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Jul 21, 2008

Awakening the Chinese (biotech) dragon

  • The recent influx of money from sovereign wealth funds into the U.S. economy has worried some, elated some, and certainly prevented a complete meltdown of the world credit markets. Now it should come to no surprise that there is a lot of money in countries that have either a) large deposits of highly desirable resources or b) an extremely positive trade balance are flush with cash, that is not being put to work. China is of the latter kind and just now a combination of public and private entities banded formed an organized investment consortium that will focus on early stage biotech enterprises.

    The Biotech Science and Technology Venture Alliance combines 22 partners, some from industry, others from academia, including companies such as Shijiazhuang Pharmaceutical Group, DSM China and the Chinese Academy of Sciences (CAS).

    So far, the alliance has raised $51 million, not much by most VC funds standards (Kleiner Perkins Caulfield and Buyers recently launched a $200 million fund focused solely on pandemics) but it does plan to expand to $145 million in the near term.

    Governmental agencies haven’t contributed yet, though the Chinese Academy of Sciences and the National Development and Reform Commission are expected to participate in fundings that take companies to commercialization. Governmental agencies are also permitted to add 30% on top of investments made by individual companies. Thus, the Chinese Academy of Sciences could add $6 million onto a $20 million investment made. This is a novel structure and will allow the partially governmental organizations to actively participate and further developments of treatments they deem appealing and rewarding.

    We will see a lot more of this kind of venture investing as China is just beginning to realize its potential is pharmaceuticals, including innovate start-ups dependent on highly skilled graduates and post-docs. Not to worry though, no other country churns out so many new engineers and scientists plus no other country has the sheer manpower. We'll see a lot more of Chinese biotech so I would not be surprised to see big venture capital firms moving in to partner with their chinese counterparts in order to gain access to a slice of that market.

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