This is China! BLOG

Venturesome China: Capitalizing the Chinese Pharmaceutical Industry

Sometimes I hate dinner parties: the flatulent chatting, the social one-upmanship, the bad wine. However, during the holiday season a Chinese friend of the family’s – and our lawyer representing personal matters for us back in the States – invited us while we were in Chicago to her and her husband’s home to ring in the New Year.

There was the usual gathering of hyper-educated Chinese: the computer engineer, the telecommunications engineer, the CPA-CFA-MBA (that was one person), et al. I spent much of the evening though chatting with a middle-aged PhD who had been working in the pharmaceutical industry for some twenty years. He was a thin, handsome, self-effacing fellow who had brought along with him his precocious and talkative adolescent daughter who spoke not a lick of Chinese language.

The scientist was head of a small pharmaceuticals company based out of Chicago, which was all well and good. What interested me most in talking with the fellow was where he was looking for his next infusion of capital. He was not looking to Silicon Valley; nor was he looking to the Boston area. Instead, he was looking to China.

“There is so much money in China now,” the scientist told me, enthusiastic for the possibilities. “Especially in Zhejiang Province, which has the most private businesses in China… They are looking for where they can put their money for the next big business opportunities.”

This jives with what I had read in a recent China Economic Review article:

“Venture capital investment in China rose 136% year-on-year to US$558.1 million in the second quarter, the largest single quarter investment in more than two years, a survey found. The 54 deals completed also represented the largest number of agreements in a single quarter since Ernst & Young and Dow Jones Financial Information Services started running the survey in 2001. ‘The venture capital ecosystem in China is getting mature, although it is still very young,’ said Gil Forber, global director of Ernst & Young’s venture capital advisory group. ‘Many of them [entrepreneurs and investors] have worked in a few start-ups before.’ Investments are also becoming more diversified. While IT accounted for 57% of total investments in the quarter, there was greater interest in medical devices, healthcare services and alternative energy. The largest deal was a US$99 million investment in solar cell developer CEEG Nanjing PV-tech.”

I asked him if he was developing drugs for the China market or for the American market.

“Of course the American market is the largest in the world, but most of the drugs developed require a great deal of investment to research and develop. The Indians, too, have a very strong pharmaceuticals industry; but most of their industry is oriented toward export of generic versions of drugs developed in the West. The Indians have so many PhDs that have studied in the West and who have returned to India to work in these companies. But they don’t have the money to invest in R&D the same way as the Americans and Europeans, who dominate the market. India is basically too poor to support a large domestic market.

“China, though, already has a large domestic pharmaceuticals market. The top ten domestic drug makers in China each make more than hundreds of millions of dollars each year,” he said. And the market is growing rapidly as consumers have more money to spend in China. This is what the Chinese investors see as a growth industry in China.”

He went on to say, “I have given a proposal to an investor to develop a company in Zhejiang, which has a large chemicals industry. I told them the most important thing I require in the company is to control the direction of the drugs development. I don’t need a large percentage on the returns, just control.”

Who would have ever thought than in twenty years China would have gone from the role of being a recipient of international aid to become budding capitalists providing venture seed capital to cutting-edge industries.

William Dodson
Suzhou, China