On Wednesday, brand-new startup Ascletis made a big news splash by announcing it raised $100 million to begin operations (see story). In an exclusive interview, Ascletis CEO and Co-Founder Jinzi Wu, PhD, told ChinaBio® Today that his company, while very young, is prepared to make its mark: “We understand the challenges in front of us. We have a unique business strategy for both long- and short-term. We have backup from good, serious investors, and we have a top-notch team,” he said.

And it has $100 million of initial capital. Although $100 million is a big number, almost unprecedented for China biopharma startups, it is not a lot of money for a full drug development program. Dr. Wu knows that, having worked for a number of small and big biopharmas in his 18-year career. Most recently, he was a vice-president at GlaxoSmithKline (NYSE: GSK), where he was in charge of developing drugs for HIV and could see first-hand how much money it takes to fund a drug development program.

To extend the $100 million of initial capitalization, Ascletis has already secured local support to make the money go further. “We have grants from the park [Hangzhou Hi-Tech Park] and local government,” Dr. Wu, PhD said. “They pay a percentage of R&D expenses with a cap. We expect to get similar grants from provincial and national governments.”

That shows the company knows how to make the most of its dual US-China heritage. The headquarters of Ascletis is in the Research Triangle in the US. Its operations, both R&D and manufacturing, will be located in Hangzhou. The company plans to in-license western drugs for cancer and infectious disease, which it will bring to China. It will also seek early stage projects in China, which it hopes to develop and then partner for the global market.

The Funding

The $100 million initial round was an exceptionally large funding for such a young company. And Ascletis is definitely new -- Dr. Wu was still working at GlaxoSmithKline until February 1. Just like the funding, the backstory of the company’s genesis seems almost too good to be true.

Ascletis’ major investor is Jinxing Qi, a Hangzhou billionaire who made his fortune in real estate. Qi and Wu are long-standing friends, but their friendship was always social, not based on their respective careers. “He was in real estate, and I was in pharmaceutical development, so we never talked business,” said Wu. Still, every few years, when Wu would visit China, the two would have lunch or dinner.

Last August, Wu broached the idea of biotech investing to Qi for the first time. “Real estate has been a good investment for a long time,” he told Qi. “But maybe that is over, and biotech is the next important investment.” The idea was completely new to his friend, but Qi mined the brains of his associates for information about pharmaceutical development the next day.

They must have given him an upbeat assessment, because Qi called Wu for another dinner that night to explore the idea further. In their discussion, Wu explained the opportunities and the risks of pharmaceutical development, “laying out what a company could do and what it can’t,” said Wu.

That conversation continued for several months until, in December 2010, the two made an agreement they would form some kind of venture together.

Angel Investors

Mr. Qi and the syndicate he formed are not venture capitalists, the usual source for fundings in the $100 million category. They are individuals, who are operating more like angel investors, even though they have the financial clout of VCs.

Nevertheless, after speaking with Mr. Qi in August, Dr. Wu did speak to venture capitalists about his ideas for a company. “They wanted assets,” Wu said. “If you had a drug candidate in hand, they would talk to you. But without a specified project, they weren’t interested. They don’t invest in people.”

Wu had a different set of criteria in mind. “I was interested in trust,” he said. “I wanted to know the people I was dealing with and have faith in them. And they had to trust me as well. If we didn’t have trust between us, I didn’t want to get involved. After all, I was taking a risk as well: I gave up my high-paying position at GSK.”

As most people know, business in China is built around relationships. But Wu believes most foreigners don’t know how to go about creating the right kind of relationship. “You have to build trust first before you begin talking about money. You have to be honest and have open communications. You need to say: ‘Here’s what I can do for you in five to ten years. What is the best scenario? What is the worst scenario? Here is the plan.’ Transparency is the key,” he counseled.

Business Plan

Plus, Wu says, you must have an attractive strategy, which is difficult in pharmaceutical development because of the long path to drug approval. For that reason, Ascletis created a two-pronged business plan, which creates a near-term return while it builds long-term value.

Wu didn’t feel investors would be interested in a project that lost money for the first five or six years. Thus, he plans to develop some income by licensing late-stage drugs and bringing them to China, bringing in near-term revenue. Meanwhile, in China, he will license early stage drug candidates and develop them. Although this will be the source of the major returns, it will take time. As a stand-alone investment, it wasn’t compelling. Together, he feels the two-stage business plan is viable.

“Our near-term timeline is five years. If we are lucky, it could be three to four years, though we told our investors three to five years is the most probable,” said Wu. “Long term, our best scenario is five to seven years, which could be an out-licensing, an IPO or something else. It’s too early to predict exactly what will happen, but we know we don’t have 10 years to create long-term value. It must be done before that,” he stated.

The advantages of a large angel syndicate are many, according to Wu. Chiefly, the large funding creates stability. Previously, when Wu was involved with a small biopharma, he was on the road every two years, conducting another funding round. The people working in the company’s lab were always worrying about their jobs, and he only had one year out of every two to develop the pipeline.

In the present situation, Wu appreciates his investors, whom he characterizes as a naturally cautious lot, very careful about knowing the risks and opportunities of the venture. The advantage they offer, said Wu, is that once they have made a decision, they move forward. It wasn’t necessary to have an endless stream of meetings.

Ascletis’ Angel Funding as Model for Other Startups

Asked if the angel funding could be a model for other fledgling China biopharmas, Wu said he thought it might be. After all, he pointed out, most of the money in China is not in the hands of VCs. It belongs to people who have been successful in other industries, which are not usually high tech.

For the past ten years, these people have been buying apartments until they have several or even many of them. But the government has put regulations into place to stop this practice, and wealthy individuals must find other investment outlets. These individuals are the potential source for new startup capital, though Wu cautions that as savvy investors, trust remains the biggest issue.

Asceltis’ Prospects

Wu acknowledges that there is a fair amount of competition for what Ascletis expects to do. But he thinks his team, a group of very successful biotechnology executives and scientists, will be a significantly persuasive tool. His potential partners are companies with drugs needing development. For them, the major question always is: Can you deliver? Wu says his team can answer: We have done that. That confers the reassurance that small biopharmas are looking for.

He continues by adding that Ascletis knows how to in-license products which are right for China because his team has an insider’s knowledge of the market. Plus, he slyly adds, the company’s $100 million funding is an impressive tool, indicating financial capability.

Indeed, to reach its goals, Ascletis needs only to be as successful at licensing and R&D as it is at fundraising. Clearly, they are a persuasive company.

See our other articles on Ascletis.

Disclosure: none.