Previously known for its cheap manufacturing costs, China has recently become a nascent biotech powerhouse due to its bountiful investments and relaxed regulations.

Investors and entrepreneurs say that China might soon rival its Western counterparts – driven by an influx of foreign-trained talent, creating a new generation of Chinese start-ups – all in a race to treat the world with medicines invented locally.

China's rapid rise forced the spotlight on the nation's research and development of drugs, particularly at the annual meeting of the American Society of Clinical Oncology (ASCO), earlier this month. The event became a debut party for Nanjing Legend Biotech, who managed to snag a coveted spot to unveil astonishing results from a complicated new approach to cancer immunotherapy – generating interest amongst pharmaceutical giants who stalked the floor for promising assets.

“When people first saw that name as a late-breaker, I think some did a double-take,” said Brad Loncar, an independent investor who runs a fund focused on oncology. “But they had some great, very intriguing data. [Cancer immunotherapy] is really technical, and they really proved that they’re at the forefront of it.”

Nanjing Legend is likely to just be one of the firsts of a wave of Chinese biotech companies to remind the US that its reigning position in the industry is hardly guaranteed.

Chinese government values foreign-trained academics and research

Over the past two years, drug makers Merck, Eli Lilly, Tesaro, and Incyte have attained novel drugs developed in China through multimillion-dollar deals. Other major firms have taken a different approach by investing in research outposts in the country, forging relationships with Chinese academic centres in the process.

“It’s just the beginning,” said Christian Hogg, CEO of the Hong Kong-headquartered Hutchison China MediTech. “You’re going to see in the coming years that more and more companies will be making these achievements and breaking into the global scene.”

But China's biotech boom was no overnight success. Firms in China were profiting by providing contract services to the pharmaceutical giants and selling drugs of their own that focused on decades-old generics, not innovative drugs for many years.

But thanks to China's Thousand Talents Programme ̶ a 2008 government initiative that targeted Chinese-born academics and workers who trained overseas, with promises of grants and tax breaks ̶ the tides turned. The returnees, called "sea turtles" in China, now comprise a generation of biotech leaders in the country.

“Biotech is people, people, people,” said Qinwei Zhou, who became chief operating officer of China’s Innovent Biologics last year after spending more than 20 years at Eli Lilly in the U.S. “And with more and more people returning, the talent pool really starts to accumulate.”

China still has multiple barriers to overcome

The biotech landscape in China has also expanded due to a greying population that can afford healthcare. The huge population of Chinese baby boomers have benefited from the influx of wealth that has transformed China in the past few decades.

The Chinese government is also pushing to reduce drug prices by cutting down the number of middlemen in the country's healthcare system with a "two invoice reform" which limits the number of invoices between drug makers and hospitals to two. But many experts have said that this could mean large pharmaceutical companies will gain power and reduce their distribution costs.

Other barriers still remain. Chinese drug manufacturers have routinely failed inspections by the US Food and Drug Administration. Clinical data has also been found to be falsified in many instances, forcing the government to implement a harsh death penalty that applied to anyone who does so.

On the financial side, companies need to be profitable first before shares can be sold to the public in China, making it impossible for early-stage biotech companies to fundraise through the stock market.

But the gap between Chinese and US venture capital investments is closing, especially when the government is constantly increasing its research budget.

“Will it be five years? Ten? Or fifteen? I don’t know,” said Zhou. “But sooner or later, it’s inevitable.” MIMS

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