China's Future in Bioscience

When European scientists needed to quickly understand the genetic structure of a deadly new strain of E. coli bacterium sweeping through Germany this past summer, they turned for aid to what might have seemed, at first blush, an unlikely source: a company headquartered behind a truck repair depot in a former smuggler's village in Southern China.

George Baeder

Yet BGI, formerly known as the Beijing Genomics Institute, has quietly become one of the world's most powerful sequencers of genetic structures, a key skill that will help diagnose disease and build biomarker maps that could lead to breakthrough drug developments. Not only did BGI help European health officials decode the strands of the mysterious bacteria in a mere three days, its analysis also concluded that this strand—which killed 17 people and sickened more than 1,000—was both new and super-toxic.

Based in the Yantai district of Shenzhen, about an hour's drive from Hong Kong, BGI now houses the world's most concentrated array of powerful genetic sequencers, and aims to become the "sequencer of choice" for drug firms and disease fighters across the globe. It is also moving aggressively to develop a proprietary software platform that genetic scientists would call upon to unravel genetic mysteries and speed development of new drugs. "We intend to build the platform the rest of the world's scientists will use," explains Yang Huanming, one of BGI's founders. "Our goal is to sequence anything and everything in the world."

At a time when the life sciences industry in the West is beset by patent cliffs, rising regulatory hurdles, and the declining productivity of its research and development pipeline, China's life sciences industry is quietly gathering a critical mass of skilled talent, and savvy and focused venture investors, all tied to increased support from the Chinese government. While BGI remains a private firm, its top leaders candidly acknowledge they could not grow as quickly without the financial support of the government, which has grown to recognize that the life sciences industry offers the nation breakthrough opportunities in drug development and innovation.

New Investments in Life Sciences

Investments in new life sciences labs, biotechnology parks, and incubators fit nicely into its goal to see the nation transformed from a low-wage manufacturing power to a source of high-value "indigenous innovation." China's next five-year plan will allocate at least $1.5 billion to stimulate cutting-edge biological research. Provinces around the country are offering incentives to expand the more than a dozen life science research parks that are already up and running. At the same time, policymakers are looking at innovative ways to launch electronic medical records as a critical tool to manage patient needs, with an aspiration to create a vast source of clinical data.

Today, firms like BGI are able to win support from the Ministry of Science and Technology (MOST) for some of their most ambitious endeavors, even as they create partnerships with top domestic and foreign research laboratories. More than simply building hospitals and funding labs, however, the Chinese government is using its so-called "Thousand Talents" program to actively recruit top Chinese scientists and business experts who have trained in the West, incentivizing them to return to their homeland.

The effort to woo Chinese into returning home is taking place at a time when many Western firms are being forced to reduce their spending on R&D. A survey published last fall by Monitor Group estimated that at least 80,000 Chinese-born, Western-educated PhDs have chosen to return home after studying and working in Western pharma firms. With access to venture capital and business experience in the West, they hope to leverage China's raw talent and cost-effective laboratories to rapidly develop and test promising molecules.

West Moving East

As Western firms are beset by the high costs of conducting clinical trials at home and rising failure rates for potential drugs, many are now discovering that China offers significant cost advantages. A new cadre of clinical research organizations (CROs), led by Wuxi Apptech in Shanghai, is working closely with Western firms to accelerate drug development and lower the cost of moving new therapies from lab bench to bedside. Until recently, winning approval for drugs in China took far longer than in Europe or the US—a legacy of China's past, when it focused primarily on screening established generic drugs. But the State Food and Drug Administration (SFDA) is indicating that it will begin to loosen standards for first-in-human drug trials and for accelerating the use of Chinese patients in global clinical research trials.

Already, the rapid outsourcing of clinical trials from Western labs to Chinese-based CROs is helping Chinese researchers gain deeper experience in working with Western models of drug development and raising their credibility. The "cheaper and faster" differentiator that led to the first boom in CRO investment is also likely to lead to knowledge-based improvements, as clinical centers rapidly move "upstream" into more basic research and discovery.

BGI hopes to make its mark combining basic research collaborations with innovations in "pure science," while earning funds through collaborations with more established firms. "This is big science, which requires attacking genome sequencing in an industrial way," said BGI co-founder Yang Huanming, who earned his PhD from Copenhagen University in 1988 and received his postdoctoral training in France. "Only with a large scale can we do big jobs at relatively low cost."

But BGI is also investing aggressively in developing the software needed to better analyze the output from raw genetic sequencing. To that end, it is hiring dozens of young software and computer engineers to help build a sophisticated platform to analyze the torrent of data its genetic sequencers are uncovering. Many of these are computer "hackers" who lack formal education but have become highly skilled in understanding and writing sophisticated computer code.

"This field is so new," Dr. Yang explained, referring to the rapid sequencing of genetic code and the need to build the best software to read it. "It makes sense to hire raw and talented computer experts who are ready to accept risks and try new experiments to find breakthroughs."

Challenges to China's Rise

While China's rapid acceleration toward life sciences leadership is impressive, a myriad of obstacles remain. The speed at which China addresses these issues will determine the pace of its global impact on the industry.

Biologics pathway: If the future lies in biologics, China will need a clear regulatory pathway that drug developers can follow. And it will require more than the current handful of experts at the SFDA Center for Drug Evaluation in order to evaluate new large molecules.

Clinical trial approvals: Delays of 12 to 18 months for permission to conduct clinical trials represent a major challenge to the speed of drug approval. SFDA is working to accelerate the current timeline, but at the same time the agency is debating fundamental changes in its overall approach. Such changes may allow Phase III trials to act as the first step in a progressive launch that covers an increasing number of hospitals and patient conditions with rigorous, ongoing post-launch surveillance.

IP protection: While China has developed a track record for protecting locally registered patents (to the chagrin of some firms who ignored China in their original global registrations), the innovation free-for-all now under way is frequently characterized by both a lack of adequate scientific documentation and a lack of IP protection. It will take time to strengthen these disciplines and to develop stronger protection in such areas as know-how and data exclusivity.

Pricing: Ruthlessly driving down generic drug prices is a key pillar of the initial phase of healthcare reform, designed to meet the most basic needs of China's 1.3 billion people. Many firms are beginning to question whether expanding their portfolios to include an even wider range of branded generics is the right strategy. At the innovative end of the drug spectrum, the government has begun to consider alternative approaches to balancing public needs with the economic incentives needed to drive innovation. While most Western drug firms assume innovation can only occur where high prices are allowed, China may well come up with different models—for funding research and compensating drug makers—that are unique to China's emerging role as the world's largest single-payer healthcare system.

Quality: Whether in manufacturing or execution of clinical trials, China's success as a global player will depend on dramatically improving standards in virtually every part of the value chain. Fortunately, this shift may begin to materialize faster than anticipated. China's new Good Manufacturing Practice standards are close enough to global specs that most companies building new plants are committed to going the extra distance required to obtain US FDA certifications.

George Baeder, a Shanghai-based partner at Monitor Group, leads the firm's Life Sciences practice in Asia. He can be reached at George_Baeder@Monitor.com