Liu Pei has been living with an uneasy feeling in recent days.

His company, Shanghai-based Bio Asia, was acquired on December 8 by California-based biotech reagent giant Invitrogen Corp. The deal has left him of two minds.

"On the one hand, we are losing a company of our own, which we have struggled to build over the past five years," Liu, general manager of Bio Asia, told China Business Weekly.

"On the other hand, the acquisition will improve the technological level and service provision of Chinese biotech companies, such as Bio Asia. It will certainly prompt more international biotech giants to invest in China."

Invitrogen paid US$8 million to acquire Bio Asia, a research equipment and reagent firm that has 18 sales offices across China. Liu will become Invitrogen China's national manager.

The deal marks the first major acquisition of a Chinese biotech firm by an international rival. Analysts and industry insiders suggest the deal proves foreign firms are interested in researching, developing and producing biotech products in China.

"Several leading US biotech companies have been seeking Chinese partners for new business, from outsourcing research to forming joint ventures," Wu Jun, executive vice-president of Shanghai Genomics Co Ltd, told China Business Weekly.

"They have come to China not only for the emerging huge market, but also for the improving management and innovation of local firms."

Greg Lucier, Invitrogen's chairman and chief executive officer, said, on the company's website: "The rapid growth of China's biotech and medical research industries, and the major WTO (World Trade Organization) change opening the market to international companies, add fuel to Invitrogen's already-robust commercial potential in the country."

Demand in China for biotech equipment and reagents has increased rapidly in recent years.

The Chinese Government increased its biotech funding 400 per cent between 2001 and this year, to reach 10 billion yuan (US$1.2 billion).

Numerous massive projects - including rice gene sequencing and human liver proteomic initiatives - have been launched in the past three years.

Privately owned biotech firms in China are playing a greater role in the process.

For example, Shenzhen SiBiono GeneTech developed Gendicine, the world's first commercialized gene therapy medicine.

Post-WTO China, greater innovation, improving technology and high-quality, but less-expensive, workers are attracting both biotech equipment and biopharmaceutical firms to China, said Matthew Chervenak, president of General Biologic Management Consulting.

The report "Pipeline China 2004," published last October by General Biologic, estimates 60 biological drugs - including 19 antibodies and 11 vaccines - were being developed, independently, by Chinese biotech firms.

Previously, Chinese biopharmaceutical companies only produced generic drugs, such as EPO and Insulin.

China's WTO entry, in December 2001, also resulted in smoother access by foreign firms to China's biotech sector, said Mark Tang, managing partner of New Jersey-based World Technology Ventures.

In its 2002 and 2005 editions of the "Catalogue for the Guidance of Industries for Foreign Investment," China listed biotech research, development and production as preferred sectors for foreign investment.

The Chinese Government last October released a policy aimed at simplifying foreign investment procedures.

Last December, three years after it joined the WTO, China allowed foreign firms to sell pharmaceutical and biotech products directly in China.

Since joining the WTO, China has revised its intellectual property rights (IPR) laws, so they are consistent with rules of the Trade-related Aspects of Intellectual Property Rights (TRIPS), and has enhanced enforcement of IPR laws and regulations.

Despite foreign firms' attraction to the Chinese market, most analysts say it is too early to say with any degree of certainty that foreign biotech companies have launched a wave of mergers and acquisitions (M&A) in the country.

Many international biotech firms considering entering China remain concerned about the nation's poor implementation of IPR-related laws.

"For biotech firms, IPR may mean everything. They are very cautious about making massive investments in China," said Chervenak.

Foreign biotech companies are also hesitant to invest in China because they have little understanding about the ongoing innovation in the country's biotech sector.

Although China's biotech firms have become significantly more innovative, their ability to ensure their research capabilities are on par with foreign firms remains a challenge, Wu said.

Cheng Guoxiang, president of Shanghai Genon Bio-engineering Co Ltd, said the biodrug development process is lengthy - and risky. Foreign companies cannot easily move their research teams to an unfamiliar country.

Zhang Luyang, a finance professor at Fudan University, said China's investment environment must be improved before there will be a significant number of foreign M&As within the biotech sector.

Currently, access to financing is quite limited and intermediary services are lacking, which indicates foreign and Chinese firms do not sufficiently know each other.

That is a major challenge for foreign firms conducting research in China, Chervenak said.

"Outsourcing research to Chinese firms or launching research programmes with Chinese partners remain rational choices for international biotech firms," Wu of Shanghai Genomics said.

(China Daily 01/20/2005 page8)