The world of China life science is currently “ascendant,” according to Greg B. Scott, Executive Editor of ChinaBio® Today. Scott based his assessment on the convergence of global forces that makes China the hotspot for life science companies in 2010. He presented his remarks at the second annual ChinaBio® Executive Workshop held in conjunction with this past week’s JP Morgan Healthcare Conference in San Francisco.

Scott’s task was to present an overview of ChinaBio’s research into the current state of China’s life science landscape. His discussion assessed the opportunities currently available in China for life science companies – which are tremendous – and also presented statistics showing the growth in China’s life science sector – also huge – over the past few years.

Scott’s analysis presented a great deal of data to detail his picture of China’s opportunity. An absolutely core aspect of that picture is the value proposition that China offers to the world’s pharmaceutical community – its combination of low cost and high quality work – which has been in place for a number of years and remains intact.

Added to that is the Hai Gui or “sea turtles” phenomenon, the China-born scientists who have profited from Western education and pharma experience and now bring that knowledge back to China. According to the Ministry of Health, there have been 150,000 returnees in the last three years. A factor for several years, the Hai Gui trend continues to grow: 69,300 returnees were counted in 2009, a 69% increase over the year earlier.

China is driven to innovate, with government incentives for those companies that explore new technologies. This resulted in 717,000 patent applications in 2008, an increase of 22%. All of this is motivated by government stimulus money and increased funds across the board for R&D.

And the cluster effect is also making itself felt. There are many “Silicon Valleys” in China, providing a fertile mix of encouragement and competition for life science entrepreneurs.

Globally, China is helped by a vibrant economy, which seems determined to lead the world out of its recession. China’s GDP is predicted to grow by 10% (at least) in 2010. At the same time, big pharma is restructuring by doing more partnering deals to spread its R&D risk. That results in more R&D dollars available to small biopharmas with interesting research programs.

Official funding for research has reached impressive levels in China. There is a staggering array of official sources of funding is available to innovative companies:
• The 863 Program will spend almost $5 billion over the next few years to promote companies and research;
• The Mega New Drug Program will funnel more than $12 billion to companies with innovative projects; $1 billion has been allocated already to 53 universities/institutes and ChinaBio has identified over 80% of these grants;
• Provincial governments have their own programs; and
• Individual life science parks located around China are vying with each other to entice companies to locate operations in their facilities. The major parks are Zhangjiang Hi-Tech Park in Shanghai, Zhongguancun Life Science Park in Beijing, BioBay in Suzhou, and TEDA in Tianjin, and they are joined by smaller parks as well as incubators, which together number more than 50.

This funding has had a stimulus effect, causing the numbers of published patents for new molecules to rise:
• In 2006, patents were granted for 382 new chemical entities, a 43% increase over the year earlier;
• So far, 409 patents have been published from filings in 2007 and 406 in 2008, suggesting that activity may have leveled off. ChinaBio believes that most likely the data for the last two years are not complete, due to the delay in publishing patents, and we will see further patents published in the future, pushing the totals higher.

Clinical trials show an equally robust activity. From 2004 to 2009:
• A total of 149 drugs were in SFDA trials;
• 110 new drugs entered the clinic;
• 26 new drugs launched (9 novel molecules);
• 7 new drugs entered and launched;
• 122 new drugs are currently in clinical trials; and
• 187 new drugs are in preclinical development;
• In 2009, 12 new drugs entered the clinic and 3 new drugs were launched.

Not surprisingly, 2009 saw a slowdown in venture capital investment in life science. For China life science, 2009 saw $327 million in announced funding, a relatively small 20% decrease from the year earlier. The money was invested in 30 deals for an average deal size of $11.7 million. Although the numbers were down year-over-year, China life science fared better than most sectors during a time when VCs became very cautious and curtailed their overall activity.

When the worldwide financial crisis was at its worst, IPOs dried up for China life science – just as they did for all other sectors. However, in the second half of 2009, companies began tentatively venturing out into the IPO arena. When the ChiNext exchange opened in November, the mood changed to ebullient, with five life science companies making their public debuts at prices that caused the rest of the world to marvel.

Adding up the value of 2009’s China life science IPOs, they totaled $2.2 billion, which crushed the meager $168 million from 2008, though it still trailed 2007’s $2.7 billion. In the second half of 2009, there were fifteen China life science companies that made their public debuts, five of them taking in over $100 million and one that raised more than $1 billion. The average deal size was a healthy $169 million.

There were mixed results for two other metrics of investment health: M&A and Partnership. In 2009, the number of M&A deals fell from 61 in 2008 to just 23 in 2009. Deal size also dropped, falling from $54 million in 2008 to $23 million in 2009. As a result, the total activity was worth only $440 million last year, a 75% decline from 2008’s figure of $1.8 billion. Activity last year seemed to center on service companies (PPD, Inc. made two major acquisitions of CRO companies), and TCM companies were also favored.

On the other hand, partnership deals in 2009 were up 41% to 52 announced agreements. The biggest growth seemed to come from pharmaceutical companies and academic entities deciding to collaborate.

The ChinaBio Executive Workshop

This week’s ChinaBio Executive Workshop was attended by over 80 people, the largest ChinaBio Executive Workshop held to date. It was sponsored by the law firm Morrison & Foerster LLP, which has a Life Science practice staffed with 160 attorneys and offices in Shanghai, Beijing, and Hong Kong, as well as Tokyo, Europe and the United States.

Two of Morrison & Forester’s distinguished attorneys also made presentations at the Workshop. Brian Cunningham, JD, Senior of Counsel, spoke on “Structuring a Global Life Science Company.” Peng Chen, PhD, JD and Partner discussed “Building a Global Patent Portfolio.”

All three of the presentations were taped by Essinova and will be made available on their website (www.Essinova.com).