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Finding a Fortune JIA HEPENG 2005-12-05 07:14 It wasn't exactly a turning point, but it was definitely a sign that things had changed. For the first time in his life, Yu Zailin, chief science officer of Peking University-affiliated China Bioway Biotech Group, invited a professional photographer to his office for a photo shoot. "I had to do it, because a number of foreign media organizations have asked for pictures," says Yu, president of the Bioway-Fortune Research Centre for Genetic Drugs. The biotech entrepreneur's sudden popularity has a lot to do with a high-profile financing deal he recently orchestrated. The transaction was described by leading trade journal Nature Biotechnology as a strategic move towards integrating public research funding, State ownership, foreign venture capital, and the prospect of a NASDAQ-listing. Difficult start The money Yu brought together was not particularly significant, roughly US$15 million. "But I have been struggling for three years to get this money together, since I returned from the United States to China," he says. The darling of the research community throughout the 1980s, Yu developed China's first biotech pesticide. His groundbreaking research won him a visiting professorship at Cornell University in 1989. Yu later started California-based biotech firm FortuneRock Inc, which focuses on genetic drug research. "I have developed technology for creating new drugs, based on recombinant proteins of current medicines sold in the United States. I thought the work could be done much more cheaply in China," says Yu. That wasn't the case, however, and he faced serious funding issues when he returned to China in 2002. Yu and Bioway formed the Bioway-Fortune Research Centre that year with Yu holding a 35 per cent share. The centre develops biotech drugs, including a blood cell-stimulating medicine based on the protein structure of a famous US drug. Yu says this cost efficient approach to developing innovative drugs is popular in the United States, and does not violate intellectual property rights. Problems emerged, however, when Bioway was unable to offer enough money to fund Yu's research. The researcher was forced to find alternative sources. "I started becoming unfamiliar with my lab techniques because I was wasting so much time with unsuccessful financing activities," Yu says with a sigh. Few pharmaceutical or venture capital firms in China will support pre-clinical research for innovative drugs due to the hefty capital requirements and huge risks, says Zhang Jing'an, secretary general of the Ministry of Science and Technology. In the United States, it usually takes US$800 million and 10 years to complete the process from screening compounds or proteins to the implementation of clinical trials. It is estimated that the cost in China might be one-tenth of the US costs, but the investment is still much higher than domestic pharmaceutical firms are willing to consider. "There was a winery that was willing to give us money, with the condition that it would hold the majority shares, but Bioway refused to give up its majority ownership," Yu says. Pan Aihua, president of China Bioway Biotech Group, is trying to develop the company quickly. "It can't be easy for him," Yu says. "It's quite difficult to keep new investment coming in, but my research is for one of Bioway's most promising products and technologies. Giving up majority ownership of the research centre could destroy everything." Financial innovation Despite the financial difficulties, Yu will not leave Bioway. "I can't break my commitment to President Pan." There are advantages to staying with the State-owned firm. Yu has successfully applied for 11 million yuan (US$1.36 million) in public research funding from the Ministry of Science and Technology, the Beijing municipal government, and the Haidian District government. Although funding is open to private high-tech firms in China, State ownership often makes access to it much easier. State support helps resolve many technical difficulties in preclinical experiments, and acts as a magnet for venture capital. Government investment in high-tech projects is voluntary, and does not usually make a claim on the intellectual property involved. "The State benefits by fostering the development of the biotech industry," Yu explains. After repeated failures in the domestic capital market, Yu shifted his focus to foreign venture capital firms. Peng Huaizheng, portfolio manager of London-based VC Reabourne Technology, says that sales prospects for drugs in China might not be attractive to international investors, because the Chinese market is relatively small. Research investment and drug price controls can water down profits. Yu has found his own solution. "If the drug passes clinical trials and gets a new licence in China, its clinical trials in the United States will become easier. A successful trial in China will make US volunteers and doctors more confident about its safety." He adds that approval in China will also make it easier to persuade US-based venture capital firms to support drug research and the company's NASDAQ-listing. This could bring greater returns to the first round of investors. "This development and financing strategy is an innovation forced by a harsh situation," Yu says. He persuaded South Korea-listed biopharmaceutical LIFECORD to invest, but there were still two barriers to overcome. Bioway Group is unwilling to accept the dominance of outside investors, and it still needs to create a withdrawal channel for foreign investors. There is no second board market in China, and only 30 per cent of the shares of listed companies are tradable. This means it is very difficult for venture capital firms to withdraw through the stock market. Yu overcame these obstacles through a single solution. He established a separate joint venture with the South Korean investors, the China/Korea BIO Incubation Centre Holding (CKBIC Holding). It was registered in the Cayman Islands in late-November. This company will completely control a subsidiary CKBIC Ltd registered in Beijing, which the holding company will inject capital into. CKBIC Ltd will then outsource all research and development to Bioway-Fortune Research Centre. This arrangement enables foreign investors to withdraw, if they deem it necessary to do so, through the holding company in the Cayman Islands. Bioway Group will benefit from the research contracts of Bioway-Fortune. "The most important thing is that Bioway can develop its strong research and development capacities without spending a single yuan," says Yu. (China Daily 12/05/2005 page2) |
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