Doing Business in Asia – Opportunities for Collaborations and Investment WorkShop

“We are no longer coming to China for cost savings, we are coming because the Chinese work hard and they value education. We no longer find that in the US.” An unnamed chief scientific officer from an international big pharma, quoted by Charles Hsu of Bay City Capital at the Opportunities for Collaborations and Investment Panel Presentation.

At the 2008 BIO International Convention, a panel of industry representatives, all of whom are involved in biopharma development in the US and Asia, discussed the merits and problems inherent in doing biopharma business in various Asian countries.

The discussion was unusual because, unlike most such forums, all Asian countries were discussed, with a special focus on the major sites – China, India, Korea and Japan.

Ian Wisenberg (BIOCOM) introduced the discussion by stating it would be in the form of a workshop, that the participants did not have all the answers.

As they answered questions, the participants articulated their insights on the countries in which they work. One of the themes that kept cropping up was how much has changed, particularly in China, in a very short time. Because the changes have been so rapid, costs have risen to the point where the cost advantage of doing business in China is being eroded.


The following is a list of the participants. An edited report of their discussion is below.


Chairs: Greg Scott, CEO ChinaBio® Accelerator; Editor, ChinaBio® Today
Ian Wisenberg, CPA, SVP Business and CFO BIOCOM

Panel Members:
James Schoeneck, CEO Brain Cells, Inc.
Michael Hui, Managing Director, Shanghai ChemPartner Co., Ltd.
Bernd Brust, Sr. Vice President, Global Sales & Marketing, Introgen Corp.
Charles Hsu, PhD, Venture Partner, Bay City Capital LLC
Amy Stenson, Stemedica


Michael Hui (Shanghai ChemPartner): In 2002, when our company was getting started, the Zhiangjiang Park in Shanghai was just emerging from the fields. Now there are 1,000 biomedical companies, including representatives of big pharma, in a space that is only 17 square miles. Currently, the park is completely built out, and it has become very expensive to rent any space.

When it was founded in 2002, Shanghai ChemPartners was the only biomedical company in the park. It had space, but few customers. Now it has 1300 scientists.

Charles Hsu (Bay City Capital): Until 18 months ago, nothing would bring VCs to China. In some cases, they were dragged there, but they went kicking and screaming. WuXi PharmaTech‘s (NYSE: WX) IPO changed that. Now people are actively looking for deals. In each case, it takes a champion in each VC group to drive this change, because most VCs are not willing to leave even their home states. VCs tend to be very parochial.

Michael Hui (Shanghai ChemPartner): Chinese scientists working in America now want to go back to China, unlike three years ago. Because of the huge upsurge in biomedical business activity, the costs of doing business in China are increasing rapidly. They have jumped 20% in the two years since 2006. New graduates are getting multiple offers. It is not a problem to fire anyone; all you need to do is to give them only a 10% increase in salary and they will leave voluntarily after finding a higher paying position.

Bernd Brust (Invitrogen): Employment costs are rising quickly in China. People jump from one company to another, causing instability and raising costs. As a company that makes scientific tools, Invitrogen has a different business model than a drug discovery biopharma. Invitrogen makes a large number of small sales. We need to pay attention to logistics to make sure customers get what they need on time. It is imperative to watch costs in this type of business; otherwise a company will not be able to be competitive.

It is different in Japan because the growth there is not as accelerated. Nevertheless, Japan is a very sizable market for life science, one that is easy to do business in, even though it is more traditional than even the US or Europe. Like China, India is more difficult, partially because of regulatory difficulties. Also, the industry is growing from infancy, changing rapidly. The amount of change requires a company like Invitrogen to be nimble.

James Schoeneck (Brain Cells): Our needs are different because Brain Cells is looking to in-license drugs that have made clinical progress. We saw opportunities in Japan for partnering. Japan is now looking to make connections with companies in the US and Europe. Because of realignments in the strengths of each country’s economy and their currencies, the question has now become: Can companies in the US easternize to do business. That’s a new spirit. It used to be the other way around.

Michael Hui (Shanghai ChemPartner): The biggest challenge is IP because the whole industry is heading toward the high value part of the drug chain. Still the elements of IP protection – a confidentially agreement, the non-compete, the culture of disclosure (most important and changing) – are becoming easier as they become more familiar. More law firms are establishing an office in Shanghai, showing that the biotech industry is very concerned with IP protection. This is a good sign. Inevitably, some players will cause problems as they transform their companies from a generic focus to drug discovery, but the companies involved in drug discovery are already clear on the importance of IP.

Amy Stenson (Stemedica): We found at Stemedica that we were welcomed into South Korea. Because I speak the language, it helped matters. But the people there look up to US-based firms in terms of their technology. Most of the provinces in Korea are building technology parks, so they are interested in talking to technology companies.


Greg Scott (ChinaBio®): “There are probably 300 CROs in Shanghai, who must now differentiate themselves from each other. As a result, new business plans appear every week.

Charles Hsu (Bay City Capital): By default, the energy in biopharma is in major centers: Shanghai, Shenzhen Beijing. It is unrealistic to expect that VCs will spend much time in secondary cities.

The biggest deficiency we see in proposals is that the management teams are not experienced enough. This is not a problem at the CEO or CSO level, but in the middle level, where people are responsible for executing on business plans. Companies are struggling to find people.

The IP issue is a red herring. There is a tremendous incentive for entrepreneurs to move their economies into harmony with the rest of the world in terms of IP. Countries will do it because their entrepreneurs will demand that practices get in sync. Their governments will resolve the remaining outside issues. Israel went through this 30 years ago and is now a powerhouse. A couple of years ago, China’s courts found in favor of Pfizer (NYSE: PFE) in the Viagra IP case. That ruling showed a new spirit.

Greg Scott (ChinaBio®): China may have bent the rules to get the ruling, because the result was important, even if it did not really follow China’s laws. Compare that with the AstraZeneca (NYSE: AZN) ruling in India, which caused AstraZeneca to pull a hundred million dollars in R&D investment out of India.

Bernd Brust (Invitrogen): To get started in China, we bought a company to establish a footprint in the country. The problem with this method of getting started is that it puts a layer between our company and its customers. It cuts down on the useful feedback. To solve this problem, we also have 200 to 300 direct sales and marketing individuals in China. In India, which followed the Japanese model pretty closely, we built our own organization.

Greg Scott (ChinaBio®): China is a large, fragmented market with many hospitals. Bernd, how do you deal with fragmentation?

Bernd Brust (Invitrogen): It’s a big challenge. It’s important to know your customers. One option would be to pay attention only to big customers, but our small customers include biotechs who are the ones creating changes, and it is important to keep up with those changes. We have put significant effort into branding. Through branding, we try to get customers we don’t see to come to us. It’s a challenge. In India, the infrastructure is a problem and even a bigger challenge. For us, the bigger issue in China is the ethical values of distributors, especially in rural areas. Compliance issues are difficult to handle.

Greg Scott (ChinaBio®): Michael, will you do an AppTec acquisition to appeal to US customers?

Michael Hui (Shanghai ChemPartner): We have a Boston office and one in California and another in Europe. A lot of customers want answers overnight to solve their problems, even if the questions involve areas in which we are not experts. We must stick to what we do best, emphasizing that, while we consider expanding our services.

Greg Scott (ChinaBio®): There is a lot of government support available for companies. Money from provincial governments has only a few strings; for money from the State government, there are no strings. How does this affect what you do?

Charles Hsu (Bay City Capital): Incentives are a secondary issue. The US never set out to establish biotech clusters. Still, after 50 years of investment by the US government through NIH and VC capital, the US has ended up with three major clusters. How important is it to be in area that has staying power as a cluster? Korea is building up clusters in every province. Singapore is doing Biopolis. Is the incentive more important or is it more important to be in a viable cluster? It didn’t work in Europe. San Diego and Silicon Valley are very expensive places to operate, yet countries still locate there. Shanghai is one such center. Where will the others be?

Ian Wisenberg (BIOCOM): What will landscape be in two years, given the huge changes we have seen in the last three years?

Charles Hsu (Bay City Capital): Every time I’ve tried to make a prediction, I’ve been too conservative. For China and India, truly front-line drug discovery will take place, much more quickly than people imagine.

Bernd Brust (Invitrogen): Invitrogen is a thermometer of the biomedical activity in a country. When research is going on, our products are being used. The activity in China and India is much higher than Vietnam, Korea, etc. China is a tremendous consumer opportunity for us, as is India, where the infrastructure is improving quickly, especially in big cities. Japan is under-funded, homogenous; it does not welcome outside talent and must reinvent itself.

James Schoeneck (Brain Cells): There are three considerations: Quality, Speed, Cost. If quality meets the regulatory standard, then speed and cost come into play. When costs in Asia begin to equal those in other places in the world, we will reconsider doing business in Asia.

Michael Hui (Shanghai ChemPartner): Many things will happen in the next two years. Many more deals will be done in Asia. Biology has really taken off. Innovation is increasing rapidly, but it will take a while to see results of the activity. When new drugs win approval, people’s perception of biopharma in Asia will change.

Audience question: The cost difference is narrowing between China and the west. Clinical trials, too. India has become a major hub for clinical trials. English is spoken there, and the hospital system is similar, making it easier to do clinical trials in India. Speed of getting drugs on the market more important that actual cost of doing trials themselves.

Charles Hsu (Bay City Capital): Where should you do deals or where should you locate company? The format of this workshop involves all of Asia, which is unusual. There is an enormous amount of capital and talent in Japan, but they have been reluctant to reach out. Korea has very sophisticated consumer healthcare delivery system. Large companies in Korea are adept at doing deals. Startups are probably best done in China, because of its talent and other resources. India is best for clinical trials. So the question of which country is best becomes a question of what do you want to do? Match that with the strengths of the various countries.


Disclosure: Greg Scott is Executive Editor of ChinaBio® Today.