Merck & Co. affiliate MSD has invested an undisclosed amount of debt and equity financing in the Beijing-based start-up biotech BeiGene, Ltd., BeiGene announced May 2.

The financing will support BeiGene in the discovery of preclinical investigational agents, the conduct of translational research in cancer biomarkers, and the development of clinical-stage oncology candidates.

While the amount was not disclosed, BeiGene CEO and co-founder John Oyler told PharmAsia News that it was "substantial" and that the investment from Merck comes with the understanding that BeiGene will also seek other Big Pharma investors. "It's really no strings attached - it's ownership but it's no strings attached," Oyler said.

"In terms of pharma, part of our model is taking minority investments from pharmaceutical companies from day one so that you're building the bridges for them," Oyler said. "Ultimately they market the drug and pay for the Phase III in the long run, and we think that's a good thing to do and we can do both of those from Beijing from the start."

With roughly 60 people so far, and a 64,000 square foot research lab set to open in Beijing in July, BeiGene is the first big homegrown biotech established in the capital city.

"If you're looking for great innovative biology in China, it's clustered in Beijing," the CEO said. Although Shanghai is considered the heart of the China pharma industry, it is strong in chemistry, Oyler said, whereas he believes Beijing is on the cusp of being close to what the Bay Area was when Genentech started.

BeiGene's lab will be located in Zhong-guan-cun Life Science Park, which is run by Beijing's municipal government. Other park tenants include Novo Nordisk A/S, Genzyme Corp. (soon to be part of Sanofi-Aventis SA) and China's National Institute of Biological Sciences.

"We're not a subsidiary of a multinational company; we're really a Chinese company built in China with a team here and we're trying to combine and blend that magical start-up environment with the great scientific environment that comes out of academic labs or comes out of some of the great previous scientific teams with the culture of China and the way things are done here," Oyler said.

BeiGene's business model will focus on oncology research and development through proof-of-concept, with the research side focusing on translational and target work for cancers prevalent in Asia and development focusing on Asian populations.

China is attractive from a financial perspective, Oyler said, predicting that BeiGene will be able to access a significant amount of financing.

The investment by Merck "is just the beginning of demonstrating that, and I think you'll see some other big companies come in and professional investment come in over the course of next year."

BeiGene has "several active research programs" already, although the company has not yet disclosed details.

Portfolio-driven Chinese Oncology Company

The goal is to run a Chinese portfolio-driven company focused on oncology, Oyler stressed, whereas many U.S. based biotechs can focus on only one or two assets due to much higher R&D costs in the West.

With consolidation and budget pressure in the pharmaceutical industry, Oyler believes many high-caliber Phase I/II assets are available to in-license from major pharmaceutical and biotech companies, and his team in China could run parallel programs and look more deeply at other indications that would be too costly to run in the U.S. or Europe.

BeiGene plans to out-license compounds at proof-of-concept and will not build a commercial organization or Phase III capabilities, so its focus will stay squarely on R&D and monetizing discoveries, Oyler said.

Oyler is a well-known leader among the China pharmaceutical community. Prior to co-founding BeiGene, Oyler was CEO of the Chinese contract research organization BioDuro, which was acquired in 2009 by global CRO PPD Inc. for $70 million (Also see "PPD Continues High-speed Expansion In Asia With Second Acquisition Of A China-based CRO This Quarter" - Scrip, 20 November, 2009.).

"This investment and collaboration with BeiGene underscores our ongoing commitment to oncology discovery and development," said RuiPing Dong, SVP and head of emerging markets research and development for Merck. "This is consistent with our emerging markets strategy to increase our capability and capacity in China through partnership."

In a recent interview with PharmAsia News, Dong noted that Merck primarily takes a virtual approach to R&D in China, but the company also has its own R&D development, medical and data management facilities in China (Also see "Merck China CEO Michel Vounatsos And Emerging Markets R&D Senior VP RuiPing Dong On Provincial Management: An Interview With PharmAsia News" - Scrip, 20 April, 2011.).

BeiGene's R&D team is impressive. Oyler is joined by three cofounders: Chairman Xiaodong Wang, who is the director and architect of the 700-person National Institute of Biological Sciences in Beijing; President Peter Ho, former VP of Oncology at Johnson & Johnson and former SVP of Oncology CEDD at GlaxoSmithKline PLC; and Chief Scientific Officer Pearl Huang, former head of biomarker discovery and early development strategy for oncology at Merck and former VP of oncology biology with GSK.

In addition, several former BioDuro scientists have since left PPD and returned to work with Oyler at BeiGene.

"A number of those people had worked at GSK previously on the oncology side, run by Peter Ho and Pearl Huang," Oyler said, "So there's a reuniting of some of the people from BioDuro but also a lot of those people came from the oncology side, which Peter had run, so there's a long history of a lot of the senior folks working together, which makes it easy putting a team together."

Senior team members include Lusong Luo, head of discovery biology and former senior director of discovery biology at BioDuro; Min Wei, head of molecular sciences and former associate director of discovery biology at BioDuro; and David Sutton, head of in vivo pharmacology and former senior director of pharmacology at BioDuro.

Oyler has a long track record of leading start ups. Prior to founding BioDuro, he was CEO of Boston-based biotech Galenea, which was started from MIT with funding from Otsuka. He also was co-CEO of Genta, a publicly traded oncology company in New Jersey, and founder and president of Telephia, a cell phone data firm which was bought by the Nielsen Company. Prior to his foray into entrepreneurship, Oyler was a consultant with McKinsey & Company.

Virtual Model Cheaper But Boots On The Ground Has Advantages

The virtual model works well in China, Oyler said, and virtual companies working with some of the "great CROs in China absolutely can return superior returns to investors than not only biopharmaceutical investments historically, but almost any venture. I think it's really attractive economics."

Part of the reason the virtual model is successful is because companies in China can tie in to both academic centers and pharma companies in the U.S. and Europe.

In fact, Oyler believes that many industry consultants and analysts have yet to wake up to the significant savings in costs and efficiency from conducting R&D in China, and are advising Big Pharma to cut back R&D based on "past analogies [that] are no longer true." At a recent industry event in Shanghai, Oyler questioned the $1 billion-plus price tag that many assign to the cost of bringing a drug to market, saying that it is significantly cheaper to develop drugs in China (Also see "Regulatory Revisions, Cut Backs At Big Pharma, Provide Spark For China Innovation - BayHelix Annual Meeting" - Scrip, 20 April, 2011.).

"The experienced team is unique and we've put that in place on the ground in Beijing in a start-up company, so we have all that energy, all that motivation and up-side for everybody. As Peter Ho rolls out his development team, people will think this is something the caliber of a major pharmaceutical company," Oyler said.

By having a large research facility on the ground, BeiGene will be able to develop deep relationships with clinicians, academic institutions and the Chinese government to "create a network of understanding and support that is impossible to do as a virtual company."

And by working closely with clinicians and academic centers, BeiGene can understand the way disease is treated in China, enabling its R&D team to structure appropriate proof-of-concept studies, he added.

Need Funding? Move To China

Biotech executives in the U.S. and Europe might want to take a closer look at Asia as the funding crunch in the West has not deterred local investors - public and private - from investing in innovation.

While a red hot market in Hong Kong has fueled investor appetite for pre-IPO healthcare companies, signs are emerging that early-stage companies are now also getting a closer look from investors (Also see "Is China A Black Swan For Big Pharma? (Part 2 of 2)" - Scrip, 26 April, 2011.).

For example, Singapore-based ASLAN announced $12 million in a Series A financing last week that will help the company develop its first set of in-licensed compounds. The funds were raised by Singapore-based BV Healthcare II - a life sciences fund managed by BioVeda Capital - a venture capital firm specializing in healthcare. Other investors participating in the initial stage funding included Sagamore Bioventures and a few entrepreneurs from China, Hong Kong and the United States (Also see "ASLAN Completes Series A Funding For $12 Mn; Eyes More Financing Options With Spiraling Portfolio" - Scrip, 27 April, 2011.).

And last month, Ascletis Inc. launched a U.S.-China hybrid drug development company that attracted an eye-opening $100 million in funding, with an angel investor - a real estate billionaire - leading the Series A round (Also see "Ascletis Raises $100MM To Deploy Its U.S.-China Hybrid Drug Development Model" - Scrip, 6 April, 2011.).

Oyler remarked that having an influential person in China invest in your company is a winning strategy that leads to both money and introductions to other influential stakeholders.

The best thing in the world you can do when you're raising money, he says, is "raise a lot of money and raise it with people who can really help you and share your vision."

For the type of business BeiGene is building, Oyler says it is important to have "people that can help you ultimately at the end of the day when you have a drug. Unless a pharmaceutical company believes that it's of the caliber that they're going to pay to do a Phase III, it's worth nothing."

Moreover, having pharmaceutical companies like Merck involved to some degree "is extremely helpful in ensuring that you're on the right path of doing things that people want, and it matters that you have a relationship with people from that perspective."

In addition, Big Pharma can't seem to cut through its bureaucratic red tape to access innovation from the inside, so as an outsider, Oyler thinks he has a recipe for success.

"We have a wonderful partner who is supportive enough to let me say to anybody I want that we are looking for pharmaceutical companies to sit next to us, and we're looking for professional money; they understand and they realize we are building a business and to execute on our vision, it's going to require $150-200 million of capital."

- Tamra Sami (t.sami@elsevier.com)

Merck Invests In China Oncology Start-up BeiGene

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