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8/8/2019 Monitor China the Life Sciences Leader of 2020 17 Nov
1/54
A UNIQUE CONFLUENCE OF FORCES SETS THE STAGE FOR CHINA TO TAKE A
LEADING AND POTENTIALLY DISRUPTIVE ROLE IN LIFE SCIENCE INNOVATION.
UNDERSTANDING THE DRIVERS, THE UNCERTAINTIES AND THE POTENTIAL IMPACT
WILL BE DECISIVE FOR FIRMS AIMING TO LEVERAGE CHINAS BURGEONING ROLE
AND BUILD NEW SOURCES OF GLOBAL COMPETITIVE ADVANTAGE.
THE LIFESCIENCESLEADEROF 2020
BY GEORGE BAEDERAND MICHAEL ZIELENZIGER
8/8/2019 Monitor China the Life Sciences Leader of 2020 17 Nov
2/54
Copyright 2010 Monitor Company Group Limited Partnership.
All rights reserved. Reproduction in whole or part is prohibited without permission.
ABOUT MONITOR
Monitor works with the worlds leading corporations, governments and social sector organizations
to drive growth in ways that are most important to them. Monitor Group offers a range of services
advisory, capability-building and capital servicesdesigned to unlock the challenges of achieving
sustainable growth.
ABOUT THE AUTHORS
GEORGE BAEDER
George Baeder, based in Monitors Shanghai office, leads the firms Life Science practice in Asia,
covering pharmaceuticals, medical devices, over-the-counter medicines and health care delivery.
He helps clients anticipate fundamental changes in the market and competitive landscape, and
he has led numerous corporate market entry, product launch and in-line growth strategies across
a wide range of therapeutic areas. Over more than three decades in Hong Kong, Singapore and
China, George has worked across consulting, investment banking and private equity to advise
senior executives of leading Western and Asian firms, as well as government policy makers, on
the development and effective implementation of innovative strategies. He can be reached at
george_baeder@monitor.com.
MICHAEL ZIELENZIGER
Michael Zielenziger, a Pulitzer-prize finalist for his reporting from China, works with Monitor
Group analyzing issues related to Asia and globalization and is a visiting scholar at the University
of California, Berkeley. The former Tokyo bureau chief for Knight Ridder Newspapers, Zielenziger
is the author of Shutting out the Sun: How Japan Created its own Lost Generation (Nan A. Talese/
Doubleday) which described the social malaise and economic decline that now confronts an aging
Japan. As a consultant, he advises corporations and governments on developing strategic priorities
and discerning emergent trends. He is also a former John S. Knight Fellow at Stanford Universitys
Graduate School of Business. He can be reached at michael_zielenziger@monitor.com.
monitor
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TABLE OFCONTENTS
EXECUTIVE SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
CHINA, THE LIFE SCIENCES LEADER OF 2020
Beijing, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Life Sciences Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Forces Shaping the Life Sciences Future . . . . . . . . . . . . . . . . . . . 8
The Global Implications of Chinas Emergence . . . . . . . . . . . 13
A Dual Crisis Demands a Search for New Models . . . . . . . . 13
For Chinese Scientists, a Historic Opportunity . . . . . . . . . . . . 16
The Central Role of Chinas Government . . . . . . . . . . . . . . . . . 26
A Latecomers Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Building the Pharma Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Potential Risks to Chinas Life Science Boom . . . . . . . . . . . . . . 43
INTO ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
CHINAS LIFE SCIENCES FUTURE: SCENARIOS
1. Wild Flowers Bloom: 20092012 . . . . . . . . . . . . . . . . . . . . . . 22
2. Planting the Garden: 20122015 . . . . . . . . . . . . . . . . . . . . . . . 23
3. Cultivating the Seedlings: 20152020 . . . . . . . . . . . . . . . . . 24
4. Steady Harvest: 20202025 . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ADDITIONAL INSIGHTS
How China Changed the Semiconductor Game . . . . . . . . . . . 10
A Life Science Entrepreneur Leverages Chinas Model . . . . 18
One of a Thousand Talents Returns to Beijing . . . . . . . . . . . . . 28
The Health Minister Speaks for Innovation . . . . . . . . . . . . . . . 30
Manufacturing Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
monitor
AUNIQUE CONFLUENCE OF FORCES SETS THE STAGE FORCHINATOTAKE A
LEADINGANDPOTENTIALLY DISRUPTIVE ROLE INLIFE SCIENCE INNOVATION.
UNDERSTANDING THE DRIVERS, THE UNCERTAINTIES ANDTHE POTENTIAL IMPACT
WILL BE DECISIVE FORFIRMS AIMINGTOLEVERAGE CHINAS BURGEONINGROLE
ANDBUILDNEWSOURCES OF GLOBAL COMPETITIVE ADVANTAGE.
THE LIFESCIENCESLEADEROF 2020
BY GEORGE BAEDERAND MICHAELZIELENZIGER
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2 CHINA, THE LIFE SCIENCES LEADER OF 2020
EXECUTIVESUMMARY
China today is rapidly positioning itself to become
an importantand hugely disruptiveplayer in
the Life Sciences industry and, within a decade,
a global leader in drug discovery and innovation.
A confluence of forces insufficiently recognized
by many Western firms is fueling Chinas rapid
emergence and offers the industry unusual
opportunities to create partnerships and develop
new sources of competitive advantage.
Quietly, and without great public anare, Chinas lie sciences indus
try is today gathering a critical mass o highly skilled talent, savvy and
ocused venture investors, and growing government support as its mar
ket or drugs and medical devices takes o. As it marshals ambitiousgovernmentled investments with pragmatic collaborations, China may
soon possess the potential to create a more vigorous pipeline or new drugs
than the traditional Western model, where competing actors oten work
at crosspurposes, and where the costs o new drug approvals have become
unsustainable. Moreover, at a time when large, vertically integrated phar
maceutical rms are being compelled to rethink their scale, scope and core
expertise, thousands o topight Westerneducated scientists are beginning to
see China as the premier destination to pursue unprecedented commercial and
research opportunities.
Global pharmaceutical leaders already oresee explosive growth occurring within theChinese market, which is on track to become the worlds second largest by 2012. Yet
other orces will accelerate the pace o development:
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CHINA, THE LIFE SCIENCES LEADER OF 2020 3
China will unleash US $124 billionbetween 2009 and 2012 to build
community health centers as well
as new municipal and countylevel
hospitals as part o its broadbased
health care reorm.
Central and provincial governments
will allocate millions to induce lead
ing scientists to repatriate; to develop
biotech science parks; sponsor lie
science startups and reinvigorate Chinese research institutes.
Chinese leaders clearly recognize that
their nation is getting older and less
healthy even aster than its population
is gaining wealth, and must attempt to
develop new and innovative therapies
at consistently lower prices.
Moreover, as the Big Pharma model o
drug discovery continues its rapid deintegration, ambitious Chinese scien
tists and entrepreneurs see the chance
to develop important new commercial
opportunities along the value chain o
drug innovation. Just as a small com
munity o Chineseborn, Western
educated engineers dramatically reshaped
the global semiconductor industry two
decades ago, so too are Chinese heritage
bioscientists poised to turn China into a
vital cog in the global system o design
ing, testing and manuacturing next
generation compounds and vaccines. Teexplosion o Clinical Research Organiza
tions (CROs) in China within the past
ve years points to this emergent trend.
Tere are risks to this orecast, includ
ing the economic uncertainty across
the developed world; Chinas ability
to implement sweeping reorms and
enorce intellectual property protection;
and a tendency within China to ocus
on shorterterm commercial gains at theexpense o longerrange investments in
lie sciences research.
Still, as China emerges as a new magnet
or lie science innovation, Monitor has
ound that:
At least 80,000 Westerntrained PhDs
in the lie sciences sector have already
returned to China to work in the
industry or in academic institutes. Tepace o repatriation o these highly
skilled scientists is likely to accelerate
over the coming decade.
An exclusive Monitor survey o
Chinese lie science proessionals now
working in the United States nds
that ully twothirds contemplate
either returning to China or good
or becoming sea turtles: lie science
proessionals who constantly circulatebetween China and the U.S. in pursuit
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4 CHINA, THE LIFE SCIENCES LEADER OF 2020
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o commercial and research opportunities. Such sea turtles and the hybrid
rms they create will become impor
tant drivers o Chinas lie sciences
innovation.
Unburdened by outdated legacy
investments, Chinas ambition to
build a wholly new medical inrastruc
ture oers a wide range o opportuni
ties to create the robust genomic and
disease databases that will be increasingly important as personalized medi
cine becomes a dominant trend.
Tese ndings suggest that opportuni
ties in drug discovery, process innovation,
clinical trials and collaborative research
will be qualitatively dierent in Chinathan in other emerging markets and
could, in time, break more new ground,
more rapidly.
Other global industries, ranging rom
textiles to automotive parts and consumer
electronics, have tended to underesti
mate Chinas potential to transorm their
industries. Savvy liescience rms will
make the investments required to get
China right.
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CHINA, THE LIFE SCIENCES LEADER OF 2020 5
On an overcast Thursday in May, the director of the
drug development bureau of Chinas Ministry of
Science & Technology (MOST) convenes an intense,
three-hour briefing. Arrayed around the austere
conference room in the capital are the heads of
Chinas three largest disease experiment hospitals,
the director of Tsinghua Universitys molecular biology
department, and clinical directors from two of the
worlds most distinguished clinical research labs, both
based in nearby science parks. Joining the meeting is
James Liang, the chief executive and scientific director
for Dongshan Pharmascience, a seven-year-old life
sciences startup with 300 employees based in Shanghai.
Even beore MOS representative Wang Li Jang calls the meeting to order,
Liang is condent o what this ormal session will nally ratiy: that Ala
sapt, the worlds rst biologic therapy designed to block the ormation o the
reeoating proteins that trigger Alzheimers disease, a molecule developed by
his rm with the active support o all these players, is ready to enter ullscale
commercialization. Te ocus o Liangs research eorts over the past nine years,
it seems a oregone conclusion that Alasapt will win nal endorsement rom this
room lled with his most powerul promoters, especially since, as a Chinacreated
molecule, it has already received preerential, asttrack approval rom the State Food
and Drug Administration (SFDA).
Yet its impending arrival on the global market also reects a surprising new reality. As
the pipeline or new drugs in the West continues to suer rom disappointments and
poor investment decisions, a new and more cooperative model or drug development and
approval in China is gaining powerul new traction. Alasapt, the rst blockbuster devel
oped through this emerging Chinese system, not only has the potential to vastly improve
BEIJING, 2020.
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6 CHINA, THE LIFE SCIENCES LEADER OF 2020
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the lives o patients across the globe. Itwill almost certainly cause new headaches
or Western pharmaceutical rms which
have no competing compound to oer
in China and may soon nd their home
markets threatened by this new, Chinese
developed therapy.
Tis conclave also represents a moment
o special proessional satisaction or
Liang. Born in remote Qinghai province
in 1983, he earned his biochemistry PhDrom MI in 2007, ollowed by post
doctoral research at the U.S. National
Institutes o Health, and brie stints at
two U.S.based lie science research rms.
One o thousands o Chinese scientists
lured back home with research and busi
ness incentives, Liang knows he could
not have gotten this new compound to
market so quickly without the active
support o the drug development bureau,part o the MOSs highpowered new
initiative to speed up creation o indig
enous innovation along the rontiers
o hightech industry. Te lie sciences
program MOS runs has helped priori
tize the research ocus, gotten SFDA and
the Health Ministry to clear bureaucratic
roadblocks, and coordinated eorts by
government clinical hospitals to quickly
assemble a large pool o suitable patients
or Phase II and Phase III trials. It also
helped crat the partnership with the lab
at singhua, whose research team worked
closely with Dongshan Pharmascience toprioritize which drug leads to target.
With SFDA approval now rmly in
hand, Liang knows that support by the
U.S. Food and Drug Administration and
the European regulators is just a ew
months away. Ever since the SFDA was
dramatically revamped in 2014 to meet
the saety and certication requirements
o its American counterparts, and the
government launched a highly publicizedcampaign against countereiters, the sta
tus o Chinese manuactured pharmaceu
ticals has risen. A companion initiative to
ensure that Chinese production acilities
exceed the current Good Manuacturing
Practices global standard has also proven
surprisingly eective in attracting new
investment. So many U.S. drug manu
acturers are now using Chinese partners
to produce their drugs and vaccines thatChinese pharmaceutical plants are grow
ing in both their technical competencies
and productivity. Soon a dozen Chinese
actories will likely take over a major
share o drug production or the worlds
two largest pharmaceutical markets, the
U.S. and China.
Te only real issues to be resolved at
this congratulatory session are strategic
choices: How much o a premium shouldDongshan charge or licensing its new
blockbuster compound or sale outside
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CHINA, THE LIFE SCIENCES LEADER OF 2020 7
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China? Te revenues generated romthe higher prices Alasapt can command
abroad will help reimburse the govern
ment directly or some o its initial
outlays or research and will also eec
tively subsidize the rate Fosun Pharma,
the lead Chinese producer, will pay to
Dongshan or its domestic manuactur
ing license. In China, however, Alasapts
retail price, while much higher than
that o an ordinary generic, will still becapped by National Development Reorm
Commission (NDRC) and the Health
Ministry to ensure it is broadly aordable.
o Dongshan Pharmascience, the ulti
mate mix o domestic and oreign prices
almost doesnt matter: Just the act that an
estimated 27 million Chinese likely will
become suitable candidates or this drug
in the rst year means their production
partner will rapidly develop the scale e
ciencies required to drive down produc
tion costs as prots climb.
Lets get started, Commissioner Wang
says, calling the meeting to order. Liang
knows this is going to be a good day.
Life Sciences Today
At a time when the global Lie Sciences
Industry aces an unsettling series o
scientic and business challenges, Chinais rapidly positioning itsel to become
an important and hugely disruptive
player in the industrys uture trajectory.
By 2020, we believe, it will be a criticalplayer in lie science development and
pharmaceutical discovery. By then, China
may well have developed its own, distinc
tive model or collaboration between
government research labs, top university
researchers and private rms. With ambi
tious investments and pragmatic col
laborations, China possesses the potential
to create a more vigorous pipeline o
new drugs than the traditional Westernmodel, where competing actors oten
work at crosspurposes.
Tis conclusion will strike many as
unexpected, or even disturbing. In 2010,
China oten commands headlines when
stocks o the blood thinner heparin are
ound to be atally adulterated, when the
saety o ood exports are questioned or
when oreign rms allege that Chinese
competitors brazenly appropriate theintellectual property o automakers and
electronics manuacturers to create their
own brandname products. Even many o
those working in China see the emphasis
on quick prots overwhelming the patient
investments and longterm strategic
planning necessary to nurture successul
innovation in the lie science eld. More
over, the ocus and concern over
China in the West tends to center on the
scope o its manuacturing capabilities
and the scale o its lowcost labor, not on
its potential or sophisticated worldclass
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8 CHINA, THE LIFE SCIENCES LEADER OF 2020
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innovation. Chinese can only copy, mostbelieve, not invent.
Yet quietly, and without great public
anare, Chinas lie science industry is
today gathering a critical mass o highly
skilled talent, savvy and ocused venture
investors, and mounting government sup
port as its market or drugs and medical
devices rapidly expands.
Forces Shaping the LifeSciences Future
Te juxtaposition between the industry
dynamics in the West and China is strik
ing. Already aced with patent clis and
declining productivity, large, vertically
integrated pharmaceutical rms are being
compelled to rethink their scale, scope
and core expertisejust as a host o prag
matic and exible Chinese entrepreneurs
are quickly building the clinical research
organizations, manuacturing centers,
smallscale research labs and incubators
required to take maximum advantage o
the challenges Big Pharma aceas well
as the budding opportunities develop
ing within the domestic Chinese market.
As integrated Big Pharma is orced to
slim down, break apart or seek merger
partners to sustain growth, Chinese
actors are poised to play an outsized rolein the reconguration o the industry,
much as Greater China, through aiwan and Hong Kong, altered the value
chain o semiconductor design, testing
and manuacturing in the late 1980s
(see sidebar, page 10). As the integrated
device manuacturers o the semiconduc
tor industry were once orced to conront
new, narrowlyocused specialists, todays
looming deaggregation o the global lie
sciences value chain oers Chinese rms
analogous opportunities to become majorcompetitors and collaborators through
specialization and structured global
partnerships. Moreover, as technologies
shit, and as new sotware tools emerge
to speed the design and testing o thera
pies on the rontiers o synthetic biology,
Chinese rms could play an outsized role
in reconguring the design and pace o
biological innovation.
Says one venture capitalist deeply investedin the lie sciences industry, who divides
his time between San Francisco and
Shanghai: When it comes to innovation
in lie sciences, China will be the straw
that stirs the drink.
Tese conclusions would seem squarely
at odds with the conventional wisdom
currently expressed by leading global
pharmaceutical rms. Most are indeed
convinced that China will become apromising contributor to revenue growth
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CHINA, THE LIFE SCIENCES LEADER OF 2020 9
as the nation gains wealth, much like anyother emerging market. Tey ocus mainly
on how to better sell existing compounds.
I they recognize any potential competi
tive challenger, it is a Chinese rm that
leverages huge volumes to lower pro
duction costs or generics. Competition
rom Chinaproduced generics with
R&D ocused on improving processes
and quickly replicating western innova
tions commands serious concern. Chinese scientists are mainly copycats, they
believe, incapable o conducting world
class innovation in an environment where
raud and data manipulation is rampant.
Te lack o adequate intellectual property
protection remains a major disincentive
to invest in Chinese R&D. Moreover
the nation, broadly speaking, lacks the
inrastructure required to conduct unda
mental, groundbreaking research. Chinas
opaque and heavyhanded bureaucracy,
they contend, is not capable o making
smart investments in lie science research.
And the SFDA is so riskaverse it is
unlikely to approve or sale within China
any drugs not already approved by coun
terparts in Europe and North America.
While the impact o Chinas health care
reorm plan is not yet ully understood,
many wonder who in China might pay
or advanced new therapies command
ing premium prices at a time when thestate has signaled its resolve to drive drug
prices down.
In sum, this view proposes, integrated
Big Pharma will remain the leader in
global innovation and whatever enhance
ments are achieved in global R&D can
be careully and selectively transerred to
the China market.
Yet in counterpoint to that ocialuture, some core drivers are rapidly
coalescing in China to help speed the
nations rst serious orays into drug
discovery. Tey, in turn, suggest a vastly
dierent uture:
Chinacantaordtowaitor global
pharma rms to develop the medi
cal breakthroughs needed to provide
aordable solutions to the healthcare
needs o the nations projected 1.4 billion population in 2020. Nor do policy
makers seem inclined to replicate the
Wests vertically integrated corpo
rate model. Tey believe China has
no choice but to accelerate creation
o new models or drug research and
innovation to serve the needs o a
relatively poor population.
Continued on page 12
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10 CHINA, THE LIFE SCIENCES LEADER OF 2020
How China Changedthe Semiconductor GameTo understand how the rise of China could change the face of the global pharmaceutical
industry and drug development, it is useful to recall how Chinese investors, entrepreneurs
and manufacturers based first in Taiwan powerfully reshaped the semiconductor industry two
decades ago, taking advantage of technological innovations and entrepreneurial risks to create
a new global ecosystem.
The fact that the worlds iPhones and computers are today mainly manufactured in China is atestament to how rapidly the ecosystem of high technology evolved.
In the late 1980s, the semiconductor industry was known mainly through its behemoths: large,
integrated device manufacturers like Texas Instruments, IBM, Motorola and Intel, who designed,
built, tested, produced and ultimately marketed the processors that powered their own com-
puter products.
Today, however, firms like Intel and AMD now compete in a vastly altered semiconductor econ-
omy. So-called fabless design firms like Nvidia, Qualcomm and Broadcomm design specialty
semiconductors for high-speed graphics, video game machines or cell phones, but dont actually
manufacture these components. Tool houses like Cadence and Synopsys build the software tools
that permit niche firms like Nvidia to design, verify, and implement the creation of their electroniccircuits through computer simulations alone. Other firms package and test integrated circuits
fabricated by third parties. Meanwhile, giant foundries like TSMC and UMC in Taiwan, or SMIC in
Shanghai, bake the semiconductor chips for any firm that chooses not to make its own.
So dramatically has the gravitational flow within the semiconductor world been altered that in the
summer of 2010 the trade association for the chip industry, the Semiconductor Industry Associa-
tion, shuttered its headquarters in the Silicon Valley of California. While semiconductor giants like
Intel and AMD might still be headquartered there, the vast majority of the worlds chips are no
longer designed or made there.
Two fundamental agents of change brought about this rapid and mostly unanticipated de-integra-
tion of the semiconductor value chain. The first was a series of technical innovations that created
both the design standards and underlying software necessary for virtual chip design so-called
electronic design automation, or EDA. These new tools allow engineers to sketch and design
increasingly complex circuits on computers without having to actually build prototypes to ensure
they function.
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CHINA, THE LIFE SCIENCES LEADER OF 2020 11
The second crucial innovation was the recognition by a savvy group of Chinese-born entrepre-
neurs an earlier generation of sea turtles that specializing solely in the manufacture of
semiconductor chips without design or sales expertise could still generate significant profits.
Their creation of so-called pure play foundries helped create an entirely new industry, just
as a previous generation had assembled motherboards from chips built in America and air-
freighted to Asia.
The rapid breakup of the big chip ecosystem had its catalysts, perhaps none more important
than Morris Chang, a former senior executive with Texas Instruments, who, backed by the Tai-
wanese government, moved back to Taiwan in 1985 and founded the first pure play semicon-
ductor foundry, Taiwan Semiconductor Manufacturing Company (TSMC).
The creation of such reliable foundry firms like TSMC, and its rival United Microelectronics Corp.
(UMC) in turn allowed entrepreneurial chip designers and tool makers to contemplate leaving
large, highly integrated firms and setting up their own specialty design shops, mindful that they
would no longer have to acquire the huge capital and complex technological skills required to
actually fabricate their own chip designs. (When Chang first launched his efforts 25 years ago,
significant high-tech investments were not yet feasible in Mainland China. Today however, the
vast majority of Taiwans high-tech manufacturers have giant facilities in the mainland and mas-
sive investments across the Taiwan Straits have become commonplace.)
The result is that while firms like IBM and Intel still tightly integrate their design and manufactur-ing competences, many other successful firms like Nvidia or Broadcomm are able to specialize
in smaller and more focused segments of the value chain. The biggest firms no longer dominate
system architecture and innovation as they once did, and firms that specialize in designing chips
for specific uses have found new ways to compete and win. Moreover, as the foundries have
grown more proficient and efficient at producing chips, even the largest semiconductor firms
sometimes find it more profitable to hire the foundries to produce the chips they have designed.
An analogous trend may be developing within the life sciences sector. Not only is the life sci-
ences world trying to find ways to use software to develop reliable virtual testing regimes. But
already, key aspects of discovery, clinical testing and trials, manufacturing and marketing are
being carried out by smaller, nimbler partners of the giant life science firms. Indeed, many of
these firms are already locating in China.
For life sciences firms, the question to be considered is: Might history now be repeating itself?
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12 CHINA, THE LIFE SCIENCES LEADER OF 2020
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Massivestateinvestments.New government unding or science parks, academic
researchers and the national health inra
structure is likely to boost opportunities
or collaborative work between academic
and corporate researchers and lure more
Chineseborn, Westerntrained experts
to return.
Newandnimbletechnology. Te accel
erated diusion o technology across
borders, the declining costs or genomicsequencing and other technologies and
the rapid maturation o the outsourced
research model in China mean rela
tively small and tightlyocused rms
will compete with increasing success in
drug discovery. Chinese rms are likely
to be key actors in the emerging value
chain o basic research, clinical tri
als, manuacturing and marketing as
virtual pharma rms begin to growmore inuential.
Learningbydoing.Te rapid outsourc
ing o clinical trials to Chinesebased
clinical research organizations (CROs) is
helping Chinese researchers gain deeper
experience in working with Western
models o drug development and raising
their credibility. Te cheaper and aster
dierentiator that led to the rst boom in
CRO investment is also likely to lead toknowledgebased improvements, as clini
cal centers rapidly move upstream into
more basic research and discovery.
Amagneticentrepreneurialsetting.Large numbers o top Westerneducated
Chinese scientists now see China as an
attractive site to set up entrepreneurial
rms ocusing on drug discovery or pro
cess innovation in areas like largemole
cule production. In addition, a surprising
number o Western scientists now see
research, as well as commercial opportu
nities, exploding across China and signal
a willingness to relocate. Over time, theperception o a very positive research
climate in China could make the nations
discovery engine increasingly selsus
taining, especially as Western drug rms
continue to impose cutbacks and layos
at home.
Deeperandmoreextensivepublic-pri-
vatecollaboration. Improved coopera
tion between government, academic and
commercial researchers within Chinacould lead to imaginative collaborative
models or research and development.
While these trends drive rapid change in
China, we also see other, more exotic and
perhaps more exciting lie science industry
models emerging in the next decades, mod
els that could turn the Westerncentered
model o drug discovery on its head and
create new opportunities or Chinese lie
science proessionals to orge ahead in exciting new ways.
Continued from page 9
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CHINA, THE LIFE SCIENCES LEADER OF 2020 13
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Chinas emergence as a ormidable playerin lie sciences within the next decade
will have broad implications or the lie
sciences industry.
The Global Implications ofChinas Emergence
Te corporate response to Chinas
determination to become a leader in lie
science innovation will demand ocused
thinking, imaginative responses and
calculated investment, especially rom
multinational incumbents. Ater all, in
nearly every other industry in which it
has staked a claim - rom textiles to con
sumer electronics and automotive compo
nents - China has dramatically restruc
tured the global competitive landscape,
redening markets and undamentally
recasting the list o winners and losers.
Te challenge will be especially acute in
the lie sciences eld, where investment
time horizons can be long and placing
the right bets essential, especially in an
era in which the returns rom legacy
investments are switly eroding as patents
expire. Strategic choices made in lie sci
ences today hold the potential to reduce
risk in critical investment decisions, while
potentially generating signicant uture
returns. Without a clear and wellconsidered strategy, moreover, rms risk los
ing access to capabilities and potentially
dramatic industrychanging opportunities
today that may only be obtainable in the
uture at much higher prices - i they areavailable at all.
Global multinationals tend to relegate
China to a larger basket o emerging
pharmaceutical markets, which oten
include nations like Brazil, India, Rus
sia, Mexico, urkey and Indonesia, where
growth projections stir the imagination.
Not all emerging markets are the same,
however. China obviously alls into a class
o its own as the size o its pharmaceuticalmarket surpasses Japans to become the
worlds second largest. But in addition,
the research and discovery opportunities
as well as the entrepreneurial environ
ment rapidly developing within China
will demand separate, and, we believe,
special consideration. Whether the
choices are about inlicensing or invest
ment, partnering opportunities or uture
research portolios, internal alignment onChinaspecic goals and implementation
strategies will be critical to help navigate
new and uncharted waters.
A Dual Crisis Demands aSearch for New Models
Chinas likely emergence as a signicant
new orce in drug discovery and develop
ment comes at a time when two emerging
crises are virtually certain to create newand innovative responses. Te rst is a cri
sis in the lie sciences sector. Te second is
the crisis China itsel conronts.
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14 CHINA, THE LIFE SCIENCES LEADER OF 2020
monitorTe predicaments acing the lie sciences
sector seem readily apparent. In 2010,
the industry is not delivering signicantmedical breakthroughs at either the price
or the pace desired by payers. Te public
at large is increasingly dissatised with the
perormance and credibility o the phar
maceutical industry, and investors view the
industry as oering unattractive returns
and unsustainable levels o risk.
A ull decade ater the complete decoding
o the genomic sequence, the promise o a
new, protable biotech model has not yetmaterialized while commercializing a pipe
line o promising new drugs has become less
predictable. Despite billions in investments,
there has only been a slight improvement
in the odds that a sick patient can beat back
cancer while there is a growing backlash
against the high costs o drugs and medi
cal care. Te cost o moving a new molecule
rom the lab bench to a patients nightstand
has skyrocketed, while ailure rates o even
latestage trials are exceedingly high. Never
has drug development been seen as so costly
or so risky. And rising incidence o recalls
and ailed clinical trials have hardened
public sentiment against major segments
o the industry and undermined investor
condence.
While discovery has grown more costly,
revenues are under siege. As patents or
important drugs expire, governments across
the globe are determined to rein in the
annual growth o their health care expen
ditures, especially the cost o medications,
as populations age and lie expectancies
continue to increase.
China, meanwhile, has its own health care
upheavals to manage. Te government is
increasingly committed to nding ways todeliver a real saety net o medical care and
treatment to its 1.4 billion people at prices
that a developing nation might aord.
While most multinational rms have
ocused on the immediate implications o
this or their local business - like winning
inclusion on provincial reimbursed drug
lists, or nding more eective methods to
interact with physicians - the true impact
is potentially ar more proound. Chinas
rising needs and lie science ambitions will
likely trigger more determined eorts to
cut development costs and reduce retail
prices on even the most advanced treat
ments and medications.
Just on its own, the very size and acceler
ating growth now being observed within
Chinas domestic pharmaceutical industry
would be enough to drive major invest
ments in drug discovery by domestic as
well as oreign players. By 2015, China
is expected to overtake Japan to become
the worlds second largest drug market
ater the United States. In 2009, Chinese
consumers spent an estimated $23.8 billion
on pharmaceuticals while the domestic
market grew at a compound annual rate o
more than 20 percent. By 2011 its phar
maceutical market is projected to generate
revenues o $50 billion according to IMS
Health, and by 2025, it could be almost 10times higher, approaching $340 billion in
annual sales by some estimates. Tat sug
gests Chinas annual expenditures on drugs
would grow to become ourths the size
o Americas.
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CHINA, THE LIFE SCIENCES LEADER OF 2020 15
monitorAnd as it starts to assume a ar greater role
in helping to meet the health needs o its
1.4 billion people- 1.3 billion o whomalready have some orm o health care
coverage - Chinas government is poised
to spend vastly more on drugs, devices
and acilities to bring its health standards
closer in line with global norms. A rst cut
at massive health care reorm will lead to
US $124 billion o investment within the
next three years. (See China Healthcare
Reorm Goals below.)
Yet Chinas government also recognizes itcannot simply mimic a Western, private
sector approach that permits skyrocketing
health care costs to bankrupt its system.
It is hardly clear that China will be able -
or willing - to assume growing nancial
burdens without slowing the cost curve ohealth care. For unlike the United States,
China is getting older and less healthy
even aster than it is accumulating wealth.
While the diseases o afuence like dia
betes, hypertension and cancer every day
become more commonplace across the
nation, the consequences o the nations
onechild policy are coming home to roost
in the nations rapid aging. At the end o
2009, China had an estimated 180 million
people over the age o 60, according to
the China Population and Development
Research Center, but that gure will rise
Achieve Universal Healthcare
US $124 billion investment over the next 3 years
Improve accessibility and equality of healthcare to entire population:Public health insurance to cover 90% of population by 2011, and
universal coverage by 2020
High co-pay requirements
Improve public healthcare provider system
Build 5,000 township clinics and 2,000 county hospitals for rural
markets to establish true Primary Care in China
Establish 2,400 Community Healthcare Centers (CHC) in urban areas
Enforce hospitals public service roles and eliminate profit drive
Focus on basic needs
Manage healthcare cost
Establish Essential Drug List with government-set price
Enforce public tendering process
Encourage generics and phase out MNC price premiums
Encourage pharma industry consolidation in both manufacturing
and distribution
China Healthcare Reform Goals
1
2
3
Source: Ministry of Health
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16 CHINA, THE LIFE SCIENCES LEADER OF 2020
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to more than 400 million by 2050 - and
that cohort will represent a ull quarter o
the nations population.
Mindul o these pressures, Chinas
central government is likely to do more
than simply monitor and closely regulate
its spending on existing medicines and
therapies, as it osters manuacturing o
lowcost, massproduced generics in order
to drive down costs. It is likely to push
aggressively or innovative breakthroughs
that can prevent diseases, while seekingremedies that can limit longterm gov
ernment expenditures on serious illnesses.
Tis element o the innovation
agenda - nding advanced and eective
treatments that can be sold at developing
world prices - is clearly on the minds o
Chinas leaders.
For Chinese Scientists,
a Historic OpportunityLong beore the nancial squeeze began
to orce giant multinational drug rms
to contemplate laying o their research
scientists and scaling back Research &
Development labs, young Chineseborn
scientists had already become integral
players in the abric o global bioscience.
oday, tens o thousands already work in
leading Western rms.
Yet while global pharmaceutical giants see
a landscape ridden with challenges and
dangerous landmines, many Chinese see a
new market brimming with opportunities
and are poised to press ahead. Schooled in
Western research and business practices,
these scientists and entrepreneurs already
discern a conuence o orces likely to
accelerate the breakdown o large phar
maceutical rms. In this moment o crisis,
they believe China can play a central
role in undermining and reorienting the
current system to the ultimate benet o
global health, their homeland, and them
selves. Te orces they perceive accelerat
ing the deintegration o large pharma
and challenging the existing Western
model o drug discovery include:
An explosion in the number o new
biological targets and drug leads based
on the rising importance o genom
ics, combinatorial chemistry and high
throughput screening.
Te increasing ability o small, ocused
startup rms to compete with relative
eciency against ar larger incumbents
in elds ranging rom drug discovery
to vaccine production.Rising costs associated with getting a
new drug approved in the West.
Rapid deployment and acceptance
o connective technologies like the
Internet to speed the diusion o
scientic knowledge across rms and
national boundaries.
A quantum leap in the role o
bioinormatics.
Te evolving political and economic
environment within China itsel.
One result o this conuence o demo
graphic, scientic and political realities is
that, having seen the opportunities being
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CHINA, THE LIFE SCIENCES LEADER OF 2020 17
monitor
created in the lie science industry, China
is rapidly amassing a critical mass o
worldclass lie sciences talent. Monitor
estimates that:
At least 80,000 Westerntrained
PhDs in the lie sciences have already
returned to China to work in the
industry or in academic institutes. Te
pace o repatriation o these highly
skilled scientists is likely to accelerate
over the coming decade.
China today has the highest numbero recipients o U.S. doctorate degrees
awarded in the biological sciences
among all Asian nations. In 2007
alone, some 4,500 Chinese students
received PhDs in lie sciences rom
Western universities.
In 2010, we estimate that China
will have graduated more masters
and Ph.D. students in the biological
sciences than the United States. Te
number o undergraduates studying in
the lie sciences surpassed U.S. levels
some ve years ago.
A Monitor survey o Chinese lie
science proessionals now working
in the United States nds that ully
twothirds contemplate either return
ing to China or good or becoming
sea turtles: lie science proession
als who constantly circulate betweenChina and the U.S. in pursuit o
commercial and research opportu
nities. (See chart below) Such sea
turtles and the hybrid rms they
create will become important driv
ers o Chinas uture as a lie science
innovator. (See sidebar: A Lie Sci
ences Entrepreneur Leverages Chinas
Emerging Potential, page 18).
When you think about your own professional future, do you think:
I expect to stay and work in the US for the long term
I expect to relocate and seek work in China
I expect to split my time between US and China
I expect to work in another Asian countryI expect to work outside of both the US and Asia
I already live in China
Source: Chinese-American BioPharm Society
N=66
SEA TURTLES PATH: AMONG CHINESE SCIENTISTS,
MANY LOOKING TO SPLIT TIME BETWEEN U.S. AND CHINA
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18 CHINA, THE LIFE SCIENCES LEADER OF 2020
A Life Science EntrepreneurLeverages Chinas Emerging Potential
If you want to envision how a focused, entrepreneurial and relatively nimble drug discovery
model of the future is likely to emerge from China, meet SOFIE QIAO. Shes already built such
a model oncethen sold off its first, promising molecules to a larger California-based firm for
what could turn out to be a handsome return. Now she intends to try it again, with more ambi-
tious discovery goals.
Not only does Qiao personify the rapid diffusion of technical expertise that will allow China to
compete aggressively in life science innovation with the United States in a decade or sooner. She
has already proven that harnessing Chinas growing technical talents can radically drive down costsand time-to-trial in drug discovery. A decade from now, important life science innovation is likely
to materialize from companies that represent a hybrid of both Chinese and American-educated
talents able to leverage the core capabilities of both nations to create new, blockbuster molecules.
LEAD Therapeutics, her startup discovery shop founded in 2006 and funded in 2007, employed
only eight people in the United States, along with another 30 in Shanghai on a contract basis. Yet
it was able to generate promising results for LT-673 (a PARP inhibitor designed to fight cancer) as
well as a glyco-peptide that could be used as an antibiotic to fight vancomycin-resistant pathogens.
LEAD was sold in February of 2010 to BioMarin Pharmaceuticals Inc. of Novato, Calif., for $18 mil-
lion in cash and up to $79 million in follow-on milestone payouts as the cancer drug passes through
a series of clinical and regulatory hurdles.
In less than three years investors got their money back, with a potential for attractive returns
down the road, says Charles Hsu, a partner in Bay City Capital, a venture firm which was an initial
investor in LEAD. Had we held on for another three or four years, I think we could have done a lot
better, but some of our partners simply wanted to cash out. What Qiao did, Hsu says, was go one
step beyond the traditional clinical research organization (CRO) by using Chinese researchers to
do discovery through virtual outsourcing.
We didnt intend to do big innovation by taking big risks, Qiao explains. Instead, we wanted to
succeed by taking less risk, by leveraging the emerging potential of China, where life sciences lab
work can be done at a fraction of the cost in the U.S. or Europe. We intended to be low-cost from
day one.
Born in Beijing in 1971, Qiao received her undergraduate degree in chemistry from Harvard where
she transferred after two years at Peking University, earned a PhD in organic chemistry from MIT,
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CHINA, THE LIFE SCIENCES LEADER OF 2020 19
did medicinal chemistry research at Genzyme, spent a year as a consultant at McKinsey &
Company, and worked for two life sciences firms before deciding to start her own.
Her discovery baby, as Qiao calls LEAD Therapeutics, was deliberately designed to be a fast
follower, not an aggressive bleeding edge life science innovator. From day one, her strategy
was to find promising drug targets for which significant research data already existed, and gen-
erate best-in-class molecules. We were looking for targets that we knew were pretty good, but
for which we knew there were clearly some defects, she says, referring to the PARP inhibitor.
We figured if we understood what those defects were, and a possible better direction to headin, then we could make some good progress, she says. She unleashed a large team of research-
ers at ChemPartners, a contract research organization in Shanghai, to conduct most of the dis-
covery and preclinical work. LEAD essentially took over a dedicated area of the ChemPartners
facility and dispatched one of its key staffers to Shanghai to oversee the discovery work.
Even LEAD, the name she chose for the firm, underscores Qiaos strategic focus: Leverage the
best of U.S. and China; Eliminate high costs and high risks by conducting R&D activities in
China on validated targets; Anticipate changes in China and global drug discovery by being at
the right place at the right time and delivering high-quality, early-stage drug candidates; and
Deliver high-quality results. Using researchers in China allowed us to reduce risk by taking on
multiple programs and reduce the cost for each program. Otherwise, this model wouldnt make
sense, Qiao says.
Her companys work on the glycol-peptides came about because one of the scientists she
recruited to her team, Daniel Chu, had spent more than 20 years at Abbott Labs, had expertise
in antibacterial research and is one of the worlds best in the field, Qiao explains. Personally,
I dont like the idea of licensing a potential drug target and then recruiting a team to work on it.
I prefer to hire a great team and see where the research leads us.
At the moment, most of LEADs scientific staff has gone to work for BioMarin, the acquiring
company. Qiao, however, is doubling down on Chinas potential in life science drug discovery.
She is now working as a consultant with Li Chen, the former head of the Roche R&D Center in
China, to find appropriate small molecule program targets for a truly China-based pharma-
ceutical firm. Hua Medicine, Chens new startup, is now being established in Shanghai withventure capital funds from China and the U.S.
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20 CHINA, THE LIFE SCIENCES LEADER OF 2020
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Tese numbers alone oer dramatic evidence o the potential or major advances
by Chinese nationals. Yet oreign analysts
and business leaders sometimes ail to
truly appreciate not only how quickly
change is taking place across China.
Tey oten underestimate how economic
changes and the technological transor
mations o the past 20 years have dramat
ically altered the trajectory o opportuni
ties or its young people.odays 27yearold Chineseborn PhD
biochemist was only six years old when
the iananmen crisis o 1989 unolded.
Many o his mentors and lab instructors
may well have been street protestors. His
parents, in turn, saw their lives upended
by the Cultural Revolution o the 1960s.
Te ability to travel outside o China to
study at a university or research organiza
tion only became a concrete reality in theve years beore he was born - and then
or just a literal handul o Chinas best
and brightest.
But this generation has also experienced
the unprecedented opening up o a
statecontrolled system to investments in
technology, manuacturing industries and
new trade practices imported rom the
West. Tey have witnessed the emergence
o Shenzhen, Shanghai and Guangdong
as thriving centers o commerce to rivalMunich or Chicago, crammed with
highrises and actories that create the
nations enormous trade surplus. Tis is
the rst generation to grow up in a uni
verse o unparalleled economic growth
and opportunity.
No longer beneciaries o an iron rice
bowl, where jobs, housing and other
aspects o daily lie were rationed and
distributed by the state, young Chinesesee their nation rapidly emerging rom
years o isolation and underperormance.
Tough hundreds o millions remain poor,
tens o millions are becoming million
aires. Entrepreneurship and risktaking,
long central eatures o the Chinese char
acter, are once again being encouraged
and rewarded. As they see their nation
once again become a central player on the
globes economic stage, young Chinesehave also learned to appreciate the power
o engineering, math, science and tech
nology, rather than political advocacy or
social works, as instruments that can help
build their nation, while keeping them ar
removed rom the political vagaries that
entrapped parents and grandparents.
While the ow o Chinese students seek
ing advanced graduate degrees outside
China has accelerated, more telling is
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CHINA, THE LIFE SCIENCES LEADER OF 2020 21
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the emerging brain gain, as Chinesewho have obtained important training
and experience abroad now see vast new
opportunities available by returning to
China. Chinese lie scientists who return
to their home country speak awless
English and have oten published impor
tant research papers in top peerreviewed
journals and have worked in multinational
pharmaceutical rms or leading research
based universities or a number o years.Tese topight proessionals hold the
vast majority o inuential research
positions at the nations top academic
and research institutions, or are orm
ing entrepreneurial rms in the nations
new lie science parks. Tey are intent
on upgrading the quality o teaching
standards, even as they are committed to
building worldclass labs to discover and
develop new kinds o drugs. (See One o
a Tousand alents Returns to Beijing,
on page 28.)
As the diusion o technological data
and research knowledge quickly spreads,
allowing China to develop its own drug
development agenda, the rise o Internet
based communication has also acceler
ated the Chinese rampup. Chinese were
quintessential social networkers, long
beore the term was invented. Yet the rise
o social networking sotware, especially
the businessocused social network cre
ated by LinkedIn, has rapidly leveraged
the tendencies o Chinese scientists andentrepreneurs rom across the world to
be in constant communication. Trough
LinkedIn, a vast network o senior Chi
nese working in academic institutions as
well as commercial research labs can scout
or jobs and discuss new technologies.
An industry networking group known as
BayHelix, comprised o senior Chinese
heritage executives in the pharmaceuti
cal sector, serves as an inormal advisorto key Chinese ministries, including
the Ministry o Science and echnol
ogy which choose which talents to lure
back to China as well as the SFDA,
which monitors drug trials and regulatory
approvals or new medicines and vaccines.
Tough BayHelix rst started in the San
Francisco Bay Area, the vast majority
o its key leaders have already returned
to China, joining a growing pool o sea
turtles who bring their Western expertise
and work experience with them.
In addition, groups o Chineseborn
employees o pharmaceutical research
rms and universities on both the West
and East coasts o the U.S. meet regularly
to network and discuss industry devel
opments. Hightech parks rom cities
like Beijing and Suzhou regularly invite
these researchers to banquet dinners and
conerences in a continuing eort to lure
topight talents to return back to the
mother country.
Continued on page 26
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22 CHINA, THE LIFE SCIENCES LEADER OF 2020
There is more than one way to imagine Chinas future
as a bioscience innovator, of course. Based on the
incremental, yet accelerating changes already visible
on the ground, here is a plausible view of what Chinas
discovery engine could look like.
1. Wild Flowers Bloom: 20092012China today is already embracing its first phase of building out the infrastruc-
ture necessary to sustain a serious commitment to life science innovation and
drug discovery over the next decade. The accelerating repatriation of sea turtles,
induced to return home thanks to both hard and soft incentives; growing seed
money funds accumulated by ambitious venture capitalists for early-stage life sci-
ence investment; and incentives for early-stage life science firms to set up research
operations in China can be seen as kick-starting the nations focus on drug develop-
ment. The maturing infrastructure for globally important life sciences discovery only
accelerates the pace and ambitions.
At the same time, the introduction of national health care reforms will continue to drive
commercial expansion of both domestic and international firms. The construction of
thousands of new hospitals and medical clinics will create enormous opportunities for
suppliers. The intention to create a single-payer government health coverage system,
and the potential creation of health care identity cards for citizens, will drive new invest-
ment in medical informatics, IT and systems integration. Foreign multinationals are likely
to continue investing in Chinese operations, even if they are mainly intended to serve the
domestic Chinese market rather than for global discovery projects.
The need by foreign firms to use China as a lower-cost center of testing and clinical trials,
moreover, will continue to drive investment and expansion by clinical research organizations,
while leading Chinese universities will continue to invest in deepening their capabilities to
perform independent research into globally vital areas of medical research. With the enormous
investment of BGI in top-shelf gene sequencing equipment, China could well become the sequencer
of choice for researchers around the world. As a result, its scale efficiencies could rapidly drive down
the cost curve of genomic analysis and make China a center for certain forms of genomic innovation.
Could China
Fundamentally Disruptthe Global Industry?
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CHINA, THE LIFE SCIENCES LEADER OF 2020 23
2. Planting the Garden: 20122015Buoyed by the promise of an estimated $100 billion in the nations 12th Five Year Plan (201115) for drug
discovery and development, the Chinese Academy of Sciences, works with the key Ministries of Health andScience & Technology to establish a dense network of researchers from universities as well as private labs to
focus on high priority diseases. A new biologic incubator in Shanghai begins connecting top Western and
Chinese researchers to focus on early-stage discovery. As China begins to roll out a standardized disease
reporting system across the nations major hospitals and health identification cards for its 1.4 billion people,
the Health Ministry also begins nearly real time tracking of disease clusters. The rapid collection of this
robust database helps researchers uncover potential biomarker patterns in the genomic structure of
disease sufferers and pinpoint theoretical treatment options.
Within a year of the creation of this new collaboration, the principals in the Silver Security initia-
tivea name chosen to reflect the rapid aging of Chinas societyannounces the renewed focus
of its 28 research teams. Because of the nations rapidly aging citizenry, the principals determine
that these teams will focus their initial investments on initiatives to prevent, or find cures for,diabetes and Hepatitis C as well as liver, stomach and lung cancers. These are becoming major
causes of disease and death in a nation whose diet now includes more protein and whose efforts
to limit industrial pollution and generation of greenhouses gases has only slowed the growth of
these noxious compounds, not reduced in absolute terms their production.
Even as compelling, however, the Chinese hint that they have developed a new system of coop-
erative research, in which the giant databases they are amassing from clinics and new hos-
pitals around the country are leading to groundbreaking insights into new disease pathways
and new targets for pre-clinical testing. This deep investment in database collection as well
as robust, often weekly, interactions between specialists in the field treating these diseases
and researchers in the labs, yields major new insight into target optimization and validation.
When government officials originally announced their plans to build nearly 4,000 new hos-
pitals, they did not really focus on the potential that the data collection and virtual confer-
encing technologies they built into each facility would have in accelerating the pace of drug
development. But these investments, as well as state-of-the-art data mining computers,
are quickly wielding impressive dividends. The initial research is going so well, in fact, that
the Health Ministry and SFDA agree to double to six the number of clinical testing hospi-
tals they construct across the country. This ensures that whatever new chemical entities
or large molecule therapies emerge from the Silver Security program are immediately put
into trials with willing patients.
The Silver Security program also offers the government another, globally significant
political trump card. As Western nations continue to battle against the scourge ofdeflation, and Chinas economy continues to produce more of the worlds manufactured
goods, Chinas investment in its domestic medical safety net is being trumpeted by
Chinese at G-20 meetings and other international conferences to symbolize how China
is spending billions of its own funds in order to boost domestic consumption. Whatever
reassurance the state can offer its citizens about the health of their later years, the For-
eign Ministry argues, gives Chinese consumers the liberty to spend more now on foreign
imports without fear for their futures.
CHINA, THE LIFE SCIENCES LEADER OF 2020 23
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24 CHINA, THE LIFE SCIENCES LEADER OF 2020
3. Cultivating the Seedlings: 20152020By now, the Silver Security program is beginning to yield its first
attractive therapies.
An innovative new biologic that eliminates the risk of acquiring throat cancer for
90 percent of the Chinese population is deemed ready for large-scale trials. The quick
progress in creating this vaccine was aided by a new form of genomic sequencing
developed in China by BGI, now the worlds most pre-eminent genomic sequencer. This
sophisticated sequencing directly aided researchers find the genetic target for a treat-
ment thought to permanently disengage a protein that is believed to trigger the onset
of the disease. Another innovative new biological therapy, which seems to prevent the
formation of the proteins that leads to Alzheimers, performs surprisingly well in its first
clinical trials.
Suddenly, faced with a slew of potential commercial opportunities that could pour forth
from its own domestic labs, Chinese regulators rapidly work to reinvent the clinicaltesting process in order to make it more efficient and globally accepted. The result-
ing testing procedures announced by the Sino FDA enables the fast track testing of
Chinese-formulated compounds. Essentially, the new process dramatically abbreviates
the Phase I and Phase II trials used in the West and hugely expands the pool of subjects
used in Phase III trials. In some cases, moreover, the SFDA decides that if the initial Phase
I trials resolve toxicity issues, it will permit trial launch of certain experimental com-
pounds because it has created its own virtual, computer-based testing regimen that
simulates the effects of putting a specific new compound in the human body, much as
aerospace manufacturers test an airplanes performance on a computer simulator before
they ever build it. Scientists in England and the United States are also working to perfect
such a simulate and test model, but the Chinese insist they have lapped the competition
and are eager to fast-track drug approvals to help benefit mankind.
To minimize the reaction of foreign human rights groups, however, the SFDA also invites
international hospital monitors to visit China to guarantee that patients desperate to try an
innovative compound are properly informed of the risks before proceeding. Since the drug
treatments are free, Chinese researchers have little difficulty recruiting 5,000 patients for its
initial test of another drug just coming out of the labs, a small molecule compound researcher
believe can conquer some forms of stomach cancer.
In 2018, when the stomach cancer drug proves to be both safe and efficacious, a slew of licensing
executives from multinational pharmaceutical giants descend on China, hoping to win the rights to
sell the medicine, Yulizhen, globally. The auction is held under the auspices of the Chinese govern-
ment, which will gain a significant piece of the proceeds.
Winning the rights to test and potentially market this new blockbuster drug doesnt necessarily give
Western firms the right to sell Yulizhen, however. They still must complete three or four years of testing in
their home country, because the U.S. and many European regulators wont yet accept the SFDA data as suf-
ficient for local registration. Because of this gap, thousands of stomach cancer patients begin to fly to China
in search of treatment, while others go to Thailand and India, whose governments have accepted the SFDA
findings as sufficient to market the drugs in their own countries.
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CHINA, THE LIFE SCIENCES LEADER OF 2020 25
4. Steady Harvest 20202025Yulizhen is now the poster child of Chinas evolving success in drug discovery, with Alasapt, the anti-
Alzheimers therapy, gaining new converts. The international royalty fees these two drugs generate,
estimated to be about US $3.5 billion each year, help the Chinese government create more researchcenters while guaranteeing ordinary Chinese citizens that the costs of their medications will never
grow out of control.
Moreover, the Chinese model of collaboration and integration, which unites the rigors of basic scientific
research with the development of druggable targets for commercialization, is becoming a model for
success in creating a new pipeline of breakthrough therapies. Success yields more success. Increas-
ingly Chinese graduate students go abroad for study with the explicit understanding that they will
return to the motherland in four or five years, with lab positions awaiting them. Foreign venture
capitalists, as well as veterans within Chinas booming pharmaceutical sector, are eager to put
funds into pools of investment centered not on company-specific initiatives, but on disease-
specific research, where targets for lead optimization have already been identified and pre-
screened. Others are making investments in developing new information technology tools tomanage the enormous database of disease clusters and genomic data Chinas 38,000 fully
electronic hospitals develop every month.
Things look promising on the manufacturing side as well. As Chinas drug manufacturers
gain new expertise in process innovation, especially in the complex realm of large molecule
therapeutics, their growing dominance leads them to acquire rivals in Europe and North
America and to begin charting global expansion programs. Chinese drug manufacturers
have become so important in the American market that they now hold a prominent seat
at the table in U.S. FDA meetings on improving drug manufacturing, since they have long
proven their ability to create top-quality biologics.
The innovative capacity of China has now become so crucial that large drug market-ers from Europe and the United States seek alliances with local Chinese counterparts.
After all, Chinese firms now sell potential blockbuster drugs two or three years before
they are available in Western markets. Meanwhile, the Chinese consumer is able to
find a rich assortment of treatment options at fixed, affordable prices. Western firms,
however, still need to wrestle with marketing considerations, since health care reform
in the United States has only slightly curtailed the rising prices of new drugs and many
U.S. consumers are forced to make the uncomfortable choice between legacy generic
compounds that are cheap, and exotic Chinese drugs that doctors say are safe and
effective, yet cost 10 times as much. Much as Japanese automakers stole a march on
their American competitors in the late 1970s, U.S. multinational pharmaceutical firms
now acknowledge that they never saw what was coming.
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26 CHINA, THE LIFE SCIENCES LEADER OF 2020
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Online linkages among Chinese scientists and networking groups like BayHelix
are ar more relevant and inuential now
that the central government is bringing
its active support and strategic ocus, as
well as signicant investments by impor
tant regional players, to guide Chinas
rising ambitions in lie sciences.
The Central Role
of Chinas GovernmentAs Chinese wages continue to rise, its
supply o cheap labor begins to reach
its limits and the value o Chinas cur
rency gains strength against the U.S.
dollar and Euro, Chinas leadership is
also staking its uture on developing an
innovative society where science and
engineering investments lead to techno
logical breakthroughs and the creation
o highpaying jobs.As Premier Wen Jiabao himsel said
in December 2007, as he urged aster
progress on developing homegrown
innovation, In todays world, science and
technology is the ultimate deciding actor
o a nations overall competitiveness, with
indigenous innovation acting as the bones
to support the rise o a nation. Earlier
this year, to add explicit emphasis to his
earlier comments, Wen told delegatesto the China Development Forum,
Our hope or the uture o the Chinese
economy relies on scientic and techno
logical progress, especially the new andhigh technologies including biotechnol
ogy and lie sciences. Tere is no bound
ary to the development o biotechnology
and lie sciences, which are closely linked
with human survival and indispensable
to peoples daily lie. China has a large
population, and biotechnology and lie
sciences enjoy great development and
market potential here. China is willing to
strengthen cooperation with companiesall over world which have advanced tech
nologies. Te Chinese government will
create opportunities or you and (we) ask
you not to squander those opportunities.
THE SARS EPIDEMIC
THAT DAMAGED
CHINAS REPUTATION
ALSO GENERATED THE
DOMESTIC POLITICAL
WILL REQUIRED
TO DEVOTE THE
RESOURCES NEEDED TO
BEGIN CHANGING THE
COUNTRYS HEALTH
CARE SYSTEM.
Chinas ocused determination to develop
a globally competitive industry within
lie sciences can be directly dated to
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CHINA, THE LIFE SCIENCES LEADER OF 2020 27
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April 2003, as the nation was seized witha crisis o credibility over SARS, or Sud
den Acute Respiratory Syndrome. When
reports o this mysterious and highly
contagious virus rst were reported in
November o the previous year, Beijing
at rst tried to downplay the serious
ness o the outbreak, even though it most
likely originated in southern Guangdong
Province. In an age o jet travel and
porous borders, the plague quickly spreadrom China across the globe, killing more
than 800 patients and making more than
8,000 seriously ill. Chinas ocial denials,
however, did not keep other nations rom
imposing quarantines on Chinese visitors,
and soon tourism, international air travel
and other orms o commerce were on
the verge o collapse. White gauze masks
covering the nose and mouth became
commonplace in the streets o Hong
Kong and Shenzhen. Ocials began to
ear enormous economic consequences or
Chinas export sector, the key to domestic
job growth and political stability.
Tat ateul April, however, the central
government made a sudden and dramatic
aboutace. It red its Health Minister as
well as the mayor o Beijing as it closed
schools across the country to limit the
diseases spread, and pledged to make
greater transparency a central tenet ohealth reorm. Te health and security o
the people, overall state o reorm, devel
opment and stability, and Chinas national
interest and international image are at
stake Premier Wen said.
Te SARS epidemic, played out in the
glare o the international press, served as
a national wakeup call. It highlighted
the ragile nature o Chinas public health
inrastructure and the growing inequality within the country. For despite its
socialist legacy and Communist rhetoric,
Chinas market Leninist system oered
its citizens a rather imsy saety net o
social services, including health care, even
as tens o millions grew wealthy. Te
public discontent and political damage
to Chinas reputation also generated the
domestic political will required to devote
the resources needed to begin changingthe system. Conronted with the act that
its health care system was inadequate or
a new century, the central government in
2009, ater three years o study, ormally
adopted an ambitious and costly national
health care reorm plan designed to intro
duce universal, sae, aordable and eec
tive basic healthcare by 2020, and lessen
the gap between rich and poor.
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28 CHINA, THE LIFE SCIENCES LEADER OF 2020
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One of a Thousand TalentsReturns to Beijing
The distance from the Ivy League halls of Princeton University to Beijings Haidian district is not as
far as you might think. Just ask YIGONG SHI, a world-class structural biologist who now runs the
life sciences program at Tsinghua University.
My goal is to perform cutting-edge research in China, to cultivate many brilliant young scientists,
and to help improve the research culture in China, says Shi, who is determined to create a top-flight research and discovery lab at one of Chinas most prestigious technical universities, often
referred to as the MIT of China. The ambition is evident at the entrance to his modern new bio-
science lab, which displays the cover pages of seven research papers produced and published in
Nature, Cell and similarly prestigious Western journals since his return two years ago.
I would like to build one of the best centers for research into structural biology in the entire world,
says Shi, 43. To be truly successful you cant just limit yourself to your lab or center. You will need
a healthy research culture and a sustainable research system. I hope to contribute to improving the
research culture in China.
Shis track record reflects his extraordinary talents and his drive to succeed.
After a decade at Princeton, he held an endowed professorship of molecular biology, supervising
14 post-docs and a $2 million annual research budget from the U.S. National Institutes of Health.
Yet he gave it all up in 2008 to return to China and his alma mater, to help build an innovation
engine for Chinas rising biotechnology ambitions.
I think Princeton was shocked when I offered my resignation, Shi says. But he felt pulled by the
opportunity to help create a leading center for biological research in his native China. He was also
convinced that, after three decades of opening up to the outside world, China now commanded
sufficient hardware, infrastructure and home-grown talent to make significant biological discovery
a viable pursuit.
It didnt hurt that the Chinese central government, acting as a recruiting head hunter, has targeted
top-flight overseas-educated Chinese scientists like him with hundreds of thousands of dollarsworth of incentives to come home. The Chinese Academy of Sciences also promises to allocate at
least 10 million yuan (about $1.5 million) to every talented scientist who agrees to return.
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CHINA, THE LIFE SCIENCES LEADER OF 2020 29
Shi and his sometimes research collaborator, Xiaodong Wang of the University of Texas South-
western Medical Center in Dallas, are two of the nations most prominent recruits to its new
Thousand Talents program, a program initiated in 2008 that aims to lure 2,000 top scientists
and entrepreneurs back to China over the next five to 10 years. These high-end talents are a cru-
cial resource that the country is short of, says Li Yuanchao, the powerful member of the Political
Bureau of the Central Committee of the Communist Party.
Recruits like Shi are known as hai gui or sea turtles because after years of wandering offshore
to study and work in the U.S. or Europe, they return home. Top stars like him are being offeredfunds to relocate and additional grants to help them staff their research labs. Shi and Wang, who
together focused significant amounts of their joint research on apoptosis, or programmed cell
death, are also putting new emphasis into research into Alzheimers disease and anti-cancer
treatments. While Shi says he is primarily research-focused at the moment, Wang is in advanced
talks with Western biotech venture capitalists and intends to launch his own China-based
biotech company, Beigene, in late 2010 to focus on oncology. Wang has already been part of one
biotech firm which sold a promising anti-cancer compound to Genentech.
Shi acknowledges that he must challenge traditional teaching methods on a Chinese campus
where students are seldom encouraged to think outside the box, take risks or accept failure as
an important benchmark on a road to potential successto help stimulate innovative thinking.
The educational culture here may be the biggest challenge, he says.
Yet he also argues that he has better interaction with the students here than he did while at
Princeton, and says that overall his Tsinghua students work harder and are more cooperative.
In the end, I think I can go further with my students hereand they will work harder than their
American counterparts, he says.
He also says that as an Asian scientist working in America, he felt the presence of a glass ceil-
ing that kept him and many other prominent Chinese life scientists away from the decision-
making bodies. Better to be the head of a chicken than the tail of a phoenix, he says, invoking a
famous Chinese proverb, a sentiment voiced by many other returnees.
Does he have much doubt China will become an important life science innovator in a decades
time? None at all. Listen, I came back to China to go beyond what I could do at Princeton.
With the university planning to hire hundreds of faculty and build the research infrastruc-
ture at Tsinghua needed to support them, Shis optimism carries considerable weight.
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The Health MinisterSpeaks for InnovationThe face of health care reform in China today is neither a party apparatchik nor a life-long govern-
ment bureaucrat, but a French-trained scientist without any Communist Party affiliationstill a
rarity in the upper reaches of the Chinese government.
CHEN ZHU, 57, the son of two Shanghai doctors, was dispatched to a dirt-poor village in Jiangxi
province as a teenager during the Cultural Revolution, yet taught himself enough medicine to
become a barefoot doctor. An expert in hematology and gene cloning who received his graduate
degree from the Hospital Saint-Louis in Paris, he was appointed Minister of Health in 2007 and
has made improving access to care and upgrading the nations medical infrastructure major priori-ties under the slogan of health care for all.
A fluent speaker of English, Chen recognizes that reorganizing the nations system of hospitals,
providing essential drugs to a relatively impoverished population, improving the training of medi-
cal staffs and creating a priority list of diseases to conquer pose daunting challenges in creating a
cost-effective health care delivery system.
Yet he also recognizes that innovation in China has been hampered by a weak foundation of
technical research and insufficient funding for research. Very often there is insufficient bench-to-
bedside translation, or separation of research from technological innovation, Chen told a Global
Health Forum conference in February 2010. We need to pay much more attention to the innova-
tion of enterprises. They should be the major players in (creating) technological innovation.
Buoyed by the revenues rom its enor
mous trade surplus, China has already
decided to unleash US $124 billion in
spending rom 200912 to begin to
address the nations major health careshortcoming. It has already begun to
oer medical insurance to 1.3 billion
people as it moves to equalize the dis
parities between rural and urban areas.
A Latecomers Advantage
Because Chinas leaders are now commit
ted to implementing major health care
reorm, the nations surging economicgrowth opens oodgates o additional
government unding. Nor is the nation
burdened with a vast network o outdated
legacy systems that need to be rewired
or the 21st century. As a result, strategic
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CHINA, THE LIFE SCIENCES LEADER OF 2020 31
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government spending will also accelerate the nations ability to become inno
vators in health care delivery. Chinese
ocials already contemplate the creation
o a system o clinical research hospitals
across the nation, modeled ater the U.S.
National Institute o Healths Clini
cal Center to speed the testing o new
drugs in thousands o Chinese patients.
A plan to issue national health insur
ance cards could include genomic data o
each citizen, in order to better screen or
biomarkers that could speed the develop
ment o personalized medical treatments.
And as China or the rst time develops
standardized diagnoses or its diseases,
the accumulation o phenotypic data rom
hospitals and health centers around the
country could prove o immense useul
ness to Chinese researchers as they seek
the best targets or drug treatments.
Even as it moves to build new medi
cal delivery acilities and data capture
capabilities, however, the government
also recognizes that drug discovery and
pharmaceuticals development represent
areas or important scientic innovation
a
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