The rise of life science in China
/From BRIC to broke
For many, if not all, national governments the health and wellbeing of the population is paramount to maintaining a successful nation. Nowhere is this truer than in the cases of emergent and second world economies. On the modern planet the focus has shifted in recent years away from established first world healthcare systems such as are found in America or Europe to look at those of the fastest growing emergent economies; Brazil, Russia, India and China.
Widely known as ‘BRIC’, a name coined by Goldman Sachs Asset Management Chairman Jim O’Neil in 2001, these four states have either outpaced or were expected to outpace normal growth patterns and break through the glass ceiling between first and second world nations. Unfortunately, the road wasn’t without its pitfalls; Brazil fell to corruption and overspending on the 2014 World Cup and 2016 Olympics which were held in the country, Russia has suffered a number of international sanctions since its aggressive actions concerning the Crimea and the Ukraine and India struggled to modernise and stabilise its economy. Investment assets in these countries have now lost 88% of their 2010 value. Only China remains.
Reforms in the far eastern state started in earnest in 1976 following the death of brutal communist dictator Mao Zedong. China of the 80’s and 90’s was built by Deng XiaoPing who understood the importance of infrastructure on the nation. It was this era that saw the birth of the China we know today and that made the ‘Chinese economic miracle’ possible at all. The next key date was the 2008 Olympic games. The ruling Communist party used this as an opportunity to bulldoze and modernise massive swathes of the country in the name of progress and solidify China’s place on the world stage.
Rise of the middle-class
The core demographic group in any such transition and the metric to measure its success is by the growth and expansion of the middle class. They are the indicator of true global economic progress. The middle class is defined by the Organisation for Economic Co-operation and Development (OECD) as those earning between 75% and 125% of the median income in that country. This could however mean that almost $20,000 in Norway and $120 in Liberia would, in both cases place you in the middle class, but everything is relative.
The middle class underpin the growing economy by providing stable demand and stable growth. However, with this comes increasing expectations of provision and opportunities domestically. In China there has been an overt trade-off between the populace and the party which centres on the exchange of economic growth at the cost of political and human rights. Whilst this group may accept that, they expect a higher level of services such as healthcare and education now.
Twenty years ago China lacked any kind of effective primary care system. Mao’s chaotic and brutal reign had driven the nation back into a primitive agrarian state. Now, as demand and a sense of entitlement to such services increases, the Party has promised healthcare for all by 2020. Whilst building structures and upgrading facilities are very much within the Chinese comfort zone they also have a drastic shortage of GP’s and those they do have differ wildly in their levels of education as only two universities in China offer training comparable to that of western countries.
There is also the problem of scale. China is a vast country containing 1/6th of the global population. To be able to implement a western style, patient centric healthcare system they will need to be training or retraining around 50,000 GP’s per year for the indefinite future.
This is why China is turning its attention to precision medicine and genomic technologies.
Genomic China
The spring of 2015 saw China’s central government announced 60 billion Yuan (£6 billion) budget to be spent over the next 15 years with the goal of creating a functioning precision medicine system that will sequence genomes, develop new and generic drugs and gather variant and other clinical data.
Precision medicine harnesses these huge amounts of clinical data to tailor bespoke medical solutions for each patient. Some of this money is also being driven into education and research with the nation's leading universities, Fudan in Shanghai and Tsinghua in Beijing setting up their own precision medical centres. Nationally they are also engaging in their own mass sequencing effort in the form of the 100K Wellness Project. Most trial and discovery efforts are focused on a number of cancers, in particular lung cancer, with confidence based on the large population to drive mutation and variant identification and lead breakthroughs.
“Life sciences are coveted areas for nation-states. The jobs created in these sectors tend to be high wage and knowledge intensive. Countries with vibrant domestic life science players often have analog industries, such as; agricultural science, engineered materials or food production that are equally advanced. These applications and other respective technologies represent major progress in quality of life.” Said Benjamin Shobert, Senior Associate for the National Bureau of Asian Research.
Massive challenge, mammoth market
Despite the multifarious challenges of doing business in a state such as China with its; authoritarian government, planned economy, manipulated currency and utter disregard for international intellectual property rights, is the potential size of the market. London based consultancy, Global Data predicted a market worth as much $315 billion a year. A figure too compelling to allow the possible negatives to discourage most companies.
That figure looks at the sector as a whole though it may be prudent to break the market down somewhat. China already has some large sequencing companies with the Beijing Genomics Institute being the biggest. For them and other Chinese companies their first outlay will be the sequencing machines themselves. As is the case across the industry, these came from California based Illumina who hold the biggest market share globally. This, however, is a single purchase transaction and not a scalable or sustainable revenue stream.
These sequencers will inundate the budding sector with data and processing that will be the next stage of the challenge. Companies such as, Cambridge based, Congenica, who have developed advanced software called Sapientia, to interrogate, classify and annotate clinical genomic data for either diagnosis or research, are able to empower Chinese clinics here. Also, the constant stream of data means that this revenue stream is strong and sustainable. Even more so if robust contracts and partnerships can be signed.
The last aspect of the market is in drug discovery and trials. This is where the biggest windfalls are and the biggest threats. The windfalls are obvious, in the world’s most populous nation, trials and development are much more straightforward than in heavily regulated western countries and the numbers mean any marketable drug will quickly become a high earner. However, at the same time the state is under pressure to fight the rising cost of healthcare in a relatively impoverished country. To this end the government dictates five drugs for major ailments each year which they then demand the price is reduced by 50% and in some cases, patents are not renewed or respected and the drugs given to Chinese companies to make their own generic versions to sell at a fraction of the cost.
“China is the next big wave, it's only a matter of time before it will certainly be the world’s number one pharma market and probably the world’s biggest data producer. You can dip your toe in via partnerships but sophisticated companies need true collaborations where they can build their own R&D facilities and build a true presence.” Advised Greg B Scott, President and Founder of ChinaBio.
The future
Moving forward companies may find themselves attracted by the huge potential market and data set but must be careful of the various Sino-centric business considerations which they will not have faced in other territories.
The state-planned forms of capitalism mean heavy regulation, frequent intervention, a high level of interference and the constant threat of widespread prying into normally confidential aspects of a company.
“What China needs is innovation. It is happening slowly but it it is driven by returnees or through technology brought into the country and then either directly copied or reverse engineered. There is no conceptual reality or legal reality for intellectual property and Chinese enterprises have increasingly turned to buying out competitors to move away from their predatory reputation. There is also the problem of corruption in the country. President Xi is outwardly appearing to address the issue but in fact it is still deeply entrenched in all aspects of the society. Corruption is not unique to China but its level of general practice is high.” Said Greg B Scott, President of ChinaBio.
The biggest threat to most experts is that of stability. Whilst the middle class is growing and China’s population are enjoying more opportunities and income than ever before, a number of spectres sit on the horizon. The housing crisis driven by unsustainable building and pricing alongside rising food and fuel prices threaten to disenfranchise many, shrinking western markets undermine the manufacturing sector and restrictive uncreative teaching methods leave most graduates without the entrepreneurial skills to start their own enterprises and those same graduates are facing a job market with fewer and fewer opportunities every year.
The Eurasia Group, a consultancy which works to aid investors and business decision makers in understanding the impact of political changes on opportunities in foreign markets wrote: “China’s rebalancing agenda is not merely about economics but, ultimately, the political viability of the Chinese system. Beijing has delivered economic prosperity to many Chinese but those very successes have yielded numerous problems for example; the income gap and the accountability gap are both unsustainable, or, disenchanted graduates working long hours and earning low wages and not being able to get on the housing ladder, marry or start a family. All of which are markedly significant milestones to the Chinese.”
These problems may seem familiar to readers in the UK or US, student debts are extremely high, house prices are unattainable, wages are depressed and jobs at a shortage. Yet China remains stable, more stable than a number of European democracies, but dissent and protest are increasing. There are growing demands for political transparency and engagement. Sadly, government repression is increasing too, censorship is an enormous industry and violence is increasingly used to break up grassroots movements.
China is an autocratic state and a frequent and severe human rights abuser yet it is still relatively open, free and stable for an autocracy. If it is going to stay that way or even improve the Party needs to make careful, considered but significant changes to the way the country works but most importantly, they need to keep investing and keep progressing. The market isn’t getting smaller and it needs to be served, as the expectations of the Chinese increase so do the business opportunities.