— 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.