Staff Writer

Hua Medicine Ltd. made headlines last month with the news that it had raised $50 million in start-up funding from a blue-chip syndicate including Arch Venture Partners, Fidelity, Venrock, Sino-Alliance International Ltd. and WuXi PharmaTech Corporate Venture.

But while it was clear Hua was up to something big, it was less clear exactly what that might be. Reports were long on praise for the Shanghai-based company's plan to become "the leading, fully integrated biotech company in China," but short on details of how it would achieve that status.

"We're just now coming out of stealth mode," admitted John Choi, Hua's chief strategy and business officer.

Hua was founded in mid-2010 by Li Chen, Ge Li and Jack Baldwin. Chen, who previously co-founded Roche AG's research center in China, is credited with building much of the biopharma ecosystem in Shanghai. Li, as chairman and CEO of Chinese clinical research giant WuXi PharmaTech, is heralded as one of China's most successful health care entrepreneurs. Baldwin also is a serial entrepreneur: After 30-plus years with Merck and Co. Inc., he helped found WuXi, Pharmacopeia Inc. and Vitae Pharmaceuticals Inc.

The trio saw an opportunity to build a Chinese biotech company that could in-license drugs, leverage China's notoriously capital-efficient development resources to advance them through the pipeline and tap its founders' connections to ensure successful commercialization in China.

That vision clearly resonated with investors. Bryan Roberts, general partner at Venrock, explained that Hua's appeal lies in a convergence of factors. First, economic growth in China is leading to the creation of what is expected to be a massive health care market. Second, the Chinese government is willing to help foster innovation through substantial grants, tax breaks and other incentives. Third, the return of Western-trained sea turtles – like Choi, a former venture capitalist and hedge fund manager – means there are people in China with the expertise to pull it off.

So what exactly is Hua doing with its $50 million? Choi said the company has cycled through hundreds of assets and identified several it plans to license. Details should be available in the next few months, but Choi told BioWorld Today the company is looking at a preclinical neurology asset, a clinic-ready drug for metabolic disease and a new drug application-ready primary care drug.

For the former two assets, Hua would in-license worldwide rights and take over development, with the goal of out-licensing ex-Asia rights after proof of concept. For the later-stage compound, Hua plans to in-license only Chinese rights.

The company is also looking at joint ventures, subsidiaries and other deal structures that would allow it to build its pipeline. Different drug developers have "different ways of wanting to commercialize drugs in China," said Venrock's Roberts, so Hua plans to be flexible.

At the end of the day, Hua's business model doesn't look all that different from U.S.-based biotech start-ups focused on in-licensing, advancing and potentially commercializing drugs.

The difference, Choi explained, is that there is "high competition for limited assets" in the U.S., and once a license is obtained, drug development is more expensive.

China also presents a unique opportunity for commercialization because its regulatory, pricing and distribution hurdles make it a difficult market for U.S. or European drug companies. Choi explained that even if a drug already is approved in the U.S., it has to complete pharmacokinetic and Phase III trials in China to gain Chinese approval. Then the drugmaker must negotiate target pricing at the central government level, complete a price auction process at the provincial level, get the drug listed in individual hospitals at the local level and obtain reimbursement at the national and provincial levels.

Given the complex process, most drug developers "need a China partner that knows the landscape well," Choi said – and Hua is hoping to be that partner of choice.

Choi noted that most of the drug firms in China thus far have been focused on generics – only more recently have some started to get into development. Venrock's Roberts agreed. "Outside of traditional Chinese medicine, the market is pretty green field," he said.

Yet Hua isn't the only biotech seeking to capitalize on the opportunity to commercialize drugs in China. Start-up Ascletis Inc., of Hangzhou, China, pulled in a whopping $100 million in Series A funding this spring to license late-stage and commercial programs for the Chinese market, as well as to discover and develop new drugs for oncology and infectious diseases. (See BioWorld Today, April 7, 2011.)

And Foster City, Calif.-based SciClone Pharmaceuticals Inc. built its own China sales force to support hepatitis drug Zadaxin (thymalfasin), which never made it to market in the U.S. but has found success overseas. The firm has done so well in China that it in-licensed other products to add to its sales bag and is expected to report about $135 million in revenues this year. In April, SciClone strengthened its hand in China with the acquisition of Shanghai, China-based specialty pharmaceutical firm NovaMed Pharmaceuticals Inc., which markets 18 products and boasts a 450-person China sales organization. (See BioWorld Today, April 20, 2011.)

Roberts predicted more biotechs will start to jump on the China bandwagon. "It sounds like there will be a lot of wheat and chaff sorting over the next five years or so," he said.