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[Pages:18]Biotech in China

February 2010

The year of the Tiger: Special feaure on China's emerging biotech industry

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Biotech in China

February 2010

COVER DESIGN: TOM ROSE

The year of the Tiger: Special feaure on China's emerging biotech industry

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PUBLISHING TEAM

Publishing Director Peter Collins

Business Development Managers Graham Combe be@ Gloria To g.to@

Business Profile Writers Barbara Nasto

Marketing Samantha Savalio

Production Tom Rose Stephen Russell

Contents

China Feature; Learning to Innovate sanofi pasteur Bioyong Hong Kong Sci & Tech Parks Corp ShanghaiBio Corporation General Biologic, Shanghai, China

Shanghai BIOON Group

Wuhan Biolake Science Park

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CONTENTS

Note: Companies that appear in this table of contents have paid for their advertisement features and have final approval of their content. If you would like to appear in the next supplement please contact: Graham Combe, Business Development Manager be@

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AstraZeneca building in Shanghai Patrick Keohane of AstraZeneca Darren Ji of PharmaLegacy

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Learning to innovate: China pieces together a drug discovery system

China envisions a domestic pharmaceutical industry that can support every stage of development, from discovery through clinical trials. The obstacles are many. But city by city, various players--central and local government agencies, foreign and domestic companies, academic scientists--are making the necessary investments.

Last September, China's health ministry began funding a multibillion RMB (renminbi) drug discovery "megaproject". The huge initiative stretches from discovery level research to hospital-based clinical trial infrastructure, filling in the gaps in the country's clinical and preclinical research infrastructure. According to Shanghai-based ChinaBio LLC, US$12 billion will be available over the next 5 years for the drug development program. The central government is also revamping its drug regulatory infrastructure, including the absorption of the State Food and Drug Administration (SFDA) by the health ministry--a dramatic shift triggered by the July 2007 execution of the agency's former head and symbolizing the central government's commitment to safe, effective and modernized drug development.

Concurrent forces are ensuring that these high-level initiatives produce real change in the way China does pharmaceuticals. Key among them is the growing demand for drugs. China plans to expand basic health-care coverage to its entire population by 2020. Along with demand from the growing middle class, this means drug use will grow dramatically. IMS Health estimates that the total market for pharmaceuticals in China rose 27% in the third quarter of 2009 from a year earlier. According to the biomedical-industry consultancy, drug sales there will grow 20% annually and provide the third biggest drug market by 2013.

But China is fast proving itself a place not only to sell drugs but also to develop them, and "sea turtles", those returning from overseas, are leading the way. (This now familiar phenomenon still astounds in degree: education ministry figures show the number of returnees jumping nearly 60% in 2008 from a year earlier to 70,000). A growing number of biomedical-industry hands, many with experience in multinational pharmaceutical companies, are establishing profitable arms of multinational contract research organizations (CROs) or independent domestic CRO start-ups. These companies, of which Shanghai claims the lion's share, are fiercely competing, setting a premium on international standards in preclinical research. Companies accredited by the Maryland-based Association for Assessment and Accreditation of Laboratory Animal Care (AAALAC), the international gold standard for ensuring effective and responsible preclinical animal studies, are popping up in various research hubs, offering drug developers an opportunity to use China's abundant primate resources.

To gain access to this talent pool, multinational pharmaceutical companies are trying out various models, from integrated in-house drug development to "virtual" models based largely on contract research. Partnerships between western companies and local ones are initiating Chinese entrepreneurs into a new way of thinking. Most action is in Shanghai, but local governments in Tianjin, Taizhou, Suzhou and other

lesser known hubs are investing heavily toward biotechnology science parks. Clinical studies are still a challenge, but less so each year as new or refurbished hospitals offer a link to a huge population of patients, many of whom are treatment na?ve, and covering a wide range of ailments.

Even as the global pharmaceutical industry falters, China's is abuzz. Elsewhere, multinational companies cut back staff. In China, they expand. Biomedical-research leaders are learning the ropes at an incredibly fast pace. "China provides a new energy that is being lost in other parts of the world," says Darren Ji, a board director for BayHelix, a San Francisco-based organization promoting the biomedical industry in the Pacific rim. China has yet to domestically discover and develop its first international blockbuster drug but, with so much talent aimed at that goal, it will undoubtedly be achieved soon.

At your service: Shanghai's booming contract research market

Early on, Chinese companies realized they did not need a successful drug to profit from biotech. Wuxi Pharmatech, now WuXi AppTec Co., Ltd, has been supplying chemistry services to the world's top pharmaceutical companies since it was established in Shanghai's Zhangjiang Hi Tech Park in 2000. In December 2009, it was named for the sixth consecutive year on the Deloitte Technology Fast 500 Asia Pacific 2009 List, which is awarded to companies with high rates of revenue growth. Business has grown, but the attention to speed and quality that won the company customers has not flagged. In 2006, AstraZeneca entered a US$14 million compound collection agreement with Wuxi. Wuxi delivered more than 100,000 compounds--2 months ahead of schedule. Impressed, Patrick Keohane, Vice President for Research and Development for the Asia-Pacific regions, decided to extend the contract another 3 years. "They reduced turnaround time and reduced cost without compromising quality," says Keohane.

Wuxi has since branched out into toxicology and other areas of research, and Zhangjiang now has more than 500 companies, mostly founded by experienced returnees filling in various gaps in the preclinical and clinical research space with modernized, international-standard services. PharmaLegacy, which analyzes the pharmacological effects and biocompatibility of drug and medical-device candidates, provides services in bone biology, autoimmune diseases and oncology. Darren Ji, who co-founded the company in 2008, says the business is already booming. Of ten multinationals that visited in 2009, eight are now clients. The company uses electronic data capture for its GLP procedures to record and share data. Ji says the tool is of remarkable value. "It gives a great deal of comfort and peace of mind to our clients," says Ji. Opened 15 months ago, Pharmalegacy already has the coveted AAALAC accreditation and achieved strong sales in 2009. "The market response is tremendous. Our sales remain ahead of the forecast," says Ji. Also prospering in Shanghai is HD Biosciences, which covers lead identification, drug metabolism and in vivo disease models, received

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backing from Lilly Asian Ventures and Pfizer Venture Investments in 2008.

The major multinational contract research companies, such as Wilmington, Massachusetts-based Charles River Laboratories and Mattawan, Michigan-based MPI Research, have also moved into Zhangjiang. Both mainly serve western branches of multinational pharmaceutical companies or westernized Chinese companies and keep the same standards as their home operations. Kewen Jin, CEO of Charles River Laboratories Greater China, says that, in the race toward full compliance with the US, Chinese and European Union regulatory authorities, their international experience gives them an edge over the many emerging domestic companies. They have already ramped staff up to 120 and their 6000 square meter facility will be occupied with GLP toxicology studies in various species, says Jin. MPI Research, which opened a collaborative operation with Medicilon in Zhangjiang in October 2008, already has 136 staff and is building a GLP toxicology laboratory to meet US specifications. "China adds credibility to MPI as being visionary and global, and offers the well documented and tested leverage of time and cost advantages," says Stephen Porter, Chief Scientific Officer of Medicilon/ MPI Preclinical Research in Shanghai.

Jin admits that hiring is still a challenge. "People come to China for access to the vast scientific talent pool but for some critical fields, such as veterinarian pathologists, laboratory animal veterinarians and toxicologists, there is a fairly severe shortage," he says.

With many domestic companies trying to cash in, competition for customers and staff is "fierce and getting greater," says Porter. The competition is especially aggressive among multinationals, which are "eating each other's talents." Porter estimates that in key cities like Shanghai and Beijing wages for top-end talent increases 15?20% per year.

At the same time, companies try to offer cost advantages that are expected in China. Porter says that getting an investigational new drug (IND) application costs only RMB 700,000 in China, compared with US$900,000?1.5 million in the US. For those who want to compete on quality rather than price, the downward pressure is a concern. "Prices are falling. If contract research becomes a commodity, quality will fall. We will never chase that," says Porter. "If the quality isn't there, savings don't matter," agrees Jin.

Spreading the wealth: rise of the other hubs

The competition looks set to increase. A few years ago, for example, only a handful of companies had AAALAC accreditation. Now, 20 do. Most are in Shanghai or, like Bridge Global Pharmaceuticals Services and BioDuro, in Beijing. But now Nanjing, Nanning, Kunming, Chengdu, Shenyang, Urumqi and Wuhan are all on the AAALAC map. And many of these places will offer cost savings.

Dan Zhang says he was "shocked by the rapid build-up" in Wuhan's Biolake, which is expected to cover 12 square kilometers. So far, RMB 3.66 billion of local and central government funds have been invested. In November 2009, Pfizer signed a memorandum of understanding (MOU) to

establish a clinical research center that it plans to staff with 200 people within 3 years. Suzhou, a 45-minute train journey from Shanghai, is building a BioBay with RMB 550 million in China?Singapore collaborative funds. Wuxi AppTech is building a 314,000 square feet toxicology facility there. In Nanjing last May (2009), clinical and preclinical service provider Xenobiotic Laboratories, based in Plainsboro, New Jersey, opened a 3,300 square meter bioanalytical and metabolic testing facility. In May 2009, Kleiner Perkins Caufield and Byers China announced a US$15 million investment in the Nanjing-based outsourcing company Jinsite Biotechnology.

With good access to the abundant local monkey population, the West China Hospital of Sichuan University in Chengdu has built a drug safety evaluation center that impressed Maryland-based Frontier Biosciences enough to agree on a partnering deal in 2007. West China-Frontier Pharmatech Co. Ltd (WCFP), established in 2006, soon achieved AAALAC accreditation and National Institutes of Health (NIH) Office of Laboratory Animal Welfare assurance on its way to winning NIH and Department of Defense contracts. "Especially given the lower cost of living compared with Shanghai or Beijing, Chengdu seemed ideal," says Frontier CEO Dong Xie.

The central government has been pivotal in the development of some hubs. In June 2007, Tianjin, a 40-minute high-speed train ride from Beijing, launched a national biomedical innovation park with the backing of the Ministry of Science and Technology and three other state agencies. In 2006, Dan Zhang, who headed the Maryland-based Chinese Biopharmaceutical Association at the time, took part in a task force that helped to identify how Tianjin, which trailed Shanghai and Beijing by 5?10 years, might "leap forward." The team identified clinical development as the bottleneck and conceived the International Joint Academy of Biotechnology and Medicine, built with RMB 1 billion from the Tianjin government and opening its doors on June 28, 2009. "The academy established a system to link all the service areas together--chemistry, animal toxicology, etc. No one had tried to link them all says," says Zhang, now the CEO of the Tianjin-based CRO, Fountain Medical Development Ltd., which works closely with the academy. Rao Zihe, Nankai University president and director of the academy, says it will be devoted to commercialization of drugs and will focus on cancer and stem cell treatments.

The city of Taizhou, birthplace of president Hu Jintao, might be building the most dramatic biomedical venture: the China Medical City. More than 20 square kilometers are dedicated solely to biotech and pharmaceuticals. Domestic and foreign researchers are moving in quickly. In August 2009, Ontario-based AlphaRx Inc. entered a collaboration to develop its nano-based delivery system at Venturepharm Group's massive preclinical development center. Yangtze River Pharmaceutical is building a RMB 800 million R&D center, expected to open by 2010, for developing novel chemical drugs, biological drugs and traditional Chinese medicine. Yangtze, which produces antibiotics as well as drugs for cardiovascular, endocrine and respiratory disease, claims to have 10 innovative

Stephen Porter of MPI

Kewen Jin of Charles River Laboratories

West China - Frontier Pharmatech's new facility in Chengdu

The Hamner's visit to the China Medical City Building in Taizhou

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The Hamner Institutes for Health Sciences sign agreement with Shanghai Center for Disease Control

Alex Zhang of sanofi-aventis

Jingwu Zang of GlaxoSmithKline

drugs under development. Shenzhen-based Beike, though often criticized for selling unproven stem cell therapies, is building a 20,000 square meter regenerative-medicine facility in Taizhou capable of holding one million samples.

China Medical City's desire to meet international standards also lured The Hamner Institutes for Health Sciences, a non-profit organization that conducts drug safety studies and human disease research, and provides support for life sciences. In its first formal partnership outside of the US, The Hamner Institutes created the Hamner-China Medical City Institute for International Drug Development. The first step will be to collaborate at the animal facilities, analytic chemistry facilities, and nuclear magnetic resonance facilities at The Hamner's campus in North Carolina's Research Triangle Park on preclinical drug development and compliance with US FDA standards. The knowhow will be transferred back to Taizhou to help companies meet global GMP and GLP standards. "The goal is to have a dual gateway to accelerate development of new and safer drugs and build a history of safety in the US," says William Greenlee, president and CEO of The Hamner.

Many approaches, same goal: multinational drug developers in China

Nearly all the top international drug makers have set up research operations in China, as they want to position themselves for a piece of the rapidly expanding market. In a country with huge unmet medical needs, they emphasize the importance of combating diseases more prevalent in Asia, such as liver cancer and nasopharyngeal cancer. They are also impressed by China's modernization efforts, especially regarding its patent law. "We had the opportunity to comment on the law by active participation in the industry associations. The standards for patentability are generally in line with international standards," says Chris Lee, regional head of China for Bayer Schering Pharma AG. But more than anything else, multinationals come for the returnees. The challenge is to use their vigor to compensate for their greenness. "Chinese employees are generally younger and less experienced than their counterparts in Western countries, but they are generally more ambitious and work harder," says Alex Zhang, head of sanofi-aventis's China Discovery Research.

There has yet to be a global blockbuster discovered and developed in China. These companies share the goal of changing that. But the paths taken toward that goal vary widely, ranging from large-scale initiatives where most of the work is done in-house (generally taken by European companies such as Novartis, GlaxoSmithKline (GSK) and AstraZeneca) to more sparsely populated research arms that depend on outsourcing for the bulk of development (generally taken by US companies such as Pfizer and Eli Lilly but also used by France's sanofi-aventis and Germany's Bayer Schering Pharma).

Most of these multinationals set up in Shanghai. GSK established its neuroinflammatory and neurodegenerative disease division there. With 280 staff on site and another group of 50 scientists working on neurological disease in Singapore,

it plans to be a "fully integrated global R&D organization, covering discovery all the way to clinical development," according to Jingwu Zang, head of GSK's China-based research arm. After only 2 years in operation, GSK's China unit has 6 drug candidates including small molecules or antibodies for multiple sclerosis, Alzheimer's or Parkinson's diseases. The first clinical trial of a drug developed by the China-based unit, a humanized monoclonal antibody for multiple sclerosis, has started at GSK's Phase I unit in Australia. Novartis is also putting a heavy foot on the ground in Shanghai. In November 2009, the company announced it would invest US$1 billion to expand work on "analytics and biomarkers, in vivo pharmacology, protein production, characterization and scale-up screening, chemistry and proteomics, genomics and imaging" at the Novartis Institute for BioMedical Research Shanghai. With the number of scientists expected to jump from 160 to 1000, the institute will be Novartis's third-largest research hub.

AstraZeneca opened its Innovation Centre China in 2007 as part of US$100 million investment to build up its R&D capabilities in China. The company now has 200 R&D staff in China trying to address unmet medical needs in Asia by understanding potential ethnic differences between patients in China and the west. Patrick Keohane, Vice President of R&D Asia Pacific, says that more than half of newly diagnosed stomach cancers occur in east Asia and three-quarters of the world's liver cancer patients are in the region. "We realized that there was a need for newer and better treatment options, and we decided that collaboration with Asian experts in these disease areas was the logical way to go." Keohane wants to bring the growing international trend toward personalized medicine to China. AstraZeneca already has two new compounds in clinical trials in China. AstraZeneca plans to move to a new building in 2012, which Keohane says will become "one of the most advanced R&D centers in our company."

Pfizer has similarly stated that China will be a key to its future global strategy, especially in oncology, but its approach is radically different. Through outsourcing with partners, as in Wuhan, the company hopes to mimic the successful collaborations that brought compounds like Lipitor and Celebrex to their laboratories. In October 2008, sanofi-aventis expanded its R&D presence with a similar "virtual discovery platform". With no internal laboratory space, the company set up a core team to partner with local academic institutions and biotech companies. "The quality of science [in China] has improved dramatically in the past years, and it is clear that there are individual labs or institutions/companies that are at the cutting edge of biomedical research. It is these `pockets of excellence' that we would like to collaborate with," says sanofi's Zhang. Clinical development is handled by an in-house staff of 100 people. Zhang says the combination gives sanofi's China operations a structure that covers "end to end drug discovery and development." The approach has given the company geographical flexibility, setting up its clinical research center in Shanghai, a discovery partnership in Shanghai (with Shanghai Institute of Biological Sciences), a biometrics center in Beijing

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and a partnership with the Institute of Hematology and Blood Diseases Hospital in Tianjin. The latter, established in 2007, has already isolated potential leukemia cells and started developing antibodies yo target acute myeloid leukemia.

Bayer Schering Pharma AG will also follow a partnering strategy in investing some 100 million Euro over the next 5 years. According to IMS Health, Bayer was the top health-care company in China's hospital market 2008 with a growth rate of 50% boosted by sales of its diabetes drug Glucobay. China is already Bayer's third-largest market and the company plans to boost that position by expanding an innovation center that "will expedite new innovative approaches together with our Chinese partners" and a development hub that "will benefit Asian patients by addressing the clinical profile and medical needs early on," says Lee. "The aim is to systematically include Asian patients earlier in global drug development."

Unlike most, Bayer runs its research operation in Beijing where it can be closer to its commercial arm, the central regulatory authorities, many top universities, research organizations, medical institutes and Beijing's many hospitals. In March 2009, Bayer and Tsinghua University signed an agreement to establish the Bayer-Tsinghua Research Center of Innovative Drug Discovery. Headed by Yigong Shi, the center is the place where scientists from the company and the university will focus on oncology, women's health, diagnostic imaging and cardiology. "There is a great amount of scientific and medical talents residing there," says Lee.

Changing ways: domestic drug development

Until now, Chinese drug companies have mainly focused on generics or traditional Chinese medicine (TCM). The country is stepping up efforts to modernize TCM to try to accelerate international sales growth. On July 1, 2009 the China National Center for Biotechnology Development reported that 2008 exports of TCM was US$1.3 billion, up from US$720 million in 2003. According to the Center's report, over 10 years, output will double to RMB 400 billion.

One after another, however, Chinese companies and research institutions are trying their hands at innovative drug development, sometimes leveraging their experience with natural products. It has not always been a smooth transition, says Yang Ye, a researcher at the Shanghai Institute of Materia Medica (SIMM), a division of the Chinese Academy of Sciences (CAS). Ten years ago, CAS decided "not only to do basic research but also to meet the needs of the country," says Ye. "It's not so easy for a basic-science research institute to change into a drug discovery operation all of a sudden. At the same time, we have to teach pharmaceutical companies to go from copying to innovation. We are learning from our international partners."

SIMM, for example, has an 8-year ongoing collaboration with Novartis to isolate active ingredients in natural compounds. Novartis developed a new process to isolate compounds that SIMM researchers could then draw on. "Novartis is one of the few to take natural compounds seriously," says Ye. He adds that SIMM has already licensed many candidates to multinational companies.

CAS also established the Guangzhou Institutes of Biomedicine and Health (GIBH) in 2003 to pursue drug discovery. GIBH recently restructured itself, with separate academic institutes for stem cell biology, chemical biology and infection/immunity, and a centralized drug discovery pipeline. Headed by Micky Tortorella, formerly a research scientist with Pfizer, and funded with RMB 23 million annually from the Guangzhou government, the drug discovery pipeline develops leads from the institutes. GIBH still has to prove itself--it didn't, for example, win any of the government's megaproject funds. "Guangzhou is a great city for commerce and high-tech manufacturing, but not for basic research--an image we must change," says GIBH director general Duanqing Pei. Pei says the transition is under way: "Our expertise in stem cell biology has attracted business interests, and there are several ventures under discussion with firms both domestic and foreign."

Two of China's most famous innovative drug companies are in neighboring Shenzhen. SiBiono became the first company in the world with an approved gene therapy when, in therapy for October 2003, China's SFDA gave the green light to its head and neck squamous cell carcinoma. Chipscreen used its proprietary chemical genomics-based discovery platform to develop Chidamide, a novel epigenic modulator for treating non-Hodgkin's lymphoma, which is currently in Phase II/III clinical trials in China. With a GMP facility funded by the Shenzhen government under construction, Chipscreen aims to launch the drug in China by the end of 2010. Xian-Ping Lu, co-founder and president of Chipscreen, says, "The strategy is to generate differentiated drug candidates across multiple therapeutic areas, then partner at the research, preclinical or clinical stage for further development and commercialization outside of China."

Another successful Chinese drug innovator, Zhangjiangbased Hutchison MediPharma Limited (HMPL), is combining partnering approaches and in-house development. HMPL-004, a drug for inflammatory bowel disease, went through a proofof-concept trial in 100 patients in China, where the product, a single herb extract, was widely used for other indications. It was then able to skip Phase I trials in the US and Europe, where it has finished Phase II trials for treatments of Crohn's disease and ulcerative colitis with positive results. "Before we spent the big money, we wanted to make sure we would see an effect," says Hutchinson CEO, Samantha Du.

But new drugs that will be first in human require more ground work and time, and Hutchinson is taking advantage of regional opportunities. On October 28, 2009 Phase I trials of a cytokine inhibitor for autoimmune disease, HMPL-011, began in Australia. Part of the reason for going to Australia is that getting approval in China can take 12?18 months, says Du. "China was not known as a place to do first in human trials of drugs with a novel mechanism of action drugs," says Du.

Regulatory hurdles and clinical trials

For its next two drugs, two VEGFR/FGFR (vascular endothelial growth factor receptor/fibroblast growth factor receptor) inhibitor anti-tumor drugs, Hutchinson took advantage

Chris Lee of Bayer Schering Pharma AG Guangzhou Institutes of Biomedicine and Health's new campus

Samantha Du of Hutchison MediPharma

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Ling Zhen of Quintiles China Greg Scott of ChinaBIO LLC

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of recent changes at the SFDA. This summer, Hutchinson became the first company to put a drug, HMPL-012, through the SFDA's "Green Channel" and the first to engage in faceto-face discussions with a newly established pre-IND application consultation committee at the SFDA's Center for Drug Evaluation. So far things look promising, not only for Hutchinson's drugs but also for the new SFDA, says Du. "They were much more knowledgeable and much more responsive than I had anticipated," says Du.

Such measures mark a critical turning point for a China that wants to open up innovative drug discovery. "Their comfort zone was dealing with generics," says Fountain's Zhang. "Now they're trying to handle NCEs [new chemical entities]. But there is a lack of skilled talent that really understands global drug development, and it's hard to build this up quickly." Ling Zhen, general manager of Quintiles China, says "there has been a quality issue due to lack of clear regulatory guidelines, insufficient number of investigators and study sites, and inadequate support at study sites."

The result has been a backlog in which the few truly novel drugs are mixed in with hundreds of copycat products. Estimates of approval time for moving on to clinical trial range from 9 to 12 months. This puts China at a disadvantage compared with its clinical outsourcing rival, India. There, late-stage clinical trial approval takes 2?3 months. India also has an advantage because of fluency in English, cheaper labor and a more westernized commercial environment.

But simple economic factors could force change. "The potential pharmaceutical market existing in China due to its population and economic prosperity has made China critically important for both global and regional trial markets," says Quintiles's Zhen.

"The SFDA is aggressively trying to remodel itself," says Zhang, who chaired BayHelix's SFDA working committee that sought advice from US FDA counterparts. In January 2009, for example, the SFDA started the Green Channel, an accelerated application process for new chemical entities, new combination treatments, or in case of severe medical need. At the same time, the SFDA established the office that gives preIND consultation.

Clinical trial capacity at hospitals is also improving. "Almost all hospitals in China were established for and are overwhelmed with patient care," says Zhen. But with more trials and the presence of big pharma, this situation is improving. "We anticipate that the overall sophistication of investigators in major academic hospitals and the quality of trials in general will quickly get up to the standard as required by international regulatory bodies in the near future," says Zhen.

Money in the right hands

The government's megaproject is meant to further support clinical capacity. Insiders are estimating funding in the range of RMB 6.6 billion for the first phase of the program, which is currently under way. How that money is being distributed is not clear. SIMM's Ye says the project sponsors many programs at his institute with "several million"

RMB but, like others, he does not have exact figures. SIMM is expected to pay for the projects and then be reimbursed by the government. "They will check our achievements at theoretical end points," says Ye.

Greg Scott, founder and CEO of consulting and research firm ChinaBio has tracked 80% of the megaproject funding and its matching funds from local governments and industry. According to Scott, US$525 million is going to some 50 "large projects," over US$10 million each, focused on drug safety and clinical trial infrastructure. US$670 million is being divvied up among hundreds of small new drug development projects with specific drug targets in mind. In China, there is always concern that extra funding will go merely to buy impressive buildings. Scott says his trips to 53 universities and institutes have shown otherwise--that rather than "real estate" scientists are investing in expensive, crucial instruments such as mass spectrometers and electron microscopes. "The majority of people receiving funding are research scientists. From our experience, they are sharp people who should be able to put the funding to good use," he says.

"The big money goes to academic research institutes for preclinical and discovery infrastructures and to hospitals for creating centers for Phase I clinical trials. Companies working on new drugs are the smallest part of the pie," says Chipscreen's Lu. Chipscreen is however getting about US$2 million from science and technology ministry as one of the National Innovative Drug Centers, "a showcase of innovation by China."

Overall, however, Lu and others agree that the rising tide of investment will lift all ships. "The government funding will stimulate more scientists to move from basic to translational research. This will give us more partnering opportunities," says sanofi's Zhang.

The central government is creating other mechanisms that might pump cash into drug development. At the end of last October, the government established 20 provincial high-tech venture funds worth RMB 9 billion to be based in Shanghai, Beijing, Shenzhen and 4 other locales. Biotechnology is one area of concentration. Also at the end of October, ChiNext, known as China's Nasdaq, opened in Shenzhen with the goal of providing capital to emerging companies. Of the 5 bio-related companies in the first batch of 28, 4 were innovative rather than just devoted to medical devices. Lepu Medical Co. Ltd pulled in US$175 million and Tianjin Chase Sun Pharmaceutical Co. Ltd garnered US$111 million. "The new exchange is giving companies an excellent way to exit," says Scott.

The pieces of the drug discovery puzzle are falling into place in China. Will China start producing potential blockbuster candidates? All agree it is matter of time, with some arguing for 4 years and some saying 20 years. As Kewen Jin says, "the next step is to show in China that you can take a compound all the way from candidate stage to Phase II trials."

"All in all, the CRO work has gone from chemistry to all aspects of clinical research. Conceptually, we have shown you can do drug discovery here," says Jin. "It's done. It's proven."

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BIOTECH IN CHINA

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