Biotech outsourcing lures Chinese firms
By Jia Hepeng (China Daily)
Updated: 2004-07-29 13:47

China's biotech sector is gearing up to compete for biopharmaceutical outsourcing, but language, equipment and intellectual property rights (IPRs) remain crucial barriers.

"China has great prospects to become a biotechnological outsourcing giant, like India in the information technology (IT) sector," said Nicholas Franco, global head of the Swiss pharmaceutical giant Novartis Pharma AG, on the sidelines of the 10th SCBA (the Society of Chinese Bioscientists in America) International Symposium.

More than 1,000 scientists across the world attended the event, which was held last Monday through Friday in Beijing.

Facing rising research and development (R&D) costs for new drugs, more and more leading pharmaceutical and biotech companies like Novartis, Bristol-Myers Squibb and Eli Lilly prefer to outsource parts of their research work to less expensive countries like East Europe and India.

It usually takes a pharmaceutical firm seven to 10 years to develop a new chemical drug at a price of US$800 million or more. According to a recent report by US magazine Forbes, last year, pharmaceutical companies worldwide spent nearly US$2 billion doling out parts of the drug research process.

Indian firms have jumped on the bandwagon and taken on pieces of US companies' drug research.

The hotbed is Hyderabad, nicknamed "Genome Valley," where smaller Indian firms like Shantha Biotechnics now produce enzymes for US clients including Calbiochem, an affiliate of Merck KGaA of Germany.

"Chinese biotech companies are not laggard to their Indian counterparts in terms of technology, talent or equipment. They should get a greater piece of the pie from biopharmaceutical outsourcing," David Sun, vice-president of Beijing-based CapitalBio Corporation, said.

A US-trained PhD in life sciences in China would make US$8,000 to US$10,000 per year; it would cost at least four times that much for the same talent in the United States.

Shanghai Genomics Co Ltd, started by two US-trained PhDs, is one of biotech firms unwilling to be left behind by their Indian counterparts.

According to Zhang Min, director assistant of Shanghai Genomics, the company has won contracts worth US$600,000 this year to offer biotechnological services and develop biological agents for major US pharmaceutical companies.

Qian Xiaohong, chairman of California-based Certified GeneTool Inc, said he also planned to hand out research and production contracts to Chinese firms.

Like other new-generation Chinese biotech entrepreneurs emerging in California or Boston in late 1990s, Qian said he always hoped to create more chances for his fellows in his homeland.

Despite the brilliant prospect, however, China's biotech sector has to overcome a batch of problems before it can grow into a biopharmaceutical outsourcing giant.

"Many start-up biotech firms in China are eager to develop new drugs and disdain the practice of receiving outsourced work. That is why China has been left behind India," Zhang said.

Language is also a problem. Although many Chinese biological students are academically capable, their communication skills are lacking, said Nobel laureate Torsten N. Wiesel, president emeritus of the New York-based Rockefeller University.

Yet for most international pharmaceutical firms, the major reasons for not outsourcing in China are the low technical and equipment levels of Chinese firms and possible IPR violations.

Swiss firm Roche and Eli Lilly have established R&D centres in Shanghai's Zhangjiang Science Park. Industry insiders say they want to take advantage of Chinese talent, but worry about the lack of equipment of Chinese firms and are afraid that their secrets will be leaked if they contract out research processes.

Ironically, China has the highest public investment in the biotech sector in developing world.

The national biotechnology budget for the 10th five-year period (2001-05) has increased 400 per cent compared with the ninth five-year period (1996-2000) to reach US$1.2 billion, said Li Yong, vice-minister of science and technology, in a speech.

But the key problem is that the investment is greatly wasted. Most biotech firms, funded by government or universities, want to be equipped with a full range of facilities instead of focusing on certain special fields, said Fang Xingwang, a senior scientist of Austin-based Ambion Inc. Fang was a former professor at Peking University.

Fang suggested Chinese biotech firms work together, focus on specific aspects and share equipment with each other to lower their own costs.

Zhang said the IPR considerations of multinational pharmaceutical firms would not change in the near future. But as a strategy, Chinese biotech contractors can start with small and low-technical processes and sign strict confidentiality contracts with big pharmaceutical firms.

"They must keep their commitment to win the confidence so that the businesses can gradually grow," Zhang said.

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