and pre-

screened. Others are making investments in developing new information technology tools tomanage the enormous database of disease clusters and genomic data Chinas 38,000 fully

electronic hospitals develop every month.

Things look promising on the manufacturing side as well. As Chinas drug manufacturers

gain new expertise in process innovation, especially in the complex realm of large molecule

therapeutics, their growing dominance leads them to acquire rivals in Europe and North

America and to begin charting global expansion programs. Chinese drug manufacturers

have become so important in the American market that they now hold a prominent seat

at the table in U.S. FDA meetings on improving drug manufacturing, since they have long

proven their ability to create top-quality biologics.

The innovative capacity of China has now become so crucial that large drug market-ers from Europe and the United States seek alliances with local Chinese counterparts.

After all, Chinese firms now sell potential blockbuster drugs two or three years before

they are available in Western markets. Meanwhile, the Chinese consumer is able to

find a rich assortment of treatment options at fixed, affordable prices. Western firms,

however, still need to wrestle with marketing considerations, since health care reform

in the United States has only slightly curtailed the rising prices of new drugs and many

U.S. consumers are forced to make the uncomfortable choice between legacy generic

compounds that are cheap, and exotic Chinese drugs that doctors say are safe and

effective, yet cost 10 times as much. Much as Japanese automakers stole a march on

their American competitors in the late 1970s, U.S. multinational pharmaceutical firms

now acknowledge that they never saw what was coming.

monitor


28/54


monitor

Online linkages among Chinese scientists and networking groups like BayHelix

are ar more relevant and inuential now

that the central government is bringing

its active support and strategic ocus, as

well as signicant investments by impor

tant regional players, to guide Chinas

rising ambitions in lie sciences.

The Central Role

of Chinas GovernmentAs Chinese wages continue to rise, its

supply o cheap labor begins to reach

its limits and the value o Chinas cur

rency gains strength against the U.S.

dollar and Euro, Chinas leadership is

also staking its uture on developing an

innovative society where science and

engineering investments lead to techno

logical breakthroughs and the creation

o highpaying jobs.As Premier Wen Jiabao himsel said

in December 2007, as he urged aster

progress on developing homegrown

innovation, In todays world, science and

technology is the ultimate deciding actor

o a nations overall competitiveness, with

indigenous innovation acting as the bones

to support the rise o a nation. Earlier

this year, to add explicit emphasis to his

earlier comments, Wen told delegatesto the China Development Forum,

Our hope or the uture o the Chinese

economy relies on scientic and techno

logical progress, especially the new andhigh technologies including biotechnol

ogy and lie sciences. Tere is no bound

ary to the development o biotechnology

and lie sciences, which are closely linked

with human survival and indispensable

to peoples daily lie. China has a large

population, and biotechnology and lie

sciences enjoy great development and

market potential here. China is willing to

strengthen cooperation with companiesall over world which have advanced tech

nologies. Te Chinese government will

create opportunities or you and (we) ask

you not to squander those opportunities.

THE SARS EPIDEMIC

THAT DAMAGED

CHINAS REPUTATION

ALSO GENERATED THE

DOMESTIC POLITICAL

WILL REQUIRED

TO DEVOTE THE

RESOURCES NEEDED TO

BEGIN CHANGING THE

COUNTRYS HEALTH

CARE SYSTEM.

Chinas ocused determination to develop

a globally competitive industry within

lie sciences can be directly dated to



29/54


monitor

April 2003, as the nation was seized witha crisis o credibility over SARS, or Sud

den Acute Respiratory Syndrome. When

reports o this mysterious and highly

contagious virus rst were reported in

November o the previous year, Beijing

at rst tried to downplay the serious

ness o the outbreak, even though it most

likely originated in southern Guangdong

Province. In an age o jet travel and

porous borders, the plague quickly spreadrom China across the globe, killing more

than 800 patients and making more than

8,000 seriously ill. Chinas ocial denials,

however, did not keep other nations rom

imposing quarantines on Chinese visitors,

and soon tourism, international air travel

and other orms o commerce were on

the verge o collapse. White gauze masks

covering the nose and mouth became

commonplace in the streets o Hong

Kong and Shenzhen. Ocials began to

ear enormous economic consequences or

Chinas export sector, the key to domestic

job growth and political stability.

Tat ateul April, however, the central

government made a sudden and dramatic

aboutace. It red its Health Minister as

well as the mayor o Beijing as it closed

schools across the country to limit the

diseases spread, and pledged to make

greater transparency a central tenet ohealth reorm. Te health and security o

the people, overall state o reorm, devel

opment and stability, and Chinas national

interest and international image are at

stake Premier Wen said.

Te SARS epidemic, played out in the

glare o the international press, served as

a national wakeup call. It highlighted

the ragile nature o Chinas public health

inrastructure and the growing inequality within the country. For despite its

socialist legacy and Communist rhetoric,

Chinas market Leninist system oered

its citizens a rather imsy saety net o

social services, including health care, even

as tens o millions grew wealthy. Te

public discontent and political damage

to Chinas reputation also generated the

domestic political will required to devote

the resources needed to begin changingthe system. Conronted with the act that

its health care system was inadequate or

a new century, the central government in

2009, ater three years o study, ormally

adopted an ambitious and costly national

health care reorm plan designed to intro

duce universal, sae, aordable and eec

tive basic healthcare by 2020, and lessen

the gap between rich and poor.



30/54


monitor

One of a Thousand TalentsReturns to Beijing

The distance from the Ivy League halls of Princeton University to Beijings Haidian district is not as

far as you might think. Just ask YIGONG SHI, a world-class structural biologist who now runs the

life sciences program at Tsinghua University.

My goal is to perform cutting-edge research in China, to cultivate many brilliant young scientists,

and to help improve the research culture in China, says Shi, who is determined to create a top-flight research and discovery lab at one of Chinas most prestigious technical universities, often

referred to as the MIT of China. The ambition is evident at the entrance to his modern new bio-

science lab, which displays the cover pages of seven research papers produced and published in

Nature, Cell and similarly prestigious Western journals since his return two years ago.

I would like to build one of the best centers for research into structural biology in the entire world,

says Shi, 43. To be truly successful you cant just limit yourself to your lab or center. You will need

a healthy research culture and a sustainable research system. I hope to contribute to improving the

research culture in China.

Shis track record reflects his extraordinary talents and his drive to succeed.

After a decade at Princeton, he held an endowed professorship of molecular biology, supervising

14 post-docs and a $2 million annual research budget from the U.S. National Institutes of Health.

Yet he gave it all up in 2008 to return to China and his alma mater, to help build an innovation

engine for Chinas rising biotechnology ambitions.

I think Princeton was shocked when I offered my resignation, Shi says. But he felt pulled by the

opportunity to help create a leading center for biological research in his native China. He was also

convinced that, after three decades of opening up to the outside world, China now commanded

sufficient hardware, infrastructure and home-grown talent to make significant biological discovery

a viable pursuit.

It didnt hurt that the Chinese central government, acting as a recruiting head hunter, has targeted

top-flight overseas-educated Chinese scientists like him with hundreds of thousands of dollarsworth of incentives to come home. The Chinese Academy of Sciences also promises to allocate at

least 10 million yuan (about $1.5 million) to every talented scientist who agrees to return.


31/54

monitor


Shi and his sometimes research collaborator, Xiaodong Wang of the University of Texas South-

western Medical Center in Dallas, are two of the nations most prominent recruits to its new

Thousand Talents program, a program initiated in 2008 that aims to lure 2,000 top scientists

and entrepreneurs back to China over the next five to 10 years. These high-end talents are a cru-

cial resource that the country is short of, says Li Yuanchao, the powerful member of the Political

Bureau of the Central Committee of the Communist Party.

Recruits like Shi are known as hai gui or sea turtles because after years of wandering offshore

to study and work in the U.S. or Europe, they return home. Top stars like him are being offeredfunds to relocate and additional grants to help them staff their research labs. Shi and Wang, who

together focused significant amounts of their joint research on apoptosis, or programmed cell

death, are also putting new emphasis into research into Alzheimers disease and anti-cancer

treatments. While Shi says he is primarily research-focused at the moment, Wang is in advanced

talks with Western biotech venture capitalists and intends to launch his own China-based

biotech company, Beigene, in late 2010 to focus on oncology. Wang has already been part of one

biotech firm which sold a promising anti-cancer compound to Genentech.

Shi acknowledges that he must challenge traditional teaching methods on a Chinese campus

where students are seldom encouraged to think outside the box, take risks or accept failure as

an important benchmark on a road to potential successto help stimulate innovative thinking.

The educational culture here may be the biggest challenge, he says.

Yet he also argues that he has better interaction with the students here than he did while at

Princeton, and says that overall his Tsinghua students work harder and are more cooperative.

In the end, I think I can go further with my students hereand they will work harder than their

American counterparts, he says.

He also says that as an Asian scientist working in America, he felt the presence of a glass ceil-

ing that kept him and many other prominent Chinese life scientists away from the decision-

making bodies. Better to be the head of a chicken than the tail of a phoenix, he says, invoking a

famous Chinese proverb, a sentiment voiced by many other returnees.

Does he have much doubt China will become an important life science innovator in a decades

time? None at all. Listen, I came back to China to go beyond what I could do at Princeton.

With the university planning to hire hundreds of faculty and build the research infrastruc-

ture at Tsinghua needed to support them, Shis optimism carries considerable weight.


32/54


monitor

The Health MinisterSpeaks for InnovationThe face of health care reform in China today is neither a party apparatchik nor a life-long govern-

ment bureaucrat, but a French-trained scientist without any Communist Party affiliationstill a

rarity in the upper reaches of the Chinese government.

CHEN ZHU, 57, the son of two Shanghai doctors, was dispatched to a dirt-poor village in Jiangxi

province as a teenager during the Cultural Revolution, yet taught himself enough medicine to

become a barefoot doctor. An expert in hematology and gene cloning who received his graduate

degree from the Hospital Saint-Louis in Paris, he was appointed Minister of Health in 2007 and

has made improving access to care and upgrading the nations medical infrastructure major priori-ties under the slogan of health care for all.

A fluent speaker of English, Chen recognizes that reorganizing the nations system of hospitals,

providing essential drugs to a relatively impoverished population, improving the training of medi-

cal staffs and creating a priority list of diseases to conquer pose daunting challenges in creating a

cost-effective health care delivery system.

Yet he also recognizes that innovation in China has been hampered by a weak foundation of

technical research and insufficient funding for research. Very often there is insufficient bench-to-

bedside translation, or separation of research from technological innovation, Chen told a Global

Health Forum conference in February 2010. We need to pay much more attention to the innova-

tion of enterprises. They should be the major players in (creating) technological innovation.

Buoyed by the revenues rom its enor

mous trade surplus, China has already

decided to unleash US $124 billion in

spending rom 200912 to begin to

address the nations major health careshortcoming. It has already begun to

oer medical insurance to 1.3 billion

people as it moves to equalize the dis

parities between rural and urban areas.

A Latecomers Advantage

Because Chinas leaders are now commit

ted to implementing major health care

reorm, the nations surging economicgrowth opens oodgates o additional

government unding. Nor is the nation

burdened with a vast network o outdated

legacy systems that need to be rewired

or the 21st century. As a result, strategic



33/54


monitor

government spending will also accelerate the nations ability to become inno

vators in health care delivery. Chinese

ocials already contemplate the creation

o a system o clinical research hospitals

across the nation, modeled ater the U.S.

National Institute o Healths Clini

cal Center to speed the testing o new

drugs in thousands o Chinese patients.

A plan to issue national health insur

ance cards could include genomic data o

each citizen, in order to better screen or

biomarkers that could speed the develop

ment o personalized medical treatments.

And as China or the rst time develops

standardized diagnoses or its diseases,

the accumulation o phenotypic data rom

hospitals and health centers around the

country could prove o immense useul

ness to Chinese researchers as they seek

the best targets or drug treatments.

Even as it moves to build new medi

cal delivery acilities and data capture

capabilities, however, the government

also recognizes that drug discovery and

pharmaceuticals development represent

areas or important scientic innovation

a

monitor china the life sciences leader of 2020 17 nov

Documents