Insights into Chinese biotech investment

One thousand years ago, entrepreneurs approached what was to become London through the south side of London Bridge. They were looking for new markets, ideas and financing. With inspirational views of the Thames and the Southside of London Bridge, our forum held yesterday echoed this entrepreneurship as Chinese investors come to the UK looking for answers to their healthcare challenges.

“Only 55% of drugs are effective so being able to more accurately identify then deliver the correct drugs could allow China to better address its healthcare challenges”. This was the opening statement of our discussion ‘Chinese investment into Biotech’.

Developing pharma in China

Alongside the maximum attendance round table, Mark Tucker, CEO TTS Pharma shared his insights into what it takes to develop a pharma business in China. Here are a few of the pointers he provided:

  1. Take your time: it has taken 9 years to get a manufacturing business established in Beijing for a project that is eligible for reimbursement by the Chinese healthcare system. Now established, he has a four-fold price advantage over firms importing the same product. This advantage will only increase in value as China strides towards its Made in China policy where 70% of all products supplied into the Chinese healthcare system must come from Chinese manufacturers. The path to growth will not be smooth
  2. Find a structure that works for you: establishing a corporate structure including a WFOE (Wholly Foreign Owned Enterprise) takes time. Ask advice from the international law firms and tax advisers as well as an increasing number of Chinese based firms before coming to your decision. For TTS they found the WFOE allowed their QP (Qualified Person) to provide the validation necessary to research and distribute their product in China. The first solution presented to you will almost certainly not be appropriate.
  3. Financial models: when you do your financial modelling, assume that 50% of your profit will remain in China. Give the size of the market and potential for profit generation this is not such a hardship although you may need to educate your UK shareholders of this fact.

Benefit and drawback of research in China: with access to over 300,000 regulated samples from just one hospital in China, accelerating research is much easier than through the NHS. However the efficiency of research is significantly lower than in UK labs which is why Chinese investors are seeking to buy up such labs.

Scale of investment

Dr Luke Zhou from BeyondLaboratory reviewed the 8 major investments of 2016 that amounted to £1bn. What was particularly interesting was the focus on R&D capabilities. Through the discussions that followed it became apparent that while established UK firms would remain of significant interest to Chinese investors, they were yet to fully embrace the embryonic innovators at the lower end. This was changing through establishment of Chinese funds that had capability to analyse and take the risk of investing in such ventures. Through investor forums established by the likes of China Investors Club and BeyondLaboratory, the agenda for the smaller UK is being promoted.