SHANGHAI – It is no secret that China is heavy on generics and light on innovation. But what happens when a successful drug maker with deep pockets and a visionary chairman decide to take on drug discovery? Haiyan Pharmaceutical Technology Co. Ltd., the drug development subsidiary of the Yangtze River Pharmaceutical Group (YRP), and its team of executive returnees are set to prove that innovation can be implanted anywhere, even in a risk adverse generics maker.

The newly established Haiyan has nestled itself inside the YRP, which touts itself as one of China's more successful pharma companies, having been number one in revenues three times in the last 10 years. First founded in 1971, chairman Jingren Xu is the majority shareholder and runs the company with a personal touch.

Qiang Lü, general manager of Haiyan, and a group of senior executives and advisors sat down with BioWorld Asia and discussed their strategy for leveraging the best of their parent company to find success.

Lü said Xu is looking for nothing less than an innovative drug, but with a high potential for success.

They already have eight assets in preclinical development, focusing on oncology and central nervous system (CNS) disorders with six being developed in house, one in-licensed and one being developed with Wuxi Apptec. Haiyan's execs revealed that their first CNS candidate is moving into a phase I trial, a year ahead of schedule although 14 to 18 months from first dosing.

"When I first talked to the chairman," said Lü, "his opening statement to me was: 'We are not a Pfizer or a Merck. We cannot spend billions of dollars for a single asset for 10 years plus. We are not doing that. It is your job to deliver a significant therapy a much smarter way, the Chinese way.'"

While the generics business traditionally has been a surefire way to generate revenue in China, it's no longer indefinitely the case. Selling undifferentiated goods means many companies are forced to fight on price.

This has led to a race to the bottom, one that has unfortunately led some companies to offer bribes to get an advantage. Although Lü said YRP remains allegation-free, generics is still a zero sum game with limited possibility for growth.

A WILLINGNESS TO RISK FAILURE?

That is where the lure of drug discovery comes in, although China still has to prove itself, whether culturally it has the stomach for the high failure rate.

The way forward, according to Lü, is to think like a start-up while leveraging YRP's considerable resources.

Resources of the financial kind top the list and have enabled Haiyan to attract a team of China-experienced returnees, who know how to make the Western way work in China. Lü spent eight years at Wyeth and Novartis before setting up the biology lab for Wuxi Apptec. Mark Powell, retired from Bristol Myers Squibb Co. as a senior vice president in the U.S., advises the team.

But it's the use of YRP's network that promises to set Haiyan apart.

The company has an extensive commercialization and manufacturing base with strong brand recognition in specific regions of the country. This has given it access to hospitals, key opinion leaders and patients at an earlier stage in the drug discovery process, that many competitors can't access.

"We can transform YRP's marketing advantage into a drug discovery advantage," said Lü.

Last year YRP signed a collaboration agreement with West China Hospital of Sichuan University in Chengdu. A teaching hospital, it has the highest number of beds for cancer patients and is also one of the largest clinical trial centers in the country.

Haiyan also is developing companion diagnostics to help build efficiencies into its approach. When partners discover and validate an idea in the lab, said James Wu, vice president of companion diagnostics, it is Haiyan's industry experience that can help them to connect the dots, to determine how to find a validated biomarker or turn the discovery into a commercially viable kit.

But the company also is looking outside of China to in-license interesting assets and has set up Pan-Pacific Biopharma Inc., based in San Mateo, Calif., to find candidates, adding it has several term sheets on offer.

For the moment, Haiyan has a nice challenge on its hands – how to start to think of a regulatory strategy now that it finds itself moving its schedule ahead to file for investigative new drug application (IND) in China and the U.S. According to Powell, "they are way ahead on the growth curve, having made astonishing progress in the last six months."

He credits the work of Yumin Cui, Haiyan's vice president of Biology and veteran of Hutchinson Medipharma, for her work in setting up the platforms.

"Chemistry folks can always make compounds. But the biologic platforms you set up determine how fast your car actually goes. You can't go any faster than your platforms," he said.

For this first compound the team is working with Wuxi Apptec as an external partner as it builds up its own in-house team for chemistry, manufacturing and controls, clinical trials and regulatory affairs. It has plans to move into its new standalone building and hire 60 more people, to bring its head count to around 100.

Although further down the line, Haiyan won't need to worry about manufacturing because it already exists with YRP. A biologics facility is being built in Suzhou and is expected to come online next spring.

Lü is optimistic that Xu has the staying power that will see the company's high-risk experiment through over the long term. However, since the cash it is spending belongs to Xu personally, a lot depends on its ability to develop a smart risk mitigation strategy and be financially conservative.

"Something unique about Haiyan," said Jiong Lan, vice president of MedChem at Haiyan, "is we are not shooting for someone to pick up the asset and carry it on; we are looking to go all the way to the market. We are shooting for the very end."

Lü goes on to make a reference to the 'Hai' in the name Haiyan, meaning sea. "We are not a fish in a small pond. We are in the river and we are looking forward to the sea. All of the parent company names start with 'hai' or sea. We are not swimming in a small pond."

"I left Novartis for China speed," Lü said. "We can catch up."