If anything, the heparin contamination revealed failures of oversight and accountability on the part of both the US's Food
and Drug Administration (FDA) and China's equivalent agency, the State Food and Drug Administration (SFDA). After a congressional
comeuppance, FDA is scheduled to open foreign drug-inspection offices to improve safety monitoring in this new age of outsourcing;
the first three are planned for China, in Shanghai, Beijing, and Guangzhou, and will be staffed by eight FDA employees and
five Chinese nationals. As for SFDA, agency officials have retreated from their longstanding refusal of even nominal oversight
of drugs being manufactured for foreign companies or foreign consumption.
For James Cai, vice president of healthcare policy and former head of R&D China at AstraZeneca, R&D outsourcing is a no-brainer
for most big pharmas. "We outsource wherever we determine the work can be done at faster speed, lower cost, and similar or
better quality than in-house," he says. "Our internal audit shows that the quality of Chinese CROs we have used is comparable
to that of our internal-generated data. That is why AstraZeneca is growing its China outsourcing significantly in all areas."
Cai says he has heard a similar assessment from his Big Pharma colleagues.
"Besides shortage of experienced leaders and mid-level managers, the top challenge in China has to do with the regulatory
hurdle in terms of capability and capacity," Cai says. "At the SFDA, up to 20,000 new applications a year are reviewed by
only 120 staff. Innovative products that have not been approved by the US FDA or European EMEA may face additional challenges
in the review process, as the SFDA may find it hard to set the standard for safety and efficacy, not having prior experience
with these novel products."
A Pioneer's Point of View
The growing demand for CRO services ranging from preclinical to manufacturing and the surging influx of entrepreneurial sea
turtles have combined with the unfavorable US stock market and narrow IPO window to produce a new wave of Western VCs investing
in China. Among the first on the life-sciences scene was Fidelity Asia Ventures, the Asian VC arm of the Fidelity Investment
Group, beginning in 1995. Its most celebrated investment was co-leading the series A round in WuXi Pharmatech in 2004.
Norman Chen, an entrepreneur who founded Asia Renal Care, a regional chain of kidney dialysis centers, first met Ge Li, WuXi's
founder and CEO, in 2002. At the time, WuXi was a relatively new company, but it had already signed major Western pharmas
and biotechs as clients. "WuXi has strong leadership, an excellent track record, and extensive customer relationships from
Ge Li's Pharmacopeia days," says Chen. "With the growing need for outsourcing and the predictable CRO business model, I thought
WuXi was the clear leader in that space—and a compelling investment." WuXi's pathbreaking success has marked Fidelity Asia
Ventures as a leading Western VC in the Chinese life-sciences.
Looking ahead, Chen is concerned about the high valuation of certain Chinese deals, exacerbated by the influx of Western venture
capitalists who may be unfamiliar with the local landscape or unschooled in healthcare. He cautions against inflated expectations
of the new generation of Chinese entrepreneurs. "I am always concerned about a 'bubble'—with too much money chasing after
too few good deals, though I think we are not quite there yet," he says.