With so many Western firms either expanding operations in China or looking to invest in that country's emerging biotech market, we sought the insights of someone with an insider's view of that market. This week, BioCommerce Week interviewed Matthew Chervenak, CEO of General Biologic, a Shanghai-based consultancy with 10 employees, about the opportunities and challenges companies face when they enter the Chinese market. Chervenak started the business about three years ago after working as both a scientist and as a strategy consultant in the US.
How did you wind up in China? What is your background?
I studied biology and neuroscience in school, and I conducted research in laboratories at the NIH and NYU Medical Center. Then I moved into strategy consulting in New York City, working mostly with financial services clients. About four or five years ago, I had an idea of where I thought the life sciences and biotech industry would go in the future. It seemed that there would be people in the future who think about experiments and innovate, and there would be service providers that would execute and conduct experiments. I imagined a sort of Microsoft Windows of contract research, where scientists would be able to tell their computer what experiments to run and it would be done in a low-cost center like China or India, and the results would be sent back to them electronically.
Of course, it's a long way away, but there have been many steps in that direction. Sequencing is outsourced. Some people outsource protein expression. I think in the longer term there is a possibility to create a platform that provides a total solution to the scientist, so he can think and innovate anywhere in the world.
I wanted to be part of that kind of transformation. So, I thought I should go to China and lay down some roots. I was also very interested in the industrial side of biotech, and I thought China would have a bigger role in those application areas, as some of them are more labor-intensive. When I got here, I saw there was an opportunity to start this company because of the lack of information available for companies looking into China.
What does General Biologic do?
We do three things. The first thing we do is publish information products. We systematically look through China and find out what's going on in the bio-business areas and write reports about what is happening, and we sell the reports to companies in the US, Europe, and Asia who are interested in opportunities here. We also have a daily newsletter in the Chinese language, which is the only daily newsletter, we believe, that brings the world's biotech news to a Chinese speaking and reading audience.
The second area is management consulting. We help biotechs, pharmaceutical companies, investors, and biotech suppliers — companies that make tools and services that biotech companies use — we help them come to China and find opportunities here, anything from market size to partner screening and selection. We help them with due diligence work, [and] outsourcing work.
The third area is transactional work. A lot of the biotech companies in China are looking to raise capital, and we help them put together the road show and business plan, and introduce them to venture capital investors.
Many of the genomics tools companies are targeting Asia, and China in particular, as a high-growth opportunity. What are the attributes that China offers these types of companies?
There are two or three different opportunities for those companies. One is the market. The market is growing rapidly. The Chinese government is investing more money into the biotech area, venture capitalists are looking in this area, some VC's have announced that they are trying to raise funds just for China, and corporations are investing in R&D. All of those will drive sales and growth for tools and services. There is increased money coming into the industry year after year, and it is being used in better and better ways, I think.
The other side is that a lot of the companies on the tools and services side can source components or source services from China directly. So, already some antibody companies are producing antibodies in China that they then export and make available to scientists in the US. From a manufacturing standpoint and sourcing standpoint, it's a great opportunity for a lot of tools and services companies.
The third area is finding new products and innovations. This is only the beginning, but there are certainly companies in China that are trying to innovate new products in the tools and services side — anything from PCR, QPCR to other things that are more drug-related, like pegylation. That's the smallest area right now, but there are great strides being made.
You said there has been more money coming into the market there. Are you talking about both foreign investment and funding from the Chinese government?
There is more local money going in. The local money comes in a variety of ways. The government funds universities and institutes, just like the US. But in China they also set up quasi-venture capital firms, and these VCs invest in start-up biotech companies. The government also helps support or has partial ownership in local biopharmaceutical manufacturers. The money that the Chinese government has been putting into the biotech area has been increasing year on year.
In terms of foreign money, that's also increasing — everything from Invitrogen coming in and buying Bio Asia to multinationals making bigger moves in China, setting up R&D facilities, and bringing in money.
There are also a lot of companies starting up in the services space and the drug discovery space, and they're either funded by the Chinese government or by the entrepreneur's own funds. Or maybe they've worked in the [United] States and they've returned to China to start a company. So, foreign investment may not be that direct. And a lot of the service companies generate revenue from clients in the US and they re-invest that in China.
What do you view as the primary challenges Western companies face when they decide to set up operations in China?
Certainly, there is a cultural difference, and there is quality control they have to put in place and be aware of. Even though the Chinese bio-business area is really improving rapidly and the quality is improving rapidly, there are still some gaps. These can be addressed quite easily, as long as the foreign company brings in the right management style and the right attention to those kinds of details.
Also, it's just a different business practice here. You have to be aware of how to do business, whether it's making contracts or dealing with employees. Another area is information. There's just not as much information around on which to base good decisions. But I hope we're helping with that.
Are there other companies like yours that are doing this in China, or does the Chinese government offer any help?
There are a number of other kinds of entities doing this kind of work. The government does get involved, and in China there are a lot of biotech parks. A lot of them have an internal consulting arm. They can at least introduce companies within their zone and try and get more investment in their zone. In terms of people who are knowledgeable about biotech and have more than a person or two, there's really not that many firms out there like us.
One of the things companies always mention when they talk about expanding into China is the intellectual property issue. Is this an ongoing concern, and is it likely that firms will do just sales and manufacturing in China until they get some sort of assurances that their IP will be protected there?
I think IP is at risk in manufacturing, too. Risks can be managed if you take smart steps, like opening an operation in Shanghai, where the IP protection is a lot better than it would be out in the west of China. I think there is a lot less of a risk for tools and services types of companies than there is for drug-development companies that have a compound or platform technology that creates leads. Smart management of employees and facility can go a long way. But remember that there are risks everywhere. There is a risk in the US. I think the Chinese situation is getting closer to the US situation when it comes to IP.