Fair play? Maybe not. But eminently possible in a country that takes so many of its health care cues from the West. Another
door opens for US drug makers because the vast majority of life sciences companies in China are marketing traditional Chinese
medicine, where quality issues comes into play. With so many American-educated Chinese doctors and medical researchers heading
back home to ply their craft in China, chances are many will be taking their US training back home with them—at the expense
of Chinese medicine and drugs. These doctorate-carrying expatriates will convince their countrymen and women that Nexium is
probably a better bet for stomach problems than bear bile or gum tree extract.
Another issue that is potentially beneficial to US biopharm companies is the fact that 90% of Chinese in major cities like
Shanghai, Beijing, and Guangzhou are covered by state-sponsored health plans. That's a ready made customer base that's at
least 80 million strong, leaving plenty of opportunities for US companies to make their case to Chinese consumers, if they
can get past the preference (for now) of cheaper generic drugs by thrifty government health care officials.
CAUSE FOR CONCERN
One issue that has haunted US drug companies looking to operate in China is the propensity of Chinese biopharm companies to
rely on counterfeit drugs. But in July 2005, the US and China agreed on a long-awaited reform on patent protections that should
inoculate US companies from Chinese counterfeiters. Now, Chinese companies that engage in patent infringement and counterfeiting
could face fines and penalties of anywhere between $400 million and $1 billion.
Outside of the intellectual property issue, US biopharm companies can't expect too much more help from Chinese authorities,
especially in terms of seed money for new life sciences ventures.
While the Chinese government does spend about $600 million annually on biotech research and development, further sources of
local funding are few and far between. In recent years, China has opened a funding pipeline through local venture capital
firms but money is scarce and typical investments rarely reach the $1 million or $2 million that new biopharm ventures can
count on in Western countries. Still, labor costs are low in China and the government can contribute in other ways, especially
in added funding for infrastructure and other industrial needs that foreign companies need when setting up shop in China.
US companies who have yet to establish a presence in China run the risk of being left behind. Already, firms from other Western
countries like Canada (Dragon Pharmaceuticals) and the United Kingdom (GeneMedix PLC) have established successful manufacturing
bases in China.
Some companies are looking to play catch-up via the acquisition route. That's what US-based Invitrogen Corporation did through
its purchase of BioAsia, a Shanghai-based bio-services company.
Invitrogen, like the handful of US companies that preceded it into China, all see the same profitable landscape. Low-cost
levels of entry, a low-cost, yet highly-skilled labor pool, a government bound and determined to establish a haven for life
sciences companies, and a vast consumer market of Chinese looking to step forward into the healing light of 21st century healthcare.
"Add in China's entrepreneurial culture and it all indicates a promising future," notes Matthew Chervenak, president and founder
of General Biologic, a Shanghai-based professional services firm. "If China implements appropriate regulatory structures for
IP protection and capital markets, which may take a long time, the industry's natural drivers will make China's emergence
as a strong player in the field inevitable. Within many products and services sectors, China is poised for dominance."
Celebrity author and business/finance commentator for CNN and Fox News, Brian O'Connell has written for The Wall Street Journal and Newsweek, 79 Radcliffe Drive, Doylestown, PA 18901, 267.880.3144, fax 267.880.1939, brian.oco@verizon.net
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