New horizons for ancient cures
By Geoff Dyer
Published: November 8 2006 02:00 | Last updated: November 8 2006 02:00
In the past couple of decades, the pharmaceuticals industry has often looked for inspiration to the thousands of natural products used in traditional Chinese medicine.
The best current malaria medicine is based on an ancient Chinese treatment for fevers that comes from star anise fruit. Two recent cancer drugs are derived from camptotheca acuminata, a tree found in China.
In spite of these successes, there is still much scepticism within the industry about the scientific potential of natural products. Yet one Shanghai-based company is trying to show that there is more to traditional Chinese medicine than a few flukes.
Hutchison China Medi-Tech is one of the first Chinese companies to attempt to bring the modern bio-technology model - a start-up drug discovery operation using state-of-the art screening tools - to the treasure chest of traditional Chinese medicine (TCM).
"Our aim is to modernise and globalise traditional Chinese medicine," says Christian Hogg, chief executive of the group, otherwise know as Chi-Med.
The company is in many ways a hybrid. Based in Shanghai, it is controlled by the Hong Kong conglomerate Hutchison Whampoa and listed in London, raising £40m ($76.2m) on the Alternative Investment Market in April.
It also has three very different legs. As well as the research arm, the group has a business selling existing TCM products in China and another in the UK.
The Chinese TCM business is the current revenue driver, with turnover of $31.1m in the first half of the year. It has 40 per cent of the market for Ban Lan Gen, a cold and flu medicine made from a root, which was particularly sought after at the time of the Sars outbreak.
Sales of TCM medicines are about $11bn a year - 30 per cent of all drug sales in China - but, like many consumer products in China, the market is fragmented. Mr Hogg says there are 1,200 manufacturers across the country.
As a result, the industry is ripe for consolidation. The company will consider acquisitions but is mainly looking to add to its three joint ventures, where the Chinese partner provides the assets and Chi-Med adds the marketing expertise. "The Hutchison name is a great calling card," says Mr Hogg, who spent five years of his 10-year career at Procter & Gamble managing joint ventures in China.
The market may be growing 20 per cent a year but there can be problems. The group warned in July that a rule change would affect one of its joint ventures. Executives said this was part of the normal business of a rapidly evolving market. However, the company's shareholders took fright and the shares are now trading at 162p, well below their float price of 275p, marking an inauspicious debut on the London market.
The overseas retail business, which hopes to tap growing demand for alternative therapies, is less well established and is loss-making. The company has six London shops under the Sen brand name in places such as Harvey Nichols - clean, colourful spaces that sell teas and tonics as well as acupuncture and reflexology. The concept is something like Chinese mysticism meets Absolutely Fabulous.
The main reason for Hutchison to get involved, however, is the scientific opportunity. The company has a library of 10,000 natural substances, many of which have been used for centuries, which it is scanning for medical potential.
Chi-Med now has two products in four clinical trials: a drug to enhance radiotherapy for cancer patients and an oral treatment traditionally used for respiratory infections and modified to treat Crohn's disease and ulcerative colitis.
On top of the library, there are two other attractions to pursuing drug discovery in Shanghai. One is the potential to bring back skilled Chinese scientists who trained in the US or Europe but now want to take part in the mainland's economic boom.
The research division is run by Samantha Du, a former Pfizer executive, who has brought back a number of colleagues, including Su Weiguo, a top Chinese chemistry student who went on to become a leading researcher at Pfizer. "I wanted to contribute something to my country," he says.
Chi-Med also believes there is a big cost advantage in China. The scientists themselves do not come cheap if they are returnees but it is both quicker and cheaper to do clinical trials. "If it costs $1bn to develop a new drug, then a 10 per cent cut is tremendous," Ms Du says.
Apart from the scientific obstacles in turning botanicals into drugs, one of the biggest problems facing Chi-Med is intellectual property. As its medicines are based on substances in use for thousands of years, it can be hard to establish the patents that justify heavy development costs.
Mr Hogg says any drugs the company develops will be hard to copy. But as its scientists dig deeper into the library, he says they will start to understand how the substances work on a molecular level and how they react with the human body. As a result, they will begin to isolate specific chemicals that could be the basis for potential new drugs, which would be much easier to patent.
The flotation has given Chi-Med the money to fund at least three years of research and it will receive further revenues from a deal signed this week with P&G to screen its plants against skincare targets.
In the long term, having scientists in Shanghai and shops in Harrods could be unwieldy. Mr Hogg says the drugs research business could be spun off in the future. But before then, Chi-Med's researchers will have to show that their library is full of more than just scientific curiosities.
Copyright The Financial Times Limited 2006