‘Innovation’ nation

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China is finally embracing biopharmaceutical innovation, but it is innovation that looks different from that in the West.

Lingshi Tan is the founder, chairman and CEO of dMed Pharmaceutical, a fast-growing contract research organization in Shanghai, his last stop in a long career in drug development. He lived through the Cultural Revolution in China before leaving for his PhD in the United States, and then worked for Schering-Plough and Pfizer before coming home. His story is one of return.

Bowen Zhao, on the other hand, never left. He’s the founder and CEO of microbiome company QuantiHealth, located in Beijing. Zhao has no advanced degree, did not even attend college and still found success in the life sciences through connections, great ambition and keen intelligence. They represent different generations of entrepreneur who are spearheading growth of China’s bustling life sciences sector.

Credit: Brady Huggett

Despite the burgeoning industry, a hard look at the country’s biotech companies reveals a thicket of challenges that limit innovation in drug discovery: an academic sector marooned from industry, a rudimentary healthcare and clinical infrastructure, regulatory and reimbursement red tape, and state-run enterprises where new therapeutic modalities are an alien concept.

But China’s life science companies are still innovating—mostly in the later stages of drug development. And with proactive government support, a billion-patient market and a motivated workforce, they just might challenge the hegemony of the US biotech sector. This is good news not just for China, but for the world.

Trading places

Lingshi Tan grew up on the grounds of Hubei University in Wuhan, China, where both of his parents were professors, so perhaps it’s not surprising he found a life in science. But given that he also came of age in the teeth of China’s Cultural Revolution, in some respects it is a miracle.

The anti-bourgeoisie movement swept up Tan’s parents: his mother was sent to a farm as part of education reform, and his father was demoted to principal of a local high school, where he was confined and subjected to Thought Reform—a sort of rehabilitation to correct seditious ideas regarding communism and capitalism.

For a while this left 8-year-old Lingshi and his younger brother orphans at Hubei University, gathered and sleeping with other university children in a large meeting room. Tan was forced to be the parent, counseling his younger brother on when to eat their rationed hard-boiled eggs and trying to answer his brother’s questions about their mother and father, though he didn’t understand it himself. One day he reached some internal breaking point, and he and a friend walked across Wuhan to the high school where his father was being kept. The plan was to tell the guards he needed textbook money—surely they would let him see his dad for that—but the guards simply went inside and came back with the money, and turned the boys away.

“That was pretty difficult, mentally,” Tan told me. “Even though it was just one incident, I can’t forget that.”

It was nearly a year before Tan’s family was fully back together, but even as the most violent aspects of the Cultural Revolution faded, the Central Party upheld the suspension of university entrance exams, called the gaokao, until after Chairman Mao Zedong’s death in 1976. By then Tan had become part of the ‘sent down youth’—another campaign to educate city people on the value of labor—and assigned to a tea farm in Jiayu County, where his job was to help feed the workers. He spent his days overseeing “vegetables and pigs” and picking tea leaves, he said.

But then things began to turn. The government reinstated the gaokao, and Tan rushed to apply, along with 10 million other applicants hungry to better their lot. He “got lucky,” he said, made the cut and enrolled at Hubei University for a bachelor’s in mathematics, and when that was done he began applying to universities in the United States for graduate school.

He was accepted into a university in Pennsylvania. He packed a single suitcase in 1985 and had less than $100 in his pocket for the trip. His girlfriend, whom he’d met at Hubei, had been accepted into the graduate program at the University of Alaska and was leaving for the United States too. It was an exhilarating, terrifying prospect for them both. China has been inward-looking and insular for decades, burdened by poverty. Tan himself had never left the country, had never been on an airplane. “We didn’t know anything about the outside world back then,” he told me. “And then it opened up like another planet.”

Going places

Lingshi Tan, founder, chairman and CEO of dMed Pharmaceutical. Credit: Travis Huggett

Lingshi Tan is one of millions of Chinese who have gone abroad for schooling since the end of Mao Zedong’s reign, and he is one of the many thousands who have returned later in their careers to a fast-growing China. Mao’s twin political disasters—the Great Leap Forward, which preceded the Great Famine, and the Cultural Revolution—killed tens of millions Chinese and left the country deeply trailing the West by almost any metric. Yet after the country ‘opened up’ following Mao’s death, letting foreign investment and elements of capitalism into its markets, the result has been beyond anyone’s imagination. The country has averaged a 10% increase in gross domestic product annually, and it has lifted some 800 million people out of poverty. Life expectancy has risen from ~44 years in 1960—right in the heart of the Great Famine—to 76 years in 2016, well above the world average of 72.

Along the way, many Chinese have gotten rich. The United States had 585 billionaires at last count; China now has 476, but it is gaining faster—last year it added 89 to its tally, while the United States added just 18. For all the horrors of the Great Famine and the Cultural Revolution, the China of the past 40 years has been one of nearly untrammeled economic upward mobility.

Bowen Zhao knows only this China. He grew up in an ascendant country, surrounded by entrepreneurial success stories. By junior high he was already eager to “prove himself,” he says, and he began looking for an internship or a lab assistant position. He scored a prestigious one while still in high school, at the Chinese Academy of Agricultural Sciences (CAAS) in the Institute of Vegetables and Flowers. The genetics and biology he encountered there were so captivating that he began skipping his afternoon classes to head to the lab—a decision that left him without official status as a high school graduate, though he passed all his final exams.

The work Zhao was doing at CAAS relied on Shenzhen-based Beijing Genomics Institute (BGI) for data. “BGI was like a black box,” he said. “We sent the DNA there and they digitized it, sent us back the files. That was like magic to me.” He left CAAS for an internship at BGI, becoming part of a “science special forces” in the R&D department, where he learned bioinformatics and coding. He eventually formed his own lab within BGI and was soon contemplating launching a Chinese version of the US-based personal genomics company 23andMe, until he realized people got their genome sequenced only once or twice in their lives, and the market for sequencing microbiomes was “100-fold” larger.

He left BGI and founded QuantiHealth in 2014. Today the company processes about 100,000 samples annually, mostly through hospitals. Media coverage of Zhao has predictably focused on his age and the fact that he did not go to college—a familiar, genius-drop-out narrative—yet Zhao knows he is unusual.

“In this field, statistically, I am an exception,” he said. “Maybe five years ago, it was not even reasonable for a guy who did not study in the US or did not know the frontier of industry to start a company that was on the cutting edge. But I do see other entrepreneurs like me now.”

Bowen Zhao, CEO and founder of QuantiHealth. Used with permission from QuantiHealth.

It’s this mix of returning, experienced drug makers like Tan and ambitious, entrepreneurial young people like Zhao that the one-party state seeks to harness, turning China into an “innovation nation” by 2020 and a world powerhouse in science and technology by 2050. To reach these goals, the country’s leaders want to boost R&D spending as a share of GDP (from 2.1 to 2.5%), double the number of patents filed by Chinese companies, and raise the percentage of citizens possessing scientific degrees.

A special emphasis has been placed on the life sciences, with the ‘Made in China 2025 Initiative’ singling out biotech (among nine other sectors) to receive generous public funding. The government’s most recent Biotechnology Development Plan calls for “20–30 leading new technologies to be developed by 2020, as well as 30–50 major strategic new products.”

Grand ambitions are typical of China, and it has already begun assembling the talent, space and financial requirements to meet them.

Mass innovation

For decades now, the scientific life has held great esteem in China. To make up ground after the upheaval of the Mao Zedong period, the Central Party began promoting a slogan to its populace. Roughly translated, the message to the youth of China was: “Master math, physics and chemistry, and you can travel the world without fear.”

The message sank in. Following the recommencement of the gaokao, Chinese students began going abroad to study in the vaunted universities of the United States—first 1,000 annually, then 10,000, then 30,000, and by the 2017–2018 academic year more than 363,000 Chinese nationals were studying in the United States, many of them focused on the sciences (Fig. 1). This migration shows no sign of abating: data from China’s Ministry of Education indicate that 662,100 students in total went abroad for study in 2018, but in recent years, the number of graduates returning to China after degrees has increased—in 2017, 480,900 came home (a 12% jump over the previous year), and another 519,400 in 2018.

Fig. 1: Size of pool of Chinese students in the United States annually from 2000 to 2018.

The influx of Chinese students into the United States went through a rapid rise starting in the mid-2000s, but is starting to slow. (Source: Institute of International Education, https://www.iie.org/).

The higher number of returnees is driven partly by an increasingly hostile environment for Chinese nationals in the United States and partly by China’s rising standard of living and increased opportunities for its citizens, but it has long been fueled by China offering full professorships or equivalent positions for gifted postdocs or junior faculty. In 2008 the Chinese government launched the Thousand Talents Plan, which offered both Chinese nationals and foreigners permanent resident status, tax-free signing bonuses, start-up awards, housing benefits, relocation funds and promises to help spouses find jobs, in return for bringing their talents to China. By 2018 more than 7,000 accomplished scientists had relocated to China through these programs.

Chinese authorities have also set about providing 21st-century facilities to host state-of-the-art laboratories and incubators for life science companies. Beijing’s Zhongguancun area, Wuhan’s Donghu and Shanghai’s Zhangjiang are the country’s first “demonstration zones for indigenous innovation,” and local and national officials have now constructed more than 100 national-level high-tech and economic industrial parks that house biotech, as well as more than 400 biotech parks at the provincial level since the turn of the century.

The goal has been “mass entrepreneurship and mass innovation”—a term introduced by China’s Premier Li Keqiang in 2014 at a speech at that year’s World Economic Forum’s ‘Summer Davos’ in Tianjin. The next year, larger city and provincial governments across China began pioneering ‘guiding funds’ that promised to match amounts of private venture financing but cap the government’s upside at around 10%, allowing investors to buy out the government shares at that rate. Guiding funds not only provide extra capital to aspiring biotech startups, but also add an extra incentive for private investors to follow the government’s lead (Tables 1 and 2).

Table 1 Top ten venture financings in China
Table 2 Top ten Chinese biopharmaceutical initial public offerings

That has helped overall private funding for Chinese biotech companies to grow tenfold in just five years, with most of that money flowing to enterprises based in Shanghai, Beijing and Suzhou. Last year, Chinese biotechs raised $2.9 billion in venture capital funding, according to data from Dow Jones Venture Source. That is more than double the amount from 2017 and surpasses for the first time the amount raised by European biotechs (Fig. 2).

Fig. 2: Private investment in Chinese and European biotech companies.

China is starting to outpace Europe in private investment into the biotech industry. (Source: Dow Jones Venture Source).

At least in the short term, this financing trend is set to continue. The average Chinese life science fund size in 2018 was $764 million, with ~$43 billion of dry powder raised and waiting, according to figures from consultancy ChinaBio.

Investors in recent years have begun to see returns—there were 218 mergers and acquisitions including Chinese biopharma companies in 2018, with a record-high average value of $209 million. Chinese companies lacked a local regional stock market on which to float, yet after bellwether biotechs Beijing-headquartered BeiGene and Shanghai-based Zai Labs went public on Nasdaq in 2016 and 2017, Chinese authorities had seen enough. In April 2018, the rules of the Stock Exchange of Hong Kong were relaxed to permit companies with no revenue to list, and in July Ascletis Pharma of Hangzhou was the first biotech company to go public on the Hong Kong exchange, raising $400 million by selling 224 million shares. Soon after, BeiGene raised $903 million, followed by initial public offerings from Hua Medicine and Innovent, which raised $114 million and $485 million, respectively. In November 2018, Chinese President Xi Jinping also announced plans to start a science and technology trading board on the Shanghai Stock Exchange. The moves are intended to benefit Chinese companies seeking exits, increase venture capital investment, and whet the appetite of local private investors.

In short, money is a constraining factor for the growth of biotech in many countries, but that has not been the case in China.

Unblocking approvals

While money has been forthcoming, China’s creaking and antiquated system of regulatory oversight has been a major restriction to true innovation in drug development. Just a little over a decade ago, China’s then-main regulatory agency, the State Food and Drug Administration, was in shambles. In 2007, the agency’s former head, Zheng Xiaoyu, was executed on corruption charges (Nat. Biotechnol. 25, 835–837, 2007). A year later, contaminated batches of heparin from China tainted US supplies of the drug with oversulfated chondroitin sulfate, resulting in the death of 95 Americans (Nat. Biotechnol. 26, 669–675, 2008). It has been a pitched battle for legitimacy since, and as recently as last year, vaccine-maker Changchun Changsheng was found to have violated standards in at least 500,000 vaccines for whooping cough, diphtheria and tetanus, weakening the public’s trust in the agency and resulting in another purge of its leaders.

The regulatory system has also been plagued by delays for companies seeking to register new drugs. Jinzi Wu, founder of Ascletis Pharma, returned to China through the Thousand Talent program, after spending years at Immunex, Amgen, Novartis, Sanofi, Ambrilia Biopharma and GlaxoSmithKline. He established Ascletis in 2013 as an in-licensor of drugs for the Chinese market, but when he filed his first New Drug Applications he ran into bureaucracy at both the provincial and national levels and reviewers who “immediately recoiled at anything that didn’t look like a typical generic drug,” he said.

His experience exemplifies the larger problem: the drug regulatory agency was ill prepared for innovation in nearly every way. To address this, four years ago the government began a focused overhaul. The State Council announced that the Chinese Food and Drug Administration (CFDA), as it had been called since 2013, would be renamed the National Medical Products Agency (NMPA), with specific goals of improving the quality, speed and transparency of the drug review and approval process; eliminating the backlog of pending drug applications; and mirroring the gold-standard processes of regulators like the US Food and Drug Administration and the European Medicines Agency. Reforms also implemented the Generic Quality Consistency Evaluation (GQCE) to phase out low-quality, non-substitutable generic products from the Chinese market. To finance this rebuild, registration fees for domestic drugs were increased from $5,642 to $100,589—a 20-fold leap in a matter of months that left domestic generic manufacturers grumbling.

Yet it allowed for radical change. The NMPA increased the number of reviewers from 120 in August of 2015 to 725 by the summer of 2018. It is still early days, but the extra bodies at the agency appear to be working: by mid-2018, a backlog of 22,000 drug applications had been reduced to just ~3,200 applications. Newly approved drugs from rest of world, traditionally delayed entry into China by 5–7 years, are now reaching Chinese patients faster. AstraZeneca’s Tagrisso (osimertinib), cleared for lung cancer in the United States in November 2015, was registered by NMPA less than a year and a half later through the new priority review pathway. And in December 2018, the anemia drug roxadustat from FibroGen China, AstraZeneca and Astellas, a first-in-class, small-molecule hypoxia-inducible factor prolyl hydroxylase inhibitor, was approved in China before any other country.

To bolster the international credibility of its regulator, China in 2017 also joined the International Council for Harmonization, an organization that provides standardized guidelines for pharmaceutical development and whose members include the United States, Canada and Japan. Member countries are allowed to submit the same drug application documents among respective agencies. Although this will likely make it harder for Chinese generic drug producers to win approval for their products, it should open up the market to both local and foreign companies seeking to give Chinese patients access to a range of new drugs. In August the country amended its Drug Administration Law, which, among other things, allowed drug developers to contract out manufacturing to third parties, provided priority review for rare disease drugs or those meeting an urgent need, and upped the penalties for violations of the new law. And it is now possible to use phase 1 data gathered outside China to support a new application at the CFDA, a move that Wu, from Ascletis, called “completely transformative.”

Already, China has seen progress from these reforms. The number of commercial drug launches in China increased from 5 in 2014 to 35 in 2017. Notably, only 1 of the new approvals in 2014 was from a foreign company; in 2017, 34 of the 35 new approvals were for drugs outside of China.

Because novel drugs have been absent from China, generics have monopolized the market and commanded higher premiums than seen elsewhere in the world. Bloomberg data suggest that, among the top 100 generic drug makers in China, domestic generic firms had a 74% gross margin and an 18% profit margin in the third quarter of 2018, compared with 55% and 9.5% across the globe. This is a problem for the Chinese government because generics eat up a hefty portion of the healthcare budget.

The government has set about addressing this through its ‘4 + 7’ scheme (Box 1). The country currently relies on provincial, municipal and even individual hospital lists of approved drugs, with patients being reimbursed only for drugs that appear on these lists. The National Reimbursement Drug List (NRDL) is the largest, applying to patients nationwide, and thus it is the biggest prize for drug makers. The bargain, though, is that inclusion requires hefty discounts: the average price cut for a drug on the list during 2017–2018 was more than 50% of the sticker price.

In 2017 the government added 340 drugs to its NRDL; and at least 128 joined the list in 2018, according to data from the consultancy McKinsey. Many of these were foreign made, with high prices. Their presence in NRDL has signaled to the outside world and Chinese entrepreneurs that the country is willing to pay for high-priced and cutting-edge drugs.

Innovation of a kind

BeiGene is one of China’s largest and most successful biotechs, and it often held up as an example of China’s newfound innovation. It was started in 2010 by American entrepreneur John Oyler and Xiaodong Wang, a Howard Hughes Medical Institute investigator who trained with Joe Goldstein and Michael Brown at the University of Texas Southwestern. Wang returned to Beijing in 2003 to found the National Institute for Biological Sciences, which sits across the road from BeiGene.

BeiGene’s original business model sought to in-license drugs newly approved in the West and take advantage of the lag between rest-of-world approval and entry to the Chinese market (see Box 2). It was a shrewd business plan, but in essence was ‘follow-on’ drugs masquerading as innovation. Since then, BeiGene has shifted emphasis. Today, in addition to the in-licensed drugs Abraxane (paclitaxel, Celgene), Revlimid (lenalidomide, Celgene) and Vidaza (azacitidine, Celgene) that it markets in China, the company is developing a pipeline of homegrown drugs, including a small-molecule poly(ADP-ribose) polymerase (PARP) inhibitor, a small-molecule programmed death receptor 1 (PD-1) inhibitor, and a small molecule targeting Bruton’s tyrosine kinase. All three drugs are new to China, and in some cases they are new molecular entities, but the modalities and their targets are neither new nor high risk. Small molecules have been around for over a century, and the drugs are addressing targets with biology already well established in numerous drug programs elsewhere.

This theme is echoed in other ‘innovative’ flagships. Zai Labs, run by Samantha Du (see First Rounders podcast, https://doi.org/10.1038/s41587-019-0301-1) bills itself as the “gateway to China for innovative assets.” It is adored by investors and analysts at home and abroad, with a market cap of more than $2 billion on Nasdaq. Zai has more than 15 products across 20 indications, and two products already on the market in China. It has partnerships with GlaxoSmithKline and Bristol-Myers Squibb, as well as smaller companies like Five Prime, while also working with Tsinghua University and Shanghai Institute of Materia Medica on basic research. Yet the vast majority of drugs in its pipeline use a modality discovered in the West.

The reality is that most of China’s biotech companies are developing molecules that were discovered elsewhere (Fig. 3 and Box 2), although that’s not to deny truly innovative discovery ventures are springing up (Box 3). The last time China discovered a completely new drug for the global pharmaceutical industry was in the 1970s, when Tu Youyou discovered artemisinin after Mao Zedong asked her to find a cure for malaria (for which she won the Nobel Prize in 2015). Speaking to biotech publication BioCentury, McKinsey’s Jin Wang noted that the Chinese biotech sector has contributed less than 0.1% to the $600 billion global market for innovative drugs.

Fig. 3: Countries where key discoveries for new therapeutic modalities have been made since biotech’s inception.

First regulatory approvals for a new modality are shown above the timeline; key papers are shown below the timeline: 1Köhler, G. & Milstein, C. Nature 256, 495–497 (1975); 2Zamecnik, P. C. & Stephenson, M. L. Proc. Natl Acad. Sci. USA 75, 280–284 (1978); 3Mercola, K. E., Stang, H. D., Browne, J., Salser, W. & Cline, M. J. Science 208, 1033–1035 (1980); 4Miller, J., McLachlan, A. D. & Klug, A. EMBO J. 4, 1609–1614 (1985); 5Eshhar, Z., Waks, G., Gross, G. & Schindler, D. G. Proc. Natl Acad. Sci. USA 90, 720–724 (1993); 6Fire, A., Xu, S., Montgomery, M. K., Kostas, S. A., Driver, S. E. & Mello, C. Nature 391, 806–811 (1998); 7Wood, A. J. et al. Science 333, 307 (2011); 8Jinek, M. et al. Science 337, 816–821 (2012). mAb, monoclonal antibody; hATTR, hereditary transthyretin amyloidosis; EMA, European Medicines Agency.

True innovation takes time, and China is just at the beginning of its drug development curve. When I asked Du how long it might be before China discovered a completely new modality for fighting disease—the definition of pure drug innovation—she shrugged and guessed ten years.

She might be right, but the pace of change in China over the past 30 years is so dizzying it could be sooner. Melinda Richter, global head of Johnson & Johnson Innovation, worked in China in 1995–1996, in the mobile phone space. For people in a communist country, she found the Chinese to be surprisingly capitalist minded and entrepreneurial. The country lacked a legacy infrastructure in telecoms, and when mobile technology came to China, it ripped through the country like a brush fire. “When they started doing development in the mobile space, it all moved very fast because of this shared interest between the private companies and the government,” she told me. “That sort of revolution is happening there again today, but in the life sciences. And they are going to be able to do things that we only talk about here in the US.”

It is hard to look at the momentum China has gathered, or experience the energy and exuberance on the ground, and disagree with Richter’s statement. But the Chinese government, for all its ambition and deep resources, still faces daunting obstacles to achieving true innovation.

Lackluster translation

China’s most pronounced weakness lies at the intersection of academia and industry—that crucial nexus that holds drug discovery together. Whereas the country’s Biotechnology Development Plan does call for building biotech transfer and transformation centers, many entrepreneurially minded researchers at China’s universities lack access to mentors. Most Chinese principal investigators never interact with companies and often have an intellectual prejudice against ‘tainted’ industrial R&D—an attitude not unique to China. The situation is exacerbated by the moribund state of research and development in most domestic Chinese drug companies (many of which historically focused on generics or traditional Chinese medicine). The upshot is that few people in the industry understand basic research, attend scientific conferences, have experience with academia or ever interact with academic investigators (Box 4). But most importantly, most Chinese universities lack professional expertise, and the list of schools with productive patenting and efficient technology transfer is small (Table 3).

Table 3 Top translational Chinese universities and research institutes ranked by biotech patents, 2014–2018

This can be seen in the country’s patenting behavior. From 2002 to 2017, China’s output of patent applications across all industries increased nearly tenfold, to 1.4 million by 2017, according to data available from the World Intellectual Property Organization. In contrast, over the same period patent applications in the United States less than doubled (from 356,943 to 606,956). But the value of those Chinese patents remains in question. A 2016 report by Sinoipro IP Management & Technology Transfer vetted 1,000 Chinese patents, including patents from life science researchers, and concluded that fewer than 5% had commercial potential. The Sinoipro report suggests that figure may be as much as ten times higher in countries like the United States. Even in China, the majority of granted biotech patents over the past five years originated from the United States (Fig. 4).

Fig. 4: Granted Chinese invention biotech patents by country of first filing, 2009–2018.

a, Granted US utility patents by country of first filing. b, Granted Chinese invention patents by country of first filing. The majority of patents granted in China were first filed in the United States. (Source: Kathryn Paisner).

Part of the problem is the mentality of the Chinese government, which is high on quotas and often rewards inventors for quantity, rather than quality, of patents. Faculty are encouraged to file large numbers of patents, but neither the school nor the researcher is accountable for what becomes of the IP, and neither benefits from any financial upside. This makes it hard for institutions to justify investing in the tech transfer personnel needed to better manage patent quality and deal making.

A similar trend exists in scientific publishing. Just three years ago, the US National Science Foundation reported that, for the first time, China surpassed the United States as the world’s largest generator of scientific papers, yet data from Nature Index—a measure of the research outputs of high-quality scientific articles by institution and country—show that while China publishes the most papers, the quality of its output in the life sciences trails the United States, Germany and the United Kingdom (Fig. 5). (That may soon change. Since 2013, China’s fractional count for publication output—a measurement of relative contributions of authors to articles published in 82 high-quality natural science journals—has risen to 75%. Over the same period, the United States’ count has fallen.)

Fig. 5: Lagging life sciences.

According to Nature Index’s measure of ‘high-quality’ publications, China is second to the United States in both the physical and chemical sciences, but lies back in fourth place (behind Germany and the United Kingdom) in the life sciences. (Adapted with permission from Nature Index, https://www.nature.com/articles/d41586-018-07688-0.)

The explosion in patenting speaks to the speed of progress in China and its naked ambition, but that combination can also have a dark side. Last November, Chinese biophysicist He Jiankui announced he had taken gene-edited twins to live birth (Nat. Biotechnol. 37, 1, 2019). The international science community, and China itself, quickly condemned the announcement, but these types of ethics breaches reinforce the impression that anything goes in China as it sprints to break new ground.

Part of the problem is that the research in China’s labs (see Box 5) has shot ahead of official scientific oversight. Though the central government issues guidelines for researchers, decisions about how to implement rules are left to the discretion of institutions or the scientists themselves, and there have been reports of researchers raising lab animals under inhumane conditions, doctors giving patient samples to researchers without consent, and investigators (like He Jiankui) forgoing or forging institutional review board approvals. None of this inspires confidence in China’s ability to ensure that drug discovery programs can be run reproducibly and ethically.

Made (anywhere but) in China

For true innovation, China must also overcome a patriarchal political system. State-owned enterprises traditionally have dominated the sector. These are places where it is frowned upon to challenge the authority of company officials, who are often appointed as a result of political connections rather than competence. Similarly, students are seldom encouraged to openly challenge conventional thinking of professors in research groups and discussions—the opposite of the case in many US laboratories. This not only stifles the free exchange of ideas, but also results in herd thinking for investments.

Yet the largest hindrance to China having a homegrown, fully innovative biotech sector is its reliance on the West for talent and inspiration. Supplementary Table 1 shows how deeply dependent the Chinese biotech sector is on founders, CEOs and CSOs who were educated or worked either in biotech’s US proving grounds or in the ranks of big pharma. Among recent startups and newly public Chinese biotechs, the figure is 92%.

Jimmy Wei is a managing partner at Pivotal bioVentures Partners China, based in Shanghai. The group closed its inaugural fund of $150 million in May 2018 to invest in pharmaceuticals, devices and services in the life sciences in China. Wei has more than a dozen years’ experience investing in Chinese biotechs, including helping Zai Labs get off the ground. In the beginning, he looked at academic centers for innovation, as venture capitalists often do in the United States and Europe. But again and again, those searches turned up impediments. “They just don’t have that expertise,” he told me. “That’s why, over the last I-don’t-know-how-many years, we have almost no products that have been discovered in China that went into the global market. We really trust the people who have been there, done that, who know the process.” That is the mantra of venture capitalists the world over, but in a country lacking domestic experience, it is a national limitation.

China’s life science companies are also often reliant on Western, rather than Chinese, business partners. Yide Alan Jiang, chief strategy officer and board director at drug modeling company XtalPi, which has locations in Cambridge, Massachusetts; Shenzhen; and Beijing, told me that, for now, there’s still little appetite in China for the type of innovation his company provides. The company has signed deals in Europe and Asia, but it’s “the pharmas in the United States that have the vision, and it is they that can really appreciate the technology,” he said. Many domestic drug developers in China do not yet know what to do with his platform.

If China wants an independent, self-sustaining sector, it will need to generate more entrepreneurs from the inside. This, too, will likely resolve itself with time. Bowen Zhao said his biotech circle includes “more and more” entrepreneurs who have done it his way: gained their experience and knowledge from big Chinese biotechs like BGI and started their own companies without help from the West.

Untapped markets

China is the world’s most populous country, with its own unique set of diseases and healthcare needs. In 2018 there were ~4.3 million cases of cancer, an incidence level expected to rise to ~6.7 million by 2040. It had more than 114 million adults with diabetes in 2017, and more than 94 million with chronic hepatitis B and C infection in mid-2018.

Considering that an estimated 85–90% of all patients come through public hospitals in China, companies are in great position to rapidly recruit for clinical trials against these diseases. Lan Huang, CEO of BeyondSpring, came to the United States for graduate school and obtained a PhD in chemistry from the University of California, Berkeley. By the time she was doing research at Memorial Sloan Kettering Cancer Center, she realized that she wanted to help patients more than she wanted to publish papers, and she began consulting with Chinese companies looking to do drug discovery in the United States. She was eventually a Thousand Talents recipient in the program’s second year, and because she believed the Chinese drug market was set to explode, she founded BeyondSpring with offices in both China and the United States.

The company’s lead product, plinabulin, a marine-aspergillus-derived, halimide small molecule with vascular-targeting antimicrotubule activity, is in clinical trials for non-small-cell lung cancer and small-cell lung cancer, and also for chemotherapy-induced neutropenia. And whereas the small pool of clinician researchers with the time and training capable of carrying out robust trials at China’s overrun and under-resourced hospitals is a challenge, Huang told me that patient recruitment in China, at some sites, is unlike anything one would see in the West. Nearly half of cancer patients will enroll in clinical trials, she said, and about 80% of cancer care is done in three locations: Beijing, Shanghai or Guangzhou. BeyondSpring has run clinical trials in all three cities, including working with a center in Beijing that sees 300,000 cancer patients a year. “How can you have that at Fred Hutch?” she asked, referring to the Fred Hutchinson Cancer Research Center in Seattle.

Lan Huang, CEO of BeyondSpring. Credit: Travis Huggett

The company’s phase 3 for plinabulin will enroll 70–80% of patients from China, with data sent for global review. Huang plans to enroll 550 patients in 2–3 years, in three countries and 60 sites, for a cost of $30 million for the overall survival endpoint. If she were working at a global pharma, Huang said, it would take 4–5 years, 26 countries and more than 200 sites, at a cost of $200 million or more, to do the same trial.

“If we get this done and the data look good, and we get the [new drug application] in the United States and China, this is going to be disruptive,” she said.

There is no reason why the same philosophy cannot be applied in other areas of unmet need in China—particularly diseases like hepatitis B and C, diabetes or non-alcoholic steatohepatitis. All of this speaks to a key strength of the Chinese market—the untapped pool of patients hungry for treatments that will drive clinical trial testing, quicker results and a shorter (and less expensive) path to market.

Genomic prowess

One area where China has already distanced itself is in genomics, most notably in the sequencing hotbed of Guangdong Province’s Shenzhen. In 1979 China’s supreme leader Deng Xiaoping designated Shenzhen—at the time a fishing village of ~30,000 people—as China’s first special economic zone. Today it is a city of ~12 million residents and the largest port in China, host to 39 shipping companies moving more than 1 million containers every month. The outer roads are choked by trucks, and the downtown area is dense with shining skyscrapers and construction cranes. The city is home to Huawei, the world’s third-largest producer of smart phones; Tencent, China’s web giant and maker of the ubiquitous messaging app WeChat; and Hon Hai Precision Industry, better known as Foxconn, charged with assembling Apple’s iPhones.

Shenzhen is also home to BGI, one of world’s leading sequencing centers. Originally founded in Beijing by Huanming Yang and affiliated with the Chinese Academy of Sciences, BGI was transformed in 1999 into an independent, non-profit research institute by Yang and other founders using 5 million RMB ($600,000) of their own savings. When Shenzhen’s government offered $1.5 million in startup funding, $3.5 million in grants and free rental of municipal government buildings (a former shoe factory), Yang elected to move the entire institute to Shenzhen.

BGI now has 7,000 employees, some living in subsidized housing close enough to the headquarters that employees can walk to work, sometimes “even during a typhoon,” as one employee said. By 2010, it was touted as having more sequencing capacity than the entire United States, thanks to instruments purchased from Illumina of San Diego, California. While Western genome projects were focusing on people of European ancestry, BGI “wanted to sequence the Asian people,” CEO Ye Yin said, and then also sequence crops, especially Asian staple varieties of rice, animals and microbes.

Yin Ye, CEO of BGI Genomics. Credit: Brady Huggett

In 2012, BGI took its ambition a step further, paying $117.6 million to acquire Complete Genomics, a San Diego company developing a sequencing-by-ligation instrument, and it expanded global subsidiaries to California and Denmark. Like BeiGene in Beijing, BGI is a domestic beacon for biotech and has spawned a community. Yin estimates there were 100 sequencing companies in China before 2015. That has grown to more than 400 today. I asked him if an aim of BGI is to help nurture the local industry, particularly in Shenzhen, the same way Genentech or Biogen did in the early years of the US biotech scene. “Yes, that’s right,” he told me. “We talk about building an ecosystem.” He estimates 30 to 40 people have already left BGI and been part of launching other companies.

Big data, microinnovation

The success of BGI helps explain how China’s unique political, cultural, social, and financial ecosystem can give it advantages over the rest of the biotech world. In his book AI Superpowers, seasoned artificial intelligence expert and investor Kai-Fu Lee laid out a general premise concerning progress in the fast-moving AI field. He wrote that the hard, breakthrough work to develop deep machine learning came from the world’s best thinkers located in the United States, the United Kingdom and Canada, but once the great leap occurred, the field has been refined and shaped by incremental progress. Those secondary advancements can happen with a combination of capable engineers—rather than the world’s best thinkers—and reams of data. Today, “having a monopoly on the best and the brightest just isn’t what it used to be,” Lee wrote.

China has the advantage of drawing from the health data of more than 1 billion people, which can power AI approaches, and the country has legions of capable engineers. Another advantage is Chinese attitudes to the sharing of personal data. In the United States, for example, data ownership and privacy issues have plagued tech giants like Google and Facebook, as well as biotech startups like 23andMe. In Chinese society, where privacy and data are viewed through the prism of constant state surveillance, hurdles relating to access to, and combination of, personal biomedical data are less of an issue.

It is easy enough to extrapolate from AI to biotech. Although the foundational technology for genetic sequencing came out of the West, it is BGI that galvanized a deep pool of ambitious, young Chinese employees to process heaps of human, plant and animal samples, giving BGI the ability to maximize the benefits of AI analysis.

A prime example of a pioneer of this approach is iCarbonX in Shenzhen. The company was founded by Jun Wang, a cofounder of BGI who eventually left to try to “digitize life,” he said. The company uses AI to read patterns behind all the seemingly disparate health data iCarbonX aims to collect: genetic sequences, blood protein analyses, changes in body shape through a smart mirror, fluctuations in gut microbiomes via a smart toilet the company is developing. All that information is flowed into algorithms that are meant to give customers clear action points for a healthful life. The more information iCarbonX collects—and it is recruiting from both hospitals and via the internet—the better the insights. The company is partnering with SomaLogic, AOBiome and 23andMe to broaden its technology’s reach, but the biggest advantage iCarbonX has is its home base in China—and its huge population open to sharing personal data, together with employees motivated to make the company succeed as a matter of national pride.

In 2015, contract research giant WuXi PharmaTech, now New WuXi Life Science, acquired Cambridge, Massachusetts-based NextCode Health. The resulting subsidiary, WuXi NextCode, uses computational architecture developed by Iceland’s deCode genetics, plus AI to drive its genomics analysis and diagnostic platforms. Since that time the firm has partnered with Huawei Technologies to build the China Precision Medicine Cloud technology infrastructure, with the goal of collating and sharing -omic information nationwide from various government initiatives, medical centers, academic institutions and industry efforts within the country.

West versus East

China has another cultural advantage over the United States and the West. The Central Communist Party has historically taken the long view on policy, valuing the safety of many lives over the loss of an individual. This is in direct opposition to the ethos in the United States, for example, where the rights of the individual are deemed paramount. I asked Kai-Fu Lee about this, and he said that China will always look at the total number of deaths around a new technology. If, for example, deaths decrease with autonomous cars—no matter the rare accident—“China has more willingness to follow it, rather than obsess over saving or losing a single life,” he said. But in the United States, if “Google Waymo kills one person, everyone panics,” and the resulting furor holds back development, even though autonomous cars are anticipated to be safer than ones driven by humans.

“One can’t be sure what policies the Chinese government will come up with,” regarding policies for new biotech modalities, Lee said, but when thinking about long-term good versus short-term concerns, “the US would be on one side of the spectrum and China on the other.”

The biotech industry has already witnessed this cultural difference. When Jesse Gelsinger died in an early gene-therapy trial using an adenoviral vector in the United States, his death cast a pall over the field for more than a decade, brought trials to a halt and became a case study for bioethics classes. The Chinese regulatory authorities, in contrast, still pushed ahead with the green light in 2005 for approval of an oncolytic gene therapy, Oncorine (an attenuated serotype 5 adenoviral vector deleted for viral E1B-55k and with four deletions in viral E3).

Similarly, human trials of novel experimental treatments like RNA interference, CRISPR–Cas endonuclease and chimeric antigen receptor (CAR) T-cell therapies have moved cautiously in the West, but leapt forward in China. For example, China initiated 63 of the world’s 90 cancer CAR trials in 2016, 62 of 114 in 2017, and 61 of 115 in 2018. All those trials are generating data and insights that will far outstrip what the biotech industry can produce outside China.

Which leads to another point, related to Shenzhen, and the tremendous scale that China brings to almost everything it does. I asked Bowen Zhao about the concept of microinnovation and the way in which influence is key to creativity in art or science. After all, the writer Cormac McCarthy does not exist without William Faulkner, there is no Michelangelo’s David without Donatello’s earlier version, and the Apple iPhone isn’t born without the work done by Nokia and IBM.

“Microinnovation—it’s a better wording for copying, isn’t it?” Zhao said. “It’s true that in many industries, they start with microinnovation. But I believe that when you have enough microinnovation, the real deal, at some point, arrives. You are capable of doing something completely different and never done before.”

He mentioned the word for a Chinese culture: shanzhai. It translates loosely to “mountain village,” but the term relates to businesses based on massive piracy or faked products, outside of regulation.

Zhao told me that 10 years ago, when entrepreneurs in China had little chance to do anything but manufacture Western products, a sort of fast prototyping arose. Shenzhen had grown into a buzzing electronics manufacturing hub, and anyone walking through the bazaars could pick up in an afternoon the essentials for a smartphone: screen, circuit board, battery. It led to ridiculous prototypes being built in China—a phone with a zipper, a cigarette lighter, an analog radio.

“It became a joke,” he told me. “A mountain village of crap, but someplace in there is a thing that works. And that thing is true innovation. Most of the magic of microinnovation happens in this way.”

A failed smartphone prototype does not carry the same consequences as a poorly run clinical trial, or administration of a drug not yet ready for humans. Picking up electronics in a bazaar is not the same as designing a drug. But while the current biotech modality breakthroughs—CAR-T cell, CRISPR, gene therapy—all came from outside China, those technologies are going to be repeatedly put to the test inside China, at volumes and speeds Western biotech cannot, or will not, match. Or consider that there are some 100 Chinese companies currently testing PD-1/PD-L1 inhibitors across 196 clinical trials. On the one hand, this can be viewed as a waste of clinical resources—as Ascletis’s Wu said, “We simply don’t need 105 Chinese companies working on a single checkpoint inhibitor target.” On the other, it can be viewed as a mountain village of data, and the breakthroughs and insights they provide will be gleaned by China first, until, one day, China gives the biotech world something it has never seen before.

But that is the paradox of China—the world’s greatest civilization that has already lasted for 5,000 years. In July, President Xi declared that China would take “major steps” to further liberalize its economy and reduce market restrictions for foreign investors, who have long complained of unequal treatment compared with China’s state-owned enterprises. Xi outlined six new free-trade zones, cuts in import tariffs and a new foreign investment law meant to better protect IP. This follows on from the Belt and Road Initiative, which aims to put more than $1 trillion into infrastructure-development deals connecting China to more than 130 nations through roads, railways and sea routes. This will increase trade and China’s influence, most notably with countries in Eastern Europe and Africa. China, 40 years after it initially ‘opened up’ to the outside world, is stretching its arms ever wider.

Yet this openness is contradicted by China overseeing one of the strictest online censorship regimes in the world and maintaining ideological control over education and mass communication. The domestic political environment—where free speech is often censored and non-government organizations are routinely suppressed—is in stark contrast to other knowledge-based economies around the world, where openness and transparency are ostensibly valued—and the free exchange of ideas is central for innovative life sciences (Nat. Biotechnol. 36, 905, 2018).


When Lingshi Tan landed in the United States for graduate school, he found a different type of hardship, a new kind of isolation. People were friendly enough, but he faced a wall of language, culture shock, and an intense pressure to perform. He studied, while also working in the school cafeteria and busing tables at a Chinese restaurant. To save money, he hand-washed his own clothes, rode his bike instead of taking the bus, ate chicken legs instead of breasts. His roommate in the university dorm was amiable, but the cultural differences between him and his classmates were so wide that when they spoke to him he was often struck mute. Every day was a reminder that he was far from family, a stranger in a strange land. The stress took 40 pounds off his body in his first 10 months in America.

“A lot of us went through that,” he told me.

I asked him how he was able to continually work at such an unrelenting pace, especially as isolated as he was. He said that there were so few people who left China back then that his chance at a PhD was an opportunity almost beyond imagination. “How could you mess it up?” he said.

And so he didn’t. He earned a master’s in applied mathematics, and then a PhD in biostatistics. He married his girlfriend from Hubei and they had a daughter in Pittsburgh, before he took a job at Schering-Plough and moved to New Jersey, where he worked on Claritin (loratadine). He then joined Pfizer for 20 years, first doing biometrics and then clinical development, working on Zyrtec (cetirizine) and Zoloft (sertraline). In 2005, he moved to Shanghai to set up an R&D center for Pfizer, and he ran that for 11 years, growing it to 1,000 researchers, until he retired.

A few months later, Tan started dMed Biopharmaceutical. He had considered launching a biotech, but realized a contract research organization would allow him to help a broader swath of the Chinese biomedical scene by tackling the bottleneck of scarce clinical expertise. The company would galvanize development of the Chinese biopharmaceutical sector much more broadly than if he launched a single startup doing development of an innovative drug. Today, the company has 600 employees and more than 80 clients, and the rise of the life sciences in China means his company is growing much faster than his original projections.

Tan’s experience with communist China would give just about anyone pause. The Cultural Revolution had swept up his parents, leaving him temporarily orphaned, and he himself had been sent to the countryside to learn the value of work. But that wasn’t the end of it. Tan was watching from the United States during the Tiananmen Square protests of 1989, when his family was once more imperiled. His father was back teaching at Hubei University in Wuhan when the massacre happened, and the Central Party ordered the gates of the university closed to keep protests from spreading. Tan’s father went to the gates and demanded the guards open them. “You can’t keep us all locked in here,” he said. It’s still unclear to Tan why the guards listened and opened the gates, but the family feared his father’s insubordination would be punished.

“We didn’t know what punishment he might get,” Tan said. “This was far more serious than whatever he’d done in the past.” In the end, the government left his father alone—a sign of change, Tan said. But he told me it “would not have been a big surprise” if his father had been executed.

Knowing all this, I asked Tan about his decision to return, and more broadly, about the number of sea turtles being called back to China. Was it hard, I wanted to know, returning to a place with less freedom and transparency, to live under a sometimes repressive and patriarchal regime? After all, the central party had held his father’s life in its hands twice.

His thoughts on the government had almost nothing to do with his decision to return, he said. For most of us, including Lingshi Tan, our feelings about our government do not affect the way we think about our country folk, or the way we feel about home. “No matter good or bad, that’s my motherland,” he said. “I wanted to make some contribution to that place.”

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Correspondence to Brady Huggett.

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Huggett, B. ‘Innovation’ nation. Nat Biotechnol 37, 1264–1276 (2019) doi:10.1038/s41587-019-0306-9

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