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A handful of Chinese biotech firms are trying to convince Western drug companies that scientific research can be outsourced as easily as shoemaking. Are they right?
By KRIS HUNDLEY
Published September 18, 2005
[Times photos: Bob Croslin]
Justin Chen, left, and Yiyou Chen were lured home to China from the United States to start a biotech company.
Container trucks clog a highway through an industrial section of Shenzhen. Pollution is a major problem facing biotech companies in China's major cities.
BEIJING - The two Chens, Justin and Yiyou, found a compelling reason to return to China after more than a dozen years of studying and working in the United States: a $2-million investment in their biomedical startup.
The Chens, who were roommates at Peking University but are not related, founded Starvax Inc. in the United States in 2003, drawing on Yiyou's expertise in biochemistry and Justin's in intellectual property law. At the time, both were living in northern California after having completed postgraduate work at U.S. colleges.
Then Bright Oceans Group, a large Chinese communications company, offered the two men seed money. But it came with a hook: The Chens had to come home.
Justin Chen, Starvax's 35-year-old chief executive, said the move was a no-brainer.
"To start a biotech company in the U.S. with $2-million is almost impossible," said Justin, a native of Shandong Province, south of Beijing. "Here, we've been able to make it last for nearly two years."
Starvax is one of a handful of Chinese biotechs trying to convince Western drug companies that scientific research can be outsourced as easily as shirt- and shoemaking.
These startups promise highly educated scientists who work for as little as a tenth the pay of their U.S. or European counterparts. By farming out research projects, big pharmaceutical companies can lower the price of drug development and follow promising leads that might not be cost-effective to pursue at home.
But the truth is biotech research can't be outsourced as easily shoemaking. Starvax's early experience illustrates the difficulty Chinese companies encounter as they try to move up the value chain, from rote production work to complex scientific research.
"Our business is constantly changing," Justin said, with more than a hint of frustration. "There are a lot of obstacles."
Though the government has made efforts to crack down on theft of intellectual property in China, piracy of Western goods is rampant, with counterfeit versions widely available of everything from Louis Vuitton bags to Viagra. Fear of patent infringement - and little remedy in Chinese courts - has made Western drug companies think twice about shipping critical research work to offshore labs.
And while there is no doubt scientists are plentiful in China - as many as 200,000 in pharmaceutical research alone - Western companies often have found researchers educated in Chinese institutions are more suited for repetitive tasks than creative work.
"Recruiting talent is difficult," Starvax's Justin Chen said. "We have to do a lot of training."
But the two Chens think they have an edge in countering Westerners' reluctance to outsourcing science. Justin, whose English is impeccable after 13 years in America, said he's extremely sensitive to the piracy problem, having worked as an intellectual property lawyer in Silicon Valley before returning to China.
"Our clients have already filed their patents before they work with us," said Justin, who received his law degree from the University of Iowa. "And we have ways to control the IP (intellectual property) while it's here. But in fact, in biotech it's not quick and easy to copy IP. You can't make a drug in two days."
Addressing the research gap is Yiyou Chen, the company's 35-year-old president and chief scientific officer, who did a postdoctoral fellowship at the University of Utah's department of pathology. After Utah, he became a senior scientist at Genencor International, a giant Palo Alto, Calif., biotech.
Yiyou, who also spent 13 years in the United States and speaks perfect English, heads Starvax's staff of 24. About a third of the company's employees are returned Chinese.
"It is not easy to convince researchers in the States to return to China and it doesn't make financial sense to do so," Yiyou said. "But you need a key group that's able to bridge the differences (between East and West)."
Several major pharmaceutical companies have shown an interest in tapping Chinese expertise. Novartis, a Swiss drugmaker, has formed a partnership with the government-run Shanghai Institute for Materia Medica to identify compounds from traditional Chinese medicine for possible drug development. Roche Ltd. of Switzerland is opening a research and development center outside Shanghai. And Pfizer, which is building a regional headquarters in Shanghai, said it is considering building its own research and development center in China.
In Beijing, the municipal government is so eager to kick-start a biotech industry that it has invested millions in an ambitious science park about an hour north of the city. The Zhongguancun Life Science Park is a 670-acre complex that will include government research centers, major Chinese and foreign pharmaceutical companies and teaching hospitals. About a dozen companies already dot the meticulously manicured campus; among them is a research arm of the Danish drug company Novo Nordisk and China's National Institute of Biological Science.
Also open is a sleek, three-story biotech incubator that houses Starvax as well as a handful of other companies started by Western-educated Chinese entrepreneurs. The government-subsidized facility, opened a year ago, offers inexpensive office space, fully equipped labs, clean rooms and access to an animal testing facility.
The Chens said the incubator's staff has been supportive, helping them navigate government regulations, for instance. Starvax also hopes to parlay its proximity to big pharmaceutical companies in the park into research contracts.
"It doesn't cost that much to build a lab and we could find a facility closer to downtown," Justin said. "But then we'd be by ourselves. We see the big drug companies here as opportunities."
Though Starvax's chief scientist is eager to start several proprietary research projects, he understands cash flow for the first few years will come through contract work. The company currently is conducting toxicology, pharmacology and animal studies for several drug companies under what Yiyou calls "pay-as-you-go" agreements.
"Our value is providing hands and brains," Yiyou said. "We take research in the pre-clinical stage and move it downstream."
Starvax's major coup to date has been a partnership with Mologen Inc., a German biotech that has a colon cancer drug undergoing clinical trials in Europe. Starvax has licensed the drug for China and East Asia and has expanded research on the compound to see if it might work against other forms of cancer.
Justin said the co-development and licensing deal works to both parties' advantage. "Most Western companies are not going to be able to penetrate this market anyway," he said.
Despite their early success, both Chens concede their readjustment to China has involved some challenges.
Air pollution is so bad in Beijing, experiments that are conducted in open labs in the United States have to be done in clean rooms in China. And basic lab supplies that can be obtained within hours in America take weeks to resupply in China.
Starvax's founders also discovered that knowledgeable biotech investors are harder to find in China than in the United States. And though the Chinese government gives grants to some homegrown biotechs, Justin said, "We're still outside the circle. But we're working on it."
There also have been personal challenges. For all the promise and opportunity that China offered them professionally, the "reverse culture shock" and quality of life have extracted a cost: Their wives, each with a young child, opted to stay in California.
Information from Times wires was used in this report. Kris Hundley can be reached at email@example.com or 727 892-2996.
[Last modified September 19, 2005, 09:51:58]
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