In San Diego, the last decade gave rise to biotechs farming out work to contract research organizations, or CROs. It’s an industry increasingly colored by China.
In recent years, Chinese-linked CROs, led by Wuxi PharmaTech, have established a San Diego footprint, a strategy to overcome a market plateau back home. Far from a one-way street, San Diego CROs like Irisys offering in-demand services have expanded into China, as testament to greater ties between the two regions.
Running counter to the U.S.-Sino trade war narrative is a developing San Diego-China biotech story. It encompasses regional drugmakers licensing drugs to Chinese firms, on the back of recent Chinese regulatory reforms seeking novel foreign treatments. In addition, San Diego biotechs increasingly rely on Chinese investors for financing rounds.
CROs are yet another aspect.
China Comes to Them
Many San Diego biotechs are small enough to where outsourcing to China doesn’t make sense, leading Chinese firms to come to S.D. doors, according to Richard Lin, who chairs the CRO committee of San Diego-based trade group Biocom.
“They decided, ‘OK maybe we need to go local to capture the local market and have more of a finger on the pulse of what’s happening in the U.S.,’ which is probably their biggest marketplace,” Lin said.
In the aftermath of the recession, San Diego CROs surged with drugmakers axing in-house work, part of belt-tightening. These boutique companies fill a variety of specialty roles, from research at the early stages of drug development to running clinical trials to operating labs.
Likewise, Chinese CROs benefit from China’s burgeoning pharmaceutical scene, once dominated by generic drugmakers but that’s evolved into innovative, homegrown biotechs. With the Chinese CRO market maturing comes a desire to tap into new service areas, often by way of acquisition, saving time on building out infrastructure.
Business ‘Plateauing’ in China?
“Business in China is slowly plateauing out,” Lin said. “In the end they’re asking, ‘How do you expand the last bit of marketplace?’”
It appears Chinese CROs gravitate more to San Diego than Boston and San Francisco, the country’s other biotech hubs, said Lin. Operating costs run lower in San Diego, and there are throngs of small biotechs that contract out services to save cash.
“San Diego kind of represented a Goldilocks situation,” said Lin, who is also head of growth and strategy of Explora Biolabs, which provides rodent lab space and preclinical scientific expertise.
What does this mean for the region’s competitive CRO landscape? Lin said likely not much for Explora, since it’s among the many San Diego CROs insulated by virtue of occupying a niche. Some companies may be threatened, while others may welcome Chinese businesses coming to town.
“There’s always the possibility of joining the party and getting acquired in the future,” Lin said. “So it may not be a bad thing for the entrepreneurs.”
More than any other country, Chinese-connected companies have the largest CRO presence in San Diego, led by Shanghai-based Wuxi, which boasts three San Diego sites. Notable deals:
• In 2016, Wuxi subsidiary Shanghai SynTheAll Pharmaceutical Co. launched operations in San Diego;
• Wuxi last year acquired Shanghai-headquartered HD Biosciences, which included HD’s San Diego operation;
• BioDuro, a U.S. CRO with a large Chinese footprint, merged with San Diego’s Formex in 2016; and
• Crownbio, owned by a Japanese company with offerings in the U.S., Europe, China and Taiwan, bought part of San Diego-based Molecular Response in 2015. BioDuro recently bought another part.
Wuxi did not respond to a request to comment; BioDuro and Crownbio were not available for interviews.
Meanwhile, San Diego CROs Irisys, MicroConstants, Anticancer and Alan Lab opened satellite offices in China.
Irisys, specializing in product development and manufacturing, saw a demand for regulatory consulting and other services in China.
“CROs, some always think, are serving U.S. clients. But there’s a different scenario that the Chinese companies need services from the U.S.,” said Yinghong Gao, executive director of business development at Irisys.
Gao knows firsthand how the relationship goes both ways, as she’s also the executive director of business development of Shanghai-based Viva Biotech, which recently established a venture fund and business development office in Boston.
San Diego-China Connections
She rattled off a list of biotech executives and professors with San Diego-China connections, acting as a bridge. Further binding the countries, the nonprofit Sino-American Biotechnology and Pharmaceutical Professional Association, or SABPA, was founded in 2002 in San Diego.
“These kind of collaborations are going to further bring closer these two countries,” Gao said. “At the end of the day, San Diego is going to be a spotlight because people see the quality (work) that we do.”
But not all is rosy. Getting to China can be a pain. Gao said biotech entrepreneurs continue to push for a nonstop flight between San Diego and China.
Historically, Chinese CROs pitched world-class research at lower prices to lure in Western clients. But with rising Chinese wages lessening this incentive, particularly in clinical trials, Chinese firms view San Diego offices as a way to be more responsive.
“Price is less of an issue now. Availability is more of an issue,” said Suresh Chintalapati, president and chief business officer of Triangulum Biopharma in Carlsbad, which designs and analyzes rodent studies for liver and metabolic drug candidates.
Boutique CROs’ Draw
Chintalapati said Chinese CROs in town are part of an acquisition trend swallowing up midsize, jack-of-all-trades CROs. He said that’s driving a demand for boutique CROs, one reason he doesn’t anticipate international competition impacting Triangulum.
“If you have a sub shop that’s part of a large network, versus a small hometown sandwich shop, many people will prefer the smaller one. They find it unique, they want to support the local economy and so forth,” Chintalapati said.
In addition, there may be enough work to go around, given that the CRO market is anticipated to steadily grow and reach $51.3 billion by 2024, according to a March study by Grand View Research.
For Chinese CROs, U.S. offices in some cases aren’t a huge source of business but a tool to boost sales and marketing. So said Kevin Lustig, CEO of San Diego-based Scientist.com, which connects CROs with pharmaceuticals.
“It gives them credibility,” Lustig said. “It puts them on the map in the U.S.”