Stock market regulations can discourage science investors

Jiang Dong

[BEIJING] China's biotechnology industry has seen tremendous growth in recent years, but a more favourable environment is needed to attract investors to the capital-thirsty sector, according to a new study.

Sarah Frew and colleagues from the McLaughlin-Rotman Centre for Global Health at the University of Toronto, Canada, interviewed the management of 22 innovative Chinese health biotechnology firms. They published their findings this week (7 January) in Nature Biotechnology.

The authors write that China's health biotechnology industry has maintained an annual growth rate of 30 per cent. Although 90 per cent of China's US$3 billion market in 2006 was in generic drugs, Chinese firms have also successfully developed several innovative biotechnology drugs, such as the world's first commercialised gene therapy Gendicine.

Massive government support is behind the growth — the authors found that nearly all the companies studied have received some form of the government funding.

Additionally, a large number of returnees from the West is driving China's biotechnology boom, with their expertise and links to international academia, industry and capital.

Yet the authors find that the prosperous picture of health biotechnology in China cannot hide the lack of capital, especially venture capital — key to the success of high-risk fields. In addition, reliance on government funding could "make the business environment less fair".

The authors explain this is because China has strict requirements for listing in the stock market — which often exclude biotechnology start-ups — as well as limitations on transferring currency to foreign countries, making it difficult for investors to withdraw their money.

"At the present time, there is not yet enough of an incentive for investors to invest in a high-risk sector with long timelines to profitability, when there is money to be made more quickly in other less risky sectors," Frew told SciDev.Net.

Agreeing that the lack of investment is a key problem, Yu Zailin — president of Tianjin SinoBiotech and an interviewee for the study — says the lack of a mechanism for money to leave the country might not be the most important barrier.

"Domestic venture capitalists are too eager to see a [successful] result which does not work for the biotech drugs whose development period could be many years," he told SciDev.Net.

Yu adds that international investors are reluctant to invest in China's biotechnology industry because they are too unfamiliar with Chinese regulations.

Link to full article in Nature Biotechnology

Reference: Nature Biotechnology, 26, 37 (2008)