Hong Kong: Land of the Biotech Unicorns

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In 2017, Hong Kong fended off perennial competitors, life sciences hubs and innovation powerhouses, Switzerland and Singapore, to rank first in the International Institute for Management Development (IMD)’s World Competitiveness Rankings, clear evidence that conditions are ripe in Hong Kong to develop the first biotech unicorn – a start-up company valued at over USD 1 billion.

“We describe ourselves as a Chinese city outside of China. I believe Hong Kong will be an excellent platform for local companies to connect with the rest of the world and vice versa.”

Albert Yu Cheung-Hoi, HKBIO

While many of Hong Kong’s inherent business advantages lend themselves naturally to the biotech industry, “Hong Kong’s status as the world’s leading commercial and financial center has inevitably overshadowed its emerging success in the biotech industry,” Professor Albert Yu Cheung-Hoi, Chairman of the Hong Kong Biotechnology Organization (HKBIO), admits. Nevertheless, in recent years, “looking at the government’s policies and the number of people interested in biotechnology, the percentage of interest and enterprise has critically improved. Even traditional businesses are beginning to acknowledge the power of biotechnology.” Most notably, the Chinese Manufacturers’ Association of Hong Kong (CMA), a traditional trading association in Hong Kong, has recently recognized biotechnology as one of Hong Kong’s major industries.

Yu waxes lyrical about the advantages of building a biotech start-up in Hong Kong: “Hong Kong is very international and is arguably the most westernized Asian location. It has the best mix of Western and Asian cultures and influences. The multicultural environment fosters a strong global sense and allows foreigners to feel comfortable being in Hong Kong especially as there is no language barrier. Hong Kong’s reputation as the freest economy in the world is matched by a high degree of business integrity and ethics.

A stable economic and political environment makes Hong Kong an appealing ground for capital funding as well as talent aggregation. The transport infrastructure we have built is convenient, extensive and sophisticated while the legal system is simple, fair and transparent.” The clincher? “We describe ourselves as a Chinese city outside of China. I believe Hong Kong will be an excellent platform for local companies to connect with the rest of the world and vice versa.”

Local biotech success story GeneHarbor Biotechnologies validates the supportiveness of the environment in Hong Kong. “I think that an original innovation company requires four major ingredients for survival: money, manpower, information, and incentive. For each of those ingredients, I daresay Hong Kong is better than Taiwan and Singapore. To add to that, in Hong Kong, the Closer Economic Partnership Agreement (CEPA) grants us unfettered access to the mainland China market, which is huge. Another plus for Hong Kong: according to QS2018, four of the universities in Hong Kong rank in the top 100 in the world,” assesses Dr. Jun Wang, founder and CEO.

Fellow biotech founder and academic Dr. Shawn Leung strikes a more cautious note. “Hong Kong’s proximity to China has always been a huge advantage but this is much less of a selling point today than it was two decades ago because China has opened up. Today, Big Pharma, top academics and financial investors are going directly into China, be it in Shenzhen, Shanghai or elsewhere. China today also has the capital. I believe that if you have a viable product, it is actually a lot easier to raise money in China than it is in the US – and the valuation is also higher.”

For him, Hong Kong’s value proposition is elsewhere. “Hong Kong retains a crucial edge. It has very conducive intellectual property (IP), legal and communication systems in place to develop research-intensive, high-value, proprietary products. This is not something that companies necessarily want to do in China; if an employee decides to leave with valuable data, the sheer physical size and population density of China mean that he can easily disappear without a trace. In Hong Kong, the infrastructure is trustworthy and robust.” He emphasizes, “It has always been my belief that this is Hong Kong’s largest selling point and the niche that Hong Kong should occupy.”

For Christian Hogg, CEO of Hutchison China MediTech (Chi-Med), one of the most successful biotech companies based in Hong Kong with a market capitalization of USD 2.74 billion, the story is more nuanced. He says, “Hong Kong’s core advantage is the strength of the financial services industry here, which is increasingly interested in the healthcare sector, seen to be a high-growth sector. The transparency of the equity capital markets in Hong Kong and the increasing sophistication of their understanding of the healthcare space are big positives.”

That said, given the relative dearth of successful biotechs locally, it stands to reason that there continue to be limiting factors that Hong Kong should address. Hogg warns, “for biotechs to be able to take advantage of the financial environment in ten years, the government needs to implement policies today to foster a number of biotech companies. The cost of operations here is also high and the ecosystem is much smaller than that of other hubs in the world like Boston, Shanghai and Cambridge, in the UK. Hong Kong has a huge advantage in terms of its proximity to China, which we should capitalize on more.”

The proof is always in the pudding, and Hong Kong biotechs have managed to win international recognition. A notable example is Sanwa Biotech, which won the prestigious Gold Medal from the 44th International Exhibition of Inventions Geneva in 2016 for its microfluidic lab-on-a-chip system. Their ambitious goal was to target “time-critical and life-threatening illness and our goal is to make their diagnosis simple, mobile, and rapid. We want to simplify the high-tech, high-quality, high-throughput laboratory testing process that can be brought to the frontline to be user friendly enough to be used by healthcare providers,” William Yim, executive chairman and chief technology officer points out.

In Hong Kong as elsewhere, the key to success for a biotech is the ability to translate science and technology into commercial value. CEO of Sanwa Biotech, Kelvin Chiu, contextualizes the challenges they had to contend with: “POCT diagnostics is a trend that has gained momentum in the past five years, promoted mainly by physicians and healthcare policymakers that appreciate the value in allowing healthcare providers to make more informed decisions while keeping costs low”.

At the same time, while “microfluidic chips have been a hot topic for many years, we have not really seen many successful product launches in the market … limiting its use to the academic R&D setting. In order to make it viable for commercial and/or clinical usage, we had to develop a fully integrated system on a very small scale that was still versatile enough to adapt to multiple different applications. Furthermore, we are offering complex, protein-based multiplex diagnoses, which requires stringent risk management control as well as regulatory standards at both national and international level, which further increases the commercialization barrier.”

GeneHarbor’s Wang offers similar advice to aspiring bio-entrepreneurs: the first step should be to “locate the key problems, or the pain spots, of the industry. One of the serious lessons I have learnt during my early years of transition from an academic into an entrepreneur is that you have to think from the industry perspective, driven not by the curiosity of a scientist but the needs of the industry.” For instance, his company’s success today was precipitated by his realization that in the global chemicals industry, while 60 percent of household and fine chemicals, including pharmaceuticals, could be manufactured using biological catalysts, the vast majority, around 98 percent, is being manufactured using chemical catalysts.

This meant a market size of USD 2 trillion globally. He explains, “The primary reason is that “enzymatic processes have thus far been very expensive, due to the high cost of enzymes, lofty cost of the necessary co-factors, and low efficiency of the enzyme reactors.” For two decades, his team toiled to create “an innovative enabling, comprehensive biotechnology platform called the Immobilized Enzyme Assembly for Cascade Biocatalysis”, which managed to dramatically reduce the cost of enzymes by 80 percent, or even more, in many cases. Wang stresses, “In doing so, we are able to translate many scientifically feasible but commercial nonviable processes into commercially viable processes.” With his eyes always on the prize, he concludes cheekily, “the focus now is to translate our technology advantage into money, to convert the science into dollar signs ($), and to convert our IP into an IPO!”

 

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