The China Question (Illustration by Gretchen Diehl)
The China Question
Although it was a latecomer to the biotechnology revolution, China has made increasing strides in recent years. According to Thomson Reuters, whose ISI Web of Knowledge platform analyzes research progress by monitoring the publication and citation of scientific papers, the country has experienced more growth in scientific research than any other during the past three decades, with an increase of 64-fold in the number of peer-reviewed papers published by its scientists. And while much of that research had occurred in the physical sciences, ISI now sees “a pattern of rapid growth in areas where China has had less presence in the past: biological and medical sciences. If growth is as rapid and sustained and the outcomes are as effective as they have been in other fields, then the impact of this new research on gene and protein research and process innovation will be profound and pervasive.”
Once China emerged from decades of darkness under Mao Tse-tung in the 1980s, it rapidly developed into the powerhouse that the world recognizes today. Starting with simple projects, much as Japan had after World War II, China became increasingly sophisticated in science and technology. The question to be asked is: Will China continue to grow in industrial power in general and in biotechnology in particular, or will it falter just as it appears ready to assume global leadership, as Japan did more than a decade ago?
For at least the next few years, China’s advancement seems assured. The country’s growth in biotechnology will have the most impact on medical practice, both inside China and overseas. A major reason for this is the increasing size of China’s middle class. Some analysts expect the country to become the world’s fifth largest market for pharmaceuticals this year. By 2011, consulting company IMS Health expects that market to reach third place.
However, the country’s biotech business also focuses strongly on the agricultural sector, working on food plants and other crops. According to Shaheen Lakhan, an independent biochemist, medical scientist and blogger who analyzes biomedical issues, China now has a larger capacity in plant biotechnology than any region outside North America, in terms of researchers and equipment.
SEVERAL FACTORS IN RAPID GROWTH
The rapid growth of Chinese biotechnology stems from several factors, both internal and external. The rapidly increasing middle class, many members of which have medical insurance, provides a cadre of customers for Chinese firms making vaccines and other medications. In addition, China has weathered the financial crises of the past two years more effectively than most other countries. That has allowed the government to continue its strong support of science and technology. Recent figures announced at the National People’s Congress indicate that funding for research and development will rise by about 8 percent to roughly $24 billion; that follows a 30 percent increase a year ago.
The Chinese scientific diaspora has taken note of those developments. Spurred by government grants and other incentives, Chinese scientists trained abroad—who might in previous years have stayed in the countries where they earned their doctorates or worked as postdocs—are returning to scientific enterprises in their native land. There, these “sea turtles” apply the knowledge and expertise they have gained during their time away. And their command of English makes them attractive candidates for laboratory and management positions in Chinese branches of Western pharmaceutical and biotechnology firms.
Change in patent laws have also made China attractive to overseas firms, including pharmaceutical companies and contract organizations that want to set up outposts there. As a result of its entry into the World Trade Organization, the government has strengthened the patent system and means of ensuring that it operates effectively. “The patent laws have certainly undergone improvements,” says Xiang Wang, a partner in the Beijing office of intellectual property law firm Orrick, Herrington & Sutcliffe. “And IP enforcement in China has really improved, despite the complaints from Western companies.”
NEGATIVES AND POSITIVES
The picture is not entirely rosy. Even though China survived the global financial crisis better than most other countries, the episode left its mark on the scientific enterprise. “Chinese companies are right now having a hard time very similar to many Western companies because of the financial crisis,” Wang explains. “The long turnaround time for biotechnology products, the long time taken by clinical trials, and the continuing relative newness of biotechnology are all factors that slow down development of biotech. Investors are now very careful of investing in products that will take a long time to develop. The industry is suffering because of the lack of large funds.” But even this situation holds some promise for future development. The current situation “might encourage large pharmaceutical companies—both Chinese and foreign—to acquire small biotechnology companies,” Wang explains.
One other factor has caused concern among Western pharmas and biotech companies thinking of investing in China. The argument between search engine firm Google and the Chinese government over censorship and what Google terms as cyber attacks on its site has cast doubt on the ability of overseas firms to protect their intellectual property once they enter China’s market. Google is just one of the targets of the cyber onslaughts. At least 34 companies, including pharmas, have complained of attacks on their intellectual property.
Nevertheless, biotechnology is thriving in China as local companies continue to sprout up and Western firms establish branches in the country. Estimates of the number of Chinese biotechnology firms vary from 600 upwards, although most have relatively little in assets. Major pharmas such as Merck, Pfizer and Roche have added their own contributions to the growth of the industry, as we shall see later.
Contract research organizations (CROs) are also experiencing a surge of growth. According to a report by consulting firm AsiaBizCorp, China currently boasts about 100 CROs of various sizes. Both domestic- and foreign-based CROs predominantly carry out clinical trials—an increasing trend because of difficulties that Western companies encounter in recruiting patients for such trials in their own countries. China offers a huge population of potential patients with two specific advantages for organizers of clinical trials: many have not been exposed to previous medical treatments, and large numbers suffer diseases that are little known in the West but common in underdeveloped nations where pharmas and biotechs seek new markets.
Parexel International, a Boston-area CRO, recently increased its China-based employees from 1,000 to 1,600. Moreover, some Chinese CROs now offer services from soup to nuts, including drug discovery and development and manufacture of biological drugs prepared through the application of recombinant DNA. Shanghai Genomics/GNI, for example, headed by sea turtle Ying Luo, offers R&D services on a wide range of biologic drugs and clinical trials.
SUCCESSES IN AGRICULTURAL BIOTECHNOLOGY
Up to the present, the country’s biotechnology industry has garnered its most obvious success in the agricultural arena. Some reports indicate that China has more plant biotechnology capability than any other nation apart from the United States. That capacity includes more than 100,000 scientists and support staff who have access to well-equipped laboratories, and a wide variety of plant germplasm and cell lines. The country’s agriculture minister, speaking in 2006, forecast that science and technology should contribute almost two thirds of the growth in Chinese agriculture up to the year 2020.
A relatively old example of Chinese enterprise in agricultural biotechnology involves the development of cotton resistant to Bacillus thuringiensis (Bt). The project began in response to concerns over the rapidly rising cost of pesticides. The genetically Bt-resistant cotton was approved for commercial use in 1997. Since then, scientists in several academic departments of biotechnology have worked on such transgenic items as rice resistant to bacterial blight and tobacco with aphid resistance. Studies are under way to develop such advances for commercial use.
Another promising strand of research involves what the Chinese call “edible vaccinations.” Traditional Chinese medicine is typically administered in the form of food, with medicinal compounds included in soups. Biotechnologists are now taking that procedure a step further. They are developing such foodstuffs as cherry tomatoes genetically modified to confer immunity to hepatitis B and antigen-treated potatoes that battle various viruses. Most of these projects are in the animal testing phase, according to Lakhan. While the concept promises a cheap source of vaccines, developers must overcome such issues as ensuring accurate doses and triggering the immune response once a patient ingests the vaccine.
INTERNATIONAL COLLABORATIONS
Even in 1998, China joined more scientifically advanced nations as a member of the International Human Genome Sequencing Consortium. To facilitate the country’s role in that enterprise, the Ministry of Science and Technology founded two human genome centers, in Beijing and Shanghai, which focused on high-throughput, high-quantity sequencing and medical genomics, respectively. The effort produced a segment of chromosome 3 in the published genome sequence known as the Beijing region. And in January, as evidence of its continuing commitment to sequencing, the Chinese company BGI (originally the Beijing Genomics Institute) announced its purchase of 128 HiSeq 2000 next-generation sequencing systems from San Diego firm Illumina.
In 2003, China joined another major international collaboration: the International HapMap Project, intended to discover patterns of DNA variation in the genomes of humans from different parts of the world. The two Chinese genome centers linked up with three institutions from China’s special administrative region of Hong Kong—the University of Hong Kong, Hong Kong University of Science and Technology and the Chinese University of Hong Kong—to screen specific chromosomes.
The country has also applied its scientists’ growing skills in biotechnology to projects more immediately relevant to its needs. For example, it is a major participant in the International Rice Genome Sequencing Project, aimed at new understanding that will increase the reliability and safety of food crops. Early this year, scientists at the Biology Institute of the Chinese Academy of Tropical Agricultural Sciences announced that they had sequenced the genomes of three varieties of cassava, sources of both food and ethanol. And a collaboration of 70 laboratories from 53 institutions is continuing work on a human liver proteome project begun in 2005. This promises dividends in treating a pandemic of hepatitis B that has reportedly infected more than 160 million individuals.
As that example illustrates, liver diseases are widespread in China. Lie-Ming Xu of Shanghai University of Traditional Chinese Medicine enumerates the breadth of conditions in The Chinese Journal of Integrative Medicine: viral hepatitis, alcoholic or non-alcoholic liver degeneration, autoimmune liver disease, hepatic fibrosis/cirrhosis and hepatic cancer. Not surprisingly, then, the fight against liver disease has provided a route for overseas firms to enter the China market. In 1994, for example, Merck dismantled a plant making vaccines against hepatitis B, transported it to China, and reassembled it there.
CHANGING PROTECTION FOR IP
Government support for biotechnology and the development of a strong corps of well-trained biotechnologists has made China an increasingly popular destination for Western pharmaceutical and biotechnology firms. But until recently, the weakness of the country’s patent regulations has tended to discourage investment in the biotech sector. That, however, is changing in the direction of stronger patent protection and somewhat more aggressive enforcement, as local firms realize that stronger IP laws can help them as well as their Western competitors. “Not only the laws, but also local regulations and policies have changed to encourage China to produce biotech products,” explains Wang. “The Chinese Supreme Court last year issued a special circular giving special importance to companies developing biotech products.”
he changes have the potential to encourage overseas firms to invest more in Chinese biotechnology. But executives must treat them warily. “The changes are more protective of local companies than Western laws,” Wang says. That stems in part from the fact that, unlike the U.S. and other Western nations, China is not a case law country. Legal decisions affecting the biotechnology business can emerge from the People’s Congress, from regulations promulgated by government ministries, from policies devised by local authorities and from interpretations by the Supreme Court.
Typically, the laws, policies, and regulations apply to any organization based in the country, even if it is foreign-owned. However, quirks of the legal system make it more difficult for foreign firms to benefit. For example, a so-called “indigenous products accreditation program” provides benefits for biotechnology companies in China. But it requires those companies to own their own intellectual property rather than simply licensing it. “That would exclude most of the multinational companies from procurement and patent rights,” Wang says. “Their China subsidiaries don’t own the IP. Pfizer China doesn’t own the Viagra patent, for instance. So it and other overseas companies are excluded from government procurement programs.”
LOCAL VS. FOREIGN BIOTECHS
Wang gives less credibility to another complaint by overseas pharmas and biotech corporations: weak enforcement of patents. That situation has changed, he says: “The Chinese authorities really do pay more attention to protecting IP. But in the past, many Western firms failed to file for Chinese patents, believing that their patents could have little protection.”
But even companies that possess legitimate Chinese patents have had problems defending their rights. “It is not difficult to protect your inventions in China, but the scope of protection is much narrower than in the U.S. and even Europe,” explains Albert Jacobs, Jr., a partner in New York–based law firm Troutman Sanders. “And when it comes to enforcement, only in the last six months or so have there been any large damage awards for infringements.” Jacobs also expresses skepticism about China’s recent amendments to its patent law. “It will cause problems because it requires a description of the origin of biotech materials,” he says, “which often no one knows.”
Another source of IP controversy involves the compulsory licensing system that permits the authorities to allow non-patent holders to manufacture patented pharmaceuticals to address serious public health issues. In fact, Wang says, “The new law will allow Chinese companies to produce Western-patented pharmaceuticals for export—but not for sale in China. Say there’s an African country with AIDS that can’t afford to buy AZT; China’s patent law now allows local firms to manufacture and export the drug.”
Despite those cautions, Western pharmas and biotechnology firms are eagerly moving into China. Pfizer’s China branch, for example, has invested in new R&D facilities in the central Chinese city of Wuhan, and plans collaborative projects with up to 500 medical institutions in China. Sanofi-Aventis is building a new vaccine plant outside Shenzhen, the southern Chinese city close to Hong Kong. Affymetrix, a manufacturer of chips for use in biotech R&D, has formed a partnership with Beijing-based company CapitalBio to develop a proprietary GeneChip. In addition, analysts see indications, such as the growth in number and revenue projections of Chinese CROs, that such local organizations are becoming more important to Western pharmaceutical firms. Reasons include the strengthened laws on intellectual property, the government’s investment in the biomedical sector and the country’s relative financial health compared with that of the West following the economic crisis.
The high quality of life science education, meanwhile, has combined with the return of the sea turtles to make Chinese universities strong centers of basic research in biotechnology and its applications. Stem cells have emerged as a key focus, given that Chinese scientists do not have to confront restrictions on funding that have stymied American investigators. Therapies in the trial stage include injecting bone marrow stem cells into patients with acute myocardial infarctions and transplanting endothelial progenitor cells into ischemic limbs of diabetes patients. However, some health experts warn that several Chinese hospitals promote unapproved and untested stem cell treatments.
Overall, China today occupies a promising position in the world of biotechnology. The country has well-trained scientists, a growing number of local businesses with the ability to compete on a global stage, the interest of foreign firms and legislation on intellectual property that is doing just enough to maintain that interest. But Western companies have often experienced more difficulty protecting their patents and making profits than they expected after entering the China market. Only time will tell if Chinese biotechnology can live up to the hype that surrounds it. But events in the next two or three years should provide crucial clues to the answer.
