Another recent example: In July, StarVax, an early-stage therapeutic vaccine developer in China founded by returnees, announced a licensing and codevelopment deal with Mologen, a publicly traded German biotech. Under the deal, StarVax is paying Mologen 1 million euros, plus milestones and royalties to license its DNABarrier II technology in treatments of several major cancers in China and other Eastern Asian markets. Mologen will pay StarVax 0.8 million euros for its clinical development program, performed in China according to international standards.

"This is one of the first international biotech-biotech deals involving a Chinese company," says Burghardt Wittig, Mologen's CEO. "For Mologen, this deal is significant in terms of future access to these rapidly growing Chinese and Asian markets. At the same time we will gain clinical data that will multiply for Mologen the value and probability of a licensing deal with western pharmaceutical companies."

Yiyou Chen, StarVax's CSO and president, was educated in Beijing and Utah and worked as a scientist at Genencor in the San Francisco Bay area before returning to China in 2003. His goal was to build a biotech company from scratch, by leveraging his overseas experiences. His partner in creating StarVax was Justin Chen, a US-trained lawyer with experience in IP and corporate transactions, and now the company's CEO.

TCM products account for about one-third of Chinese pharmaceutical sales. These products are typically herbal formulations and are available for many conditions, including serious chronic conditions such as hepatitis and even cancer. The Chinese government has historically promoted TCM research and development as an integral part of Chinese culture and a symbol of national pride. In 1996, the government launched the TCM Modernization and Technology Commercialization Action Plan to promote the study of TCM using modern technology and techniques.

Chinese herbal medicines have a long history of use and strong, if anecdotal, evidence of effectiveness. Many take advantage of the synergistic action of certain plants or ingredients, much like the drug cocktails used in Western medicine. The vast resource of Chinese herbs with well-documented medical use and cultivation could become a hidden gold mine in complementing traditional Western approaches to drug discovery.

Multinational pharmaceutical companies are eying this gold mine. In the past three years, Shanghai Institute of Materia Medica (SIMM) in partnership with Novartis has isolated 1,828 natural compounds from Chinese herbs for treating a wide range of diseases, including diabetes, cancers, and central nervous system disorders. The two organizations recently extended their research agreement through 2007, by which time they expect to isolate another 1,500 new compounds.

A few companies have made significant strides in developing therapeutics derived from traditional medicine with the scientific rigor and sophistication of Western medicine. In 1998, for example, PolaRx Biopharmaceuticals, an early-stage US biotech company, obtained commercial rights for arsenic trioxide, a small-molecule compound developed to treat acute promyelocytic leukemia (APL). Arsenic trioxide, originally developed by a Chinese medical school from a TCM compound, has been found effective in treating APL, which affects about 2,000 new patients each year in the United States.

PolaRx set an industry record by obtaining FDA approval in 30 months after the first US patient received treatment in a corporate-sponsored clinical trial, beating the record set by GSK's Gleevec (imatinib). PolaRx was later acquired by Cell Therapeutics Inc. (CTI), a publicly traded biotech company in Seattle that develops oncology drugs. CTI's product, Trisenox, generated more than $22 million in revenue last year and is poised to gain approval for additional cancer indications.

At least two more compounds based on TCM are currently in development:

• A researcher from the Connecticut Institute for Aging and Cancer (CIAC) has successfully developed an herb mix for prolonging the survival of patients with advanced nonsmall cell lung cancer. This product is the first health-improving anticancer product and composite herbal mix funded by NIH to enter a multicenter, FDA-supervised Phase III trial. Interestingly, FDA is allowing the product to be sold as a dietary supplement while the trial is in progress, significantly lowering the cost of clinical development.
• SIMM has identified a novel cholinesterase inhibitor from a Chinese herb that shows efficacy in Alzheimer's disease. SIMM has licensed the compound, ZT-1, to Debiopharm, a Swiss pharmaceutical company that is conducting Phase II clinical trials.