This summer, a young Chinese biotech company made a big purchase. BeiGene, which is headquartered in both Beijing and Cambridge, announced its plans for a new 42-acre research and development campus in Hopewell, NJ, about seven miles west of Princeton University. The company, which specializes in anti-cancer treatments and already has a presence in Ridgefield Park, NJ, said the new space would allow it to recruit hundreds of new hires from the area’s “deep talent pool” as well as sharpen its focus on the U.S. market.
“BeiGene continues to grow and as a key part of that growth we are making a significant investment in the United States that will expand our current capabilities,” Michael Garvey, global head of technical operations at BeiGene, said in a statement.
Indeed, BeiGene has global ambitions. Since becoming one of the first biotech companies founded in China to be listed on the Nasdaq in April of 2016, it went on to raise $902 million for a dual-listing on the Hong Kong Stock Exchange in 2018 and this summer received approval for a third IPO on the Shanghai Stock Exchange in the hopes of raising another $3 billion. The company has received three FDA approvals for its mantle cell lymphoma drug in the U.S., and it has licensed one of its cancer treatments, Tislelizumab, to Novartis, a global pharmaceutical company based in Switzerland and recognized as one of the biggest players in the industry.
“This is really a sign of arrival,” says Willy Shih, economist and business administration professor at Harvard who co-authored the Harvard Business School case study on BeiGene in 2017. “Licensing one of their candidates to Novartis — that’s a suggestion of World Class capabilities. I think it’s really quite impressive.”
BeiGene is now valued at $34 billion, employs more than 6,000 people and has facilities in the U.S, China and Europe. “Cancer has no boundaries,” its website boasts. “Neither do we.”
BeiGene’s global success and its U.S. expansion are potential indicators that China’s focus on the biopharmaceutical sector — which it identified as a strategic priority in 2015 — is finally paying off. Since BeiGene’s IPO six years ago, more than a dozen biotech companies from China have been listed on the Nasdaq, including Wuxi Biologics and Gracell Biotechnologies. Chinese biotech and pharmaceutical firms listed on the Nasdaq now have a combined market capitalization of $70 billion. And in addition to BeiGene’s approvals, two more drugs developed in China have been approved by the FDA. Many of these firms have opened or plan to open offices, research and development or manufacturing facilities in the United States. In June, for instance, Delaware awarded WuXi STA, a subsidiary of Wuxi AppTech, $19 million in state investment and job training grants to build a manufacturing plant in the state.
But while the success of Chinese firms like BeiGene is undeniable, the biotech sector also represents an important test for China. Because biotech companies use living cells and cell materials to develop pharmaceutical products — biopharma companies, in turn, produce and sell those products — the industry is heavily reliant on novel, scientific research. Analysts note that this focus on science makes it fundamentally different from engineering or technology fields, such as telecommunications or semiconductors.
“You can’t get away with stealing technology, forcing tech transfer or just purchasing advanced machinery,” says Robert Atkinson, president of the Information Technology and Innovation Foundation, a nonprofit public policy think tank based in Washington, D.C. “In science-based industry, you have to figure out how to innovate on your own. And this is really the first science-based industry that China has gone after in a serious way.”
Abigail Coplin, an assistant professor of sociology and science, technology and society at Vassar College, agrees. “The degree to which biotechnology is inherently reliant on basic science makes it a little bit unique,” Coplin says. “It’s an industry that’s very much driven by scientists and their ideas, more than any kind of technological upgrading and supply chain upgrading.”
For biotech to thrive, companies need top tier talent, profits to feed their research and development budgets, and access to cutting edge ideas. And, for the foreseeable future at least, analysts say the United States, with its high drug prices and top research universities, is the best market to find all three. As BeiGene’s expansion shows, a U.S. presence is now a must for the ambitions of Chinese biotech firms.
“I think being in the U.S. is so crucial right now,” says Lianshan Zhang, president of global research and development at Jiangsu Hengrui Pharmaceuticals, China’s largest pharmaceutical company. “If you want to achieve the maximum valuation of your innovation, you have to be in both markets.”
‘CHINA’S GENENTECH’
From the beginning, BeiGene had a plan to be in both the U.S. and China markets. “It couldn’t be any other way,” John Oyler, BeiGene’s co-founder and CEO, told The Wire. “I’m an American entrepreneur and Xiaodong Wang [BeiGene’s other co-founder] is a Chinese scientist.”
Oyler, who has a background in biomedical engineering, had seen promise in the China market for years. In 2005, he founded BioDuro, a China-based contract research organization (or CRO in biotech parlance) that provided low-cost outsourcing work to nine of the twelve biggest pharmaceutical companies in the world. CROs, Oyler has lamented, are traditionally thought of as “places lacking in innovation,” but he saw potential in the talent and caliber of his Beijing operation. When BioDuro was sold in 2009, Oyler decided he wanted to start a true biotech company in China — one focused on innovation. Someone suggested he talk with Xiaodong Wang, a Chinese-American biochemist who was something of a biotech celebrity.
Wang had moved to the U.S. in 1991 for his graduate work at the University of Texas Southwestern Medical Center at Dallas and had studied under Joseph L. Goldstein and Michael S. Brown — Nobel Laureates for their studies of cholesterol. In 2004, Wang’s own research on apoptosis (the way cells die) made him the youngest member elected to the prestigious U.S. National Academy of Sciences (NAS) and the first member who was born and educated in the People’s Republic of China.
Oyler and Wang had known each other for years, but in 2009, Wang had recently returned to China to help launch the National Institute of Biological Sciences (NIBS), a strategic government research institute. When the two men got together for dinner in Beijing, they realized they shared a vision to create a Chinese company that some said would emulate the success of Genentech, a pioneer biotech enterprise that had just been acquired by Roche.
“Let’s build China’s Genentech,” Oyler and Wang reportedly agreed.
There was certainly a need. China’s enormous customer base was underserved and lacked access to innovative treatments. In 2010, when BeiGene was founded, the China Food and Drug Administration (CFDA)1Formerly the State Food and Drug Administration didn’t have a way to prioritize new treatments for approval; it handled innovative, potentially life saving drugs the same way as generics. Moreover, multinational pharmaceutical companies normally need to do just part of their clinical trials in the countries where they will seek sale authorization, but the CFDA made this process especially difficult, requiring foreign companies to file for additional regulatory approvals and do additional trials in China. Although the CFDA prioritized approval for domestic pharmaceutical companies, those companies simply didn’t innovate enough to fill the gap in demand and were equally hurt by the slowness of the CFDA process.
“China was seven to twelve years behind global markets in terms of having the drug registered in China and available,” says John Wong, chairman of Greater China at Boston Consulting Group who specializes in the healthcare industry.
BeiGene may have seen this regulatory bottleneck as its opening. It “in-licensed” innovative treatments at different stages of development abroad and conducted its own research and trials in China. In 2011, for example, BeiGene obtained the rights to further develop two oncology products from Johnson and Johnson’s Janssen Pharmaceutical and later commercialize the product — intetumumab — in China, Hong Kong, Taiwan, Australia and New Zealand. “In some sense, it was arbitrage initially,” says Harvard’s Shih of BeiGene’s early business model.
But BeiGene followed up with smart talent hires — including Chinese-born, U.S.-educated scientists that the company convinced to move back to China — and Oyler says it was BeiGene’s cross-border setup, with trials and facilities across the globe, that gave the company its edge.
“Cancers are treated differently in different parts of the world,” says Oyler, “and if you want to be global, you need to know what problems are out there and what are the existing solutions.”
But while BeiGene’s model saw some early successes, the China market was still immature.
“Generics and innovations — people didn’t know the difference,” says Samantha Du, founder and CEO of Zai Lab, one of China’s most notable biotech unicorn companies. “It was really hard for people to understand biotech, and the talent pool was very limited.”
Du is often called the “godmother” of China’s biotech industry. After a successful career at Pfizer in the United States, she returned home in 2001 to co-found and serve as CEO and chief scientific officer of Hutchison Medipharma, the biotech company under the holding company of Chi Med, where she was the chief scientific officer. Under her leadership, Hutchison Medipharma discovered and developed the first homegrown cancer drug to receive regulatory approval in China. During the early 2000s, Du says, she had to work hard to push back against a habitual reliance on traditional medicine instead of scientifically discovered treatments.
By 2015, however, things were starting to change. In the “Made in China 2025” ten-year plan, biotech was named a strategic priority. The same year, the government started to pass sweeping reforms to clear the CFDA application backlog, and the agency bumped its staff from 120 people to 600 people.2For comparison, the FDA Center for Drug Evaluation and Research has a staff of over 5,000. Then, in 2017, the CFDA detailed further reforms, including adding new treatments to the national reimbursement list and making it easier for foreign companies to conduct clinical trials in China.
“The reforms they put in supported building a biotech industry from scratch,” says Wong, from the Boston Consulting Group. “They created a much better market for more modern, new therapies, which were previously mostly paid for all out of pocket, and which — together with returning talent from the U.S. and investment from sovereign and private equity funds — created a thriving biotech industry.”
Both foreign and domestic biotech firms have prospered. Foreign drug makers have now prioritized the China market for many of their most innovative drugs, particularly those that treat cancer, and China is approving them at a record pace. Many foreign companies, however, still choose to collaborate with Chinese biotech companies like BeiGene in order to successfully enter the China market. In 2019, for example, Amgen paid $2.7 billion in cash for a 20.5 percent stake in BeiGene in a deal that was designed to help Amgen bring several of its oncology products to China.
Plus, the same reforms that made it easier for foreign companies to conduct trials in China also made it easier for Chinese companies to distribute their trials across the globe, helping them save time and expand to other markets — most critically, the United States.
“In the past, these Chinese companies only looked at China as a market,” Wong says. “Now, they’re capable of registering their drugs globally. And that’s the key thing. Because the U.S. market is by far the most lucrative market in the world. You look at the margins, globally, a major part of the big multinationals’ profits come from the United States. That’s why everybody wants to be there.”
THE U.S. TRIFECTA
Advances by Chinese companies like BeiGene into the U.S. market have been surprisingly uncontroversial. Although China has had a few scandals involving the collection of genomics data and bioengineering work, the biopharmaceutical industry, analysts note, has been largely successful at staying out of global politics.
“There is a free flow of ideas that is productive and essential to innovation in biotechnology, not just between the U.S. and China, but across most national borders,” says Vassar’s Coplin. “And so the industry, even as you move towards more commercial applications, tends to still adhere to those norms more than other high tech fields.”
It’s hard to make access to life-saving medicine political, after all. And most Chinese biotech companies concentrate on treating diseases such as cancer. China’s population is aging quickly, making the quest for solutions to the growing number of cancer cases more urgent. Last year, China accounted for 24 percent of newly diagnosed cancer cases and 30 percent of cancer-related deaths worldwide, according to a study by the Chinese Academy of Medical Sciences. Lung-cancer has been the most common and deadliest.
Chinese biotech companies’ choice to take on cancer first, however, was as practical as it was moral. Experts note that it is simply easier to build on ideas that already exist abroad, which is why young biotech companies in China embraced a category of pharmaceuticals known as “me-better” drugs — drugs that build on already established targets but improve the formula. BeiGene’s Zanubrutinib, for example, which it developed from an existing idea the company in-licensed, had fewer side effects than its predecessor.
While me-better drugs can be a significant improvement to existing treatment options, industry experts say that many investors from China are still uncomfortable waiting the years it would take to develop something truly innovative. As a result, many biotech start-ups, which need money to survive, focus on short-term gains.
There is a free flow of ideas that is productive and essential to innovation in biotechnology, not just between the U.S. and China, but across most national borders… And so the industry… tends to still adhere to those norms more than other high tech fields.
Abigail Coplin, assistant professor of Sociology and Science, Technology and Society at Vassar College
“Me-better drugs are preferred because you can show investors results quicker,” says Jun Bao, President & CEO of Impact Therapeutics, a biopharmaceutical company specializing in discovery and development of targeted anti-cancer treatments. “Chinese investors are less risk-tolerant compared to the U.S. investor. To attract capital investment, you have to demonstrate your progress very quickly — within three to five years.”
Still, Bao notes, with so many new companies following the same path, the “me-better” market in China has become so competitive that it’s now spurring real innovation. Because it’s now harder to get on the national drug reimbursement list to secure a steady profit, biotech companies have no choice but to find ways to differentiate themselves — and many are expanding outside of China in order to survive.
For companies like BeiGene, where innovation has always been the ultimate goal, this makes access to the U.S. market all the more critical. Unlike the Chinese government, which fiercely negotiates prices for even novel treatments, biopharma companies can charge whatever they want for treatments in the United States. In fact, most multinational companies make their largest profits in the United States. In 2020, for instance, 34 percent of Novartis’s revenue came from the U.S., while the next largest source was Germany, with just 9 percent. The U.S. accounted for a staggering 46 percent of Pfizer’s revenue. These profits, some argue, then feed the research and development budgets needed to innovate.
“Even though [Chinese biotech companies] might not make too much money in the China market, they can still make money in the U.S.,” says Jimmy Zhang, a former BeiGene director who runs the AccuGen Group. “When you look at a drug that takes that much money to develop, if you cannot sell as high as you could in the U.S. or even Europe, then that means the investors can’t get the money back.”
As BeiGene’s new New Jersey campus underscores, having a presence in the U.S. is also critical for recruiting talent and tapping into the “air of innovation” surrounding biotech hubs, such as those in Cambridge and New Jersey. By establishing research and development campuses abroad, Chinese companies gain proximity to cutting edge universities and laboratories — whose ideas biotech companies compete with one another to license — as well as sophisticated investors and top talent.
“There remains a pretty significant gap in terms of technological capacity and innovation between the biotech sectors in China versus the U.S. and other advanced economies,” says Scott Moore, a political scientist at the University of Pennsylvania and the author of How China Shapes the Future. “China’s biotech sector still needs foreign partners; they still need foreign technology, foreign talent, foreign investment.”
According to Jessica Wang, managing director of Hays China, a recruitment company, foreign talent is one of the biggest hurdles for Chinese biotech at the moment.
“The market demand is huge,” she says. “The shortage of talent, especially in leadership positions, in this area is getting even worse. We are actively looking for candidates from overseas, and given the hot market demand out of organizations, they are willing to pay more for top talents.”
Recruiting candidates to Chinese firms, Wang says, has proven challenging because of the scarcity of candidates with both scientific and business backgrounds as well as understanding of Western and Chinese cultures.
China’s biotech sector still needs foreign partners; they still need foreign technology, foreign talent, foreign investment.
Scott Moore, a political scientist at the University of Pennsylvania
But biotech companies with staff and facilities in China may have one important leg up. Clinical trials are typically one of the most expensive and time-consuming parts of biopharma development — according to some estimates, companies pay as much as $60,000 per patient, per round of trials. But thanks in part to China’s regulatory reforms as well as China’s large pool of “treatment-naïve patients” — those more willing to volunteer for pharmaceutical trials — many analysts note that clinical trials are more easily and cheaply done in China.
“For some therapies, such as gene and cell therapies, Chinese companies can get the human data in China sooner than they could get it in the U.S.,” notes Zhang. “And once you have the human data, that’s where you will know whether the drug has side effects and whether the drug has efficacy.”
It’s an advantage that Oyler, BeiGene’s CEO, seems to be counting on. Although BeiGene is still not profitable, he says they are on the path to be.
“The big challenge in biotech isn’t the creative and brilliant science,” he says. Instead, he says, it’s the less glamorous process of doing the work to bring new clinical centers into the system.
“China represents a quarter of the world’s cancer cases, twice as many as the United States, so you can run global quality clinical trials and enroll patients faster,” he says. And by increasing the speed of clinical development, he says, “you can get potentially life-saving medicines to patients around the world who need them.”
Anastasiia Carrier is a staff writer at The Wire. Her work has appeared in POLITICO Magazine, Harvard’s Radcliffe Magazine and The Brooklyn Eagle. She earned her Master’s degree in Journalism at the Columbia University Graduate School of Journalism. @carrierana22
