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There's More Than Meets the Eye to China's CRO Sector - Experts
July 9, 2008 |
By: Karen Tye |
interfax |
Shanghai. July 9. INTERFAX-CHINA - Part of China's appeal to foreign investors has always been its cost advantage, but according to pharmaceutical industry experts, the contract research organization (CRO) sector in China is more that just a cheaper outsourcing destination.
R. Stephen Porter, CSO of Medicilon-PI Preclinical Research Shanghai, explained that most venture capitalists and multinational companies that have established their own R & D centers in China are not here for the cheap labor.
Porter and other pharmaceutical industry experts that spoke at the ChinaBio Investor Forum 2008 held in Shanghai on July 8 agreed that companies are moving in to tap the brain power of the growing ranks of Chinese professionals, be they locally or overseas educated.
"The talent pool is out there," said Huang Lu, director of Morningside Technologies, which recently invested in locally-based CRO, HD BioSciences. Such a talent pool means that China's CRO sector is gradually catching up in global terms. "CROs in China can start charging premium prices in the very near future for quality of services," Porter said.
"As such, there are some CROs that are almost doing that. WuXi PharmaTech's original model - I don't know whether that has changed or not - is to price at 70 percent of U.S. prices," he said.
WuXi PharmaTech, China's largest pharmaceutical and biotechnology R & D outsourcing service provider, is the sector's undisputed success story. "As far as our pricing strategy goes, we had a 50 percent discount originally because of cost savings and it's hard to convince the rest of the world that products from China meet U.S. standards," Porter said of Medicilon-PI, a 50-50 joint venture that focuses on pre-clinical research. "We are focusing on marketing strategies. Our prices are not going to be that much different to the rest of the world because we will be providing high-value services, not just monetization services," he added.
China has long been regarded as the world's factory, churning out average quality and low profit margin products. It was once unimaginable that the country could generate higher revenues from quality services. Not anymore.
China's cost advantage across all industries, from textiles to steel products to pharmaceutical research, is gradually being eroded by a combination of consumer price index growth around the 8 percent mark and Renminbi appreciation, which has seen the currency rise in value by 6.43 percent against the U.S. dollar since the start of this year.
Perhaps such factors, and policy backing from the Chinese government, will see the CRO sector pioneer China's economic transition. "IP culture has changed significantly in the past few years, and policies are coming into place," D. Thomas Oakley, CEO of Bridge Laboratories, said of an issue that has plagued China from day one.
However, it will not be smooth sailing from here on and the sector should not rest on its laurels. According to Oakley, China is lacking toxicology scientists, which will one day act as a bottleneck to R & D process. In addition, he said that China's R & D boom may mean that the country's abundant animal resources may face a shortage.
In addition, Greg B. Scott, president and founder of ChinaBio Accelerator, said that there are approximately 300 to 500 CROs in China, a figure that the sector cannot sustain. "We are going to see consolidation soon," he said.
Nevertheless, Scott said that venture capital investment in China's biotechnology research has a lot of room to grow when compared with VC investment in the United States, which has plateaued.
"R & D in China is not just driven by outsourcing costs, it is driven by business needs," Carol Zhu, head of operation management and alliances, GSK R & D China, said.
And right now, the world wants and needs China's CROs.
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