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Pharma Valley, China’s equivalent of Kendall Square, is expanding rapidly

03 OCT 2018
Yi-Ling Liu, STAT News•December 3, 2018
SHANGHAI — Harbour Biomed opened its first office in a Shanghai industrial park in 2016, with a team of eight people. Just two years later, it has become a global biotech company, with offices in Boston and Rotterdam and more than 150 employees. Here in China, they’re spread among three new labs, and a new office is under construction in walking distance to a cancer hospital. Even so, in Harbour’s original lab, scientists work shoulder to shoulder, sharing limited bench space.

That sort of explosive growth is not all that remarkable here: This is China’s Kendall Square, the epicenter of the country’s biotech industry, where scaffolding sprouts like weeds.

Harbour is only one of more than 500 biotech companies that have flocked to a 10-square-kilometer cluster known as “Pharma Valley,” with roughly 30 companies opening in each of the last two years, according to a drug company in the park.

Located within the government-established Zhangjiang High-Tech Park, Pharma Valley is where one in three medicines approved by the China National Medical Products Administration (NMPA) have been developed. Multi-national companies such as Roche and Novartis are a minute’s walk away from the glossy laboratories of contract research organizations and smaller, home-grown start-ups. Young professionals in sneakers bike through the tree-lined, campus-like streets and congregate at the Pharma Valley cafeteria at lunch hour over noodle bowls. At a Starbucks across the street, CEOs fuel up on coffee, tap away on IBM ThinkPads, and make deals.

“If we need to have a discussion on a collaboration [with another company], our team is just a holler away,” said Dr. Jingsong Wang, the CEO and founder of Harbour Biomed.

Although Pharma Valley lags its Boston prototype in capital, entrepreneurial talent, and scientific firepower, its biotech ecosystem is growing rapidly. When Christian Hogg, CEO of Hutchison China MediTech (Chi-Med) arrived 15 years ago, there was only a handful of buildings in the entire park. Since then, two new subway stations have opened in the area to ease traffic tie-ups, and office rents are now surging by roughly 10 percent a year.

Today, 70 to 80 percent of innovative biopharma activity in China occurs in Pharma Valley, Hogg said recently.

Kendall Square’s mature biotech ecosystem — with nearby world-class hospitals, a sophisticated network of investors, and abundant talent in both academia and entrepreneurship — will be difficult to replicate in China, Wang said. But what the Chinese biotech industry lacks, he added, it makes up for with unprecedented expansion.

“In general, things move at a faster pace in China, and everything adapts to the pace of change of society,” he said.

One of the most important reasons for Pharma Valley’s rapid growth is the public and private funding that has been poured into the Chinese health care and biotech industries in recent years. Chinese venture capital and private equity funds raised $45 billion for investment in the life sciences in the two and half years prior to June 2017, according to ChinaBio, a team of biotech and life science consultants based in Shanghai. In the last two years, China-based biotech companies such as BeiGene, Zai Labs, and Innovent Biologics have achieved public listings on the Hong Kong stock exchange.

Moreover, in contrast to biotech hubs in Boston and the San Francisco Bay Area, the push for innovation in Pharma Valley is largely driven by the Chinese government. Government research and development spending surged 12.3 percent last year in China to 1.76 trillion yuan ($254 billion), second only to the United States. China’s most recent five-year plan, which outlines the nation’s economic goals, states the biotechnology sector should exceed 4 percent of its GDP by 2020.

Zhangjiang High-Tech Park is one of more than a hundred life science parks across the country. Local governments in cities from Shenzhen to Hangzhou to Chengdu are attempting to create Pharma Valleys of their own, luring companies with tax breaks, research funding, and subsidies.

Following the money is a massive influx of scientists, both foreign and home-grown. Crucial to Kendall Square’s success, according to Wang, are the proximity of Harvard and MIT, world-class academic institutions that provide an important source of talent and innovation.

In China, the workforce is much more “fresh and green,” as Wang put it, and in need of training and education. So many biotech companies have been tapping into a talent pool of returnees. Known as sea turtles, or “haigui” — a Chinese homonym that puns on the words “turtle” and “to return” — these are Chinese citizens who have come home after attending college or graduate school abroad.

Of the 2 million haiguis who have returned in the past six years, it is estimated that 250,000 work in the life sciences. Many are drawn home by government programs such as the Thousand Talents Plan, which attracts scientists, academics, and entrepreneurs by offering financial incentives such as housing subsidies and research funding.

Zeke Li, senior vice president of Frontage Laboratories, a contract research organization, said a significant reason biotech start-ups such as Hua Medicine, Beigene, and Innovent have been successful is that they were founded by haiguis.

They’ve brought with them a different business model than the one followed by traditional Chinese pharma companies, which typically set up an entire infrastructure of internal labs and research teams. Like those in Kendall Square, many Chinese biotech start-ups are shifting toward a “VIC” (Venture Capital, IP, CRO) model — outsourcing research and development to CROs, keeping their workforce small, and using their capital on product development. Having spent time abroad, in market-driven environments such as Kendall Square, “the haigui understand the VIC model very well,” said Li.

While Chi-Med began by building a team of returnees, it has in turn begun to train a pool of local talent. Today, 80 percent of its workers are locally educated. “[Companies] need to tap into the deep reservoir of intellect that exists here,” said CEO Hogg. “China is one of the most enterprising business environments that you’re going to come across. There’s a lot of talent, energy, and hunger.”

Also driving Pharma Valley’s growth: the recent efforts by the government to reform and speed up drug approval. The regulatory path in China has been much less clear than in the U.S. Although China faces significant unmet medical needs — it has 30 percent of the world’s cancer patients, according to Hogg — and has the world’s second largest pharmaceutical market, only 4 of the 42 cancer drugs approved globally in the past five years are available in the country.

But the situation is changing. “China has made reforming the regulatory environment a top priority. [They] have torn down barriers bringing innovation to the China market,” said Hogg, citing the National Medical Products Administration’s introduction of priority review, for drug companies that submit applications with compelling data addressing an area of unmet need. Another regulatory change enabled Chi-Med to move through the system more quickly, because it could use third parties to produce its active pharmaceutical ingredient.

In September, Chi-Med introduced Fruquintinib, the first home-grown, China-discovered oncology drug to be approved in China, setting a precedent for more domestic discoveries to come. “This is just the tip of the arrow,” Hogg said. “Five years from now, many more companies will achieve what we have.”

Harbour Biomed, for example, obtained NMPA’s approval to start three clinical trials. Harbour is focused on treatments for cancer and immunological diseases, a major unmet need in China. It’s opening a new site in Puxi, on the western side of Shanghai, to move the clinical development team closer to clinical experts at Shanghai Cancer Hospital.

With teams in the United States, China, and the Netherlands, Harbour has cultivated a multi-cultural working environment, Wang said, assembling its management and scientific team from around the world. Like many biotech startups in China, “most of the core scientific and management team members are overseas returnees, with extensive experience in the pharmaceutical industry,” he said.

For many returnees, working for a home-grown start-up is less about money and more about influence. “Many [of our staff] are coming back to seek a bigger impact in the field, to lead a larger team, to have more decision-making power,” said Wang. “To be part of the driving force for the industry.”
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