Positioning China's "Drug Valley" in globalization

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By Bill L. Qin

2009 has been a memorable year for all the wrong reasons as the whole world recovers from the most serious recession since the great depression. Significant events, such as the bankruptcy of General Motors, seemingly have declared an end to the old industrial era, while the dawn of the Life Science Industrial era and globalization are quietly reshaping the industrial map of the world.

China has in this space ascended the ladder to become the world’s third largest economy.

This is thanks in large part to an ambitious plan to advance its Life Science Industry as a driver of its national economy. The goal for China is to increase its projected bio-revenue to more than $200 billion by 2020. For Canadian companies, China’s role as a major player in the life science sector could mean greater market opportunity.

As an ancient Chinese saying goes, “Look at one spot of a leopard and you can visualize the whole animal.” China’s “drug valley”, located in Zhangjiang Hi-Tech Park, Pudong New Area of Shanghai, is second to none as a cluster. Spanning an area of 25 square kilometres, it forms the most condensed life science cluster in China and is merely steps away from the emerging Asian-Pacific financial center, the Lujiazui financial district.

My visit to ‘Drug Valley’ in 2008 resulted in what was my first article published in Biotechnology Focus: “China’s century bet on Biotechnology and a Pharmaceutical Industry” (see “Across Time Zones” March 2009 Biotechnology Focus, page 22). Not surprisingly when Tonya Costoff, the senior writer of Biotechnology Focus, discussed doing a follow up story, ‘Drug Valley’ was once again the best place for me to start when discussing what China is doing right.

This time I will look at China’s ‘Drug Valley’ from the angle of globalization, its fast growing Contract Research Organization’s (CRO’s) and its central role in promoting international collaborations. I also hope this article may encourage Canadian life science companies to join in on the ongoing Bio-party happening right now in China.

Contract research, from the sidelines to main stream

The rise of the Chinese life science industry can be reduced to two major factors: one is the immigration of global pharmaceutical companies and secondly through hi-tech company creation by returnees (Sea Turtles). Since Roche opened its first manufacturing plant in China in 1994, Zhangjiang has become a harbour to more than 400 life science companies, including nearly 40 international companies and institutions. Together these companies have accumulated annual revenue of just over $1.4 billion U.S. Most of these nascent Hi-Tech companies are still early in their R&D projects and under usual circumstance probably won’t survive the “dead valley” of drug development, which typically lasts 10-15 years and costs over $1 billion U.S. But Zhangjang is no ordinary place.

Under the pressure of survival, Zhangjiang pharmaceutical companies developed a creative business model called “Venture Capital + Innovative Pharmaceutical Concepts + Contracted Research Organization” (VIC), in which CRO’s play a pivotal role in generating income. In 2001, Wuxi Pharma (now Wuxi Apptec) became one of the first Chinese companies marketing itself as a pure CRO to provide integrated pharmaceutical, biotechnology and medical device R&D services to global leading companies. In the eight years since it has become a thriving business with a capital value of more than $600 million U.S., a figure that approaches the worth of MDS, the biggest CRO in Canada.

By the end of 2008, the number of companies in ‘Drug Valley’ providing contract R&D services to customers around the world increased to 50. Sundia, ShangPharma, Shanghai genomics, Medicilon and ShanghaiBio Corporation are among these CRO’s, and together they have quickly gained international praise. The services of these CRO’s are focused on the early stages of drug development, including chemical & biological studies, PDPK, toxicology and preclinical trials. Some companies are also equipped with cGMP certificated manufacturing bases, such as ShangPharma.

Returnees from western pharmaceutical industries (mostly from the U.S.) usually serve as founders and senior managers in these CROs and play important roles in facilitating first contract with potential clients from abroad. Global leading CROs, such as Covance and Charles River, have recognized the opportunity here and have since also built their central labs in Zhangjiang.

The Shanghai Bio-Pharmaceutical R&D outsourcing base and Shanghai Pudong Bio-Pharmaceutical R&D Outsourcing Service Center were inaugurated in 2005 to assist CROs in accessing investment opportunities and forming alliances. Recently, Shanghai Pharma-Engine Co. Ltd was successful in forming the first CRO industrial park in Shanghai. Beneficiary soft environments are also created to help these young CROs obtain international regulation (e.g. GLP) certification; enforce IP protection and provide professional training.

In June 2009, ‘Drug Valley’ signed a landmark agreement, the “Experimental Fast Clearance program for Zhangjiang CROs” with customs offices at Pudong and Pudong International Airport in an effort to safeguard its booming outsourcing businesses.

It can be argued then that Zhangjiang can be looked upon as the epitome of China’s effort and determination to compete in the global contract research market, a market that is predicted to reach $40 billion U.S. by 2012.

Further evidence of the success of this national effort can be found in PriceWaterhouseCoopers’s report: The changing dynamics of pharmaceutical outsourcing in Asia: Are you readjusting your sights? According to the findings of this report China has overtaken India as one of the fastest growing locations for drug trials in Asia. In fact by mid 2008, China had 870 completed or ongoing outsourcing programs in drug development compared with 737 in India.

Foreign delegating centres for business and innovation

To facilitate business and innovative activities in China, many foreign countries and regions choose Zhangjiang and Pudong to build their regional economic delegating institutions. The German Center in Zhangjiang, founded in 1994, is the first foreign national centre for Industrial and Trade in Shanghai. It offers nearly 300,000 sq. feet of office space to German companies to enhance their presence in China. It also provides comprehensive services, particularly for small to medium enterprises(SME), by fostering business contact between local and German firms and institutions and by promoting the exchange of experiences, etc.

Forming strategic partnerships with the Pudong government also greatly enhanced the function of these centres as well as in promoting innovative networks in China.

Shanghai Finchi Innovation Center’s campus at Zhangjiang today serves nearly 30 Finnish Hi-Tech organizations with state-of-art facilities and value plus services in networking, training and education. It also provides soft landing services to help families and companies make a smooth transition after landing in China.

In 2009, the South-Holland and Shanghai Pudong New Area government started a Co-innovation program in Zhangjiang to strengthen Hi-Tech exchanges between the two regions with special emphasis on life sciences, greenports, new materials and the environment. Through the Co-innovation program, the province of Zuid-Holland supports companies and knowledge institutes by providing market research, office start up, and matchmaking services. The characteristic life science tour has helped companies and knowledge institutes of South Holland Province aim for cooperation with top-level investigators and companies in China.

Messages for the Canadian life science industry

Though the U.S. and Canada both are among China’s biggest trade partners, both countries lag behind in setting up regional innovation and Hi-Tech delegating centres at the state or provincial level. As the most populous and prosperous province in Canada, Ontario has strong cultural and economic ties with China. The International Marketing Centre in Shanghai is active in advertising Ontario’s strengths across many sectors, particularly automotive, information technology (IT) and engineering. But its function is essentially different from those regional innovation and technology delegating centers mentioned above.

As a leading country in developing its life science industry, Canadian researchers have maintained outstanding research productivity, as measured by the number of scientific articles published and impressive scientific discoveries in diabetes, cystic fibrosis and stem cell research, etc. As a single metropolitan area, the GTA is ranked as the third largest Biotech/Pharma cluster in North America, with more than 40,000 employees and an annual output of over $12 billion.

In the past 50 years, R&D outsourcing services have been Canada’s upper hand in global pharmaceutical market. As a home of world top CROs, such as MDS, Apotex and Biovail, Canada has unshakable advantages in contracted clinical trials and manufacturing. However, this leading edge has gradually waned as India and China have aggressively boosted their life science industry influence and grasping more of a market share. As such, it is time to reposition Canada’s role in global technology outsourcing market. Partnering with Chinese CROs on outsourcing projects could solidify Canadian enterprises competency by bringing extra resources in clinical trials, commercialisation and in cutting the cost. In that most Canadian Life Science Companies are SMEs with limited employees and investment, outsourcing part of their R&D program to Chinese CROs can also improve Canada’s innovation performance and accelerate the process of commercialization.

Finally, perhaps the biggest implication of the current recession is to break the myth that the U.S. market is as far abroad as Canadian firms need to look. Zhangjiang is not an isolated case in China’s march to transform itself from an enclosed ‘Middle Kingdom’ into a ‘World Free Market.’ In the past five years, Canada’s export of medical devices to China has surged over 150%, reflecting the potential of China in buying Canadian Life Science products and services.

At the most recent Membership Marathon Breakfast sponsored by The Biotechnology Initiative (TBI) in Toronto, ON, all six presenting companies disclosed their willingness and experience in developing businesses in China. They felt the greatest challenge facing Canadian Life Science companies in entering the Chinese market is their small size, restricted resources and networks, and lack of mature product lines compared with their bigger rivals from the U.S. or Europe. Therefore, there is a high demand to provide them with a reliable local base (delegating center) to assist their business activities of entering and expanding in a distant and difficult market.

Bill L. Qin is the founder of BIOCOMPLEX. He can be reached by email info@BeBiocomplex.com
or visiting the company’s web site
www.BeBiocomplex.com