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China's economy made an indelible impression on the world on February 27th of this past year. China’s stock markets, having enjoyed an altogether spectacular run in the previous 18 months, fell 9% on that day. By itself, the drop was spectacular, though not necessarily the kind of thing that makes the rest of the world take notice (“They had it coming after so big a rise;” “Lesser developed markets often display that kind of high volatility;” etc. etc.).

When the Shanghai Surprise subsequently took 400 points out of the Dow Industrials, the nonchalance disappeared: it showed an undeniable linkage between the two economies.

The 9% decline in Shanghai and its consequent 3.3% slide in New York did not turn out to be the most important economic events of 2007. In fact, they were just a side show, a blip or noise, as we like to say, in a year that turned out to be mostly about other things. China markets managed a 97% increase over the year – a remarkable feat given that they had tripled in the previous 18 months. U.S. stocks struggled to add single digit percentages, a gain for the year even though it was not a very satisfying one.

In the U.S., investors interested in China were mainly preoccupied with the IPOs of China solar companies – they produced the biggest gains for any US-listed initial offerings. At the same time, in a much quieter way, four China biopharma companies, representing a broad range of business models, made their IPOs in the US: 3SBio (NASDAQ:SSRX), Tongjitang Chinese Medicine (NYSE:TCM), Simcere (NYSE:SCR) and WuXi PharmaTech (NYSE:WX). Of these, only WuXi produced healthy returns for the IPO investors. The CRO company more than doubled off its IPO price, while the others are slightly above, or slightly below, their initial offering levels. By and large, they did not produce the kind of spectacular gains that made the IPOs particularly newsworthy.

Instead, the IPOs of these China biotechs are significant because they serve as symbols for the internationalization of China biotech, the interdependence of West and East in the sector, much like the fall in the New York paralleled the February 27 declines in China. The four China biotechs do not export much of their product to the West, though WuXi’s clients are largely located there. But the access to Western capital markets will allow these companies to participate in the consolidation of China biotech as the number of enterprises drops from its present level of 4,000 domestic China companies involved in some way with biopharma.

Even more importantly, like Western investors, Western biopharma is also interested in its China counterpart, partly for the economies of doing business there, partly because the quality of research has been rising. We have been reporting on how Western biopharma is investing in China facilities, even as it cuts back spending and production in the rest of the world. In China, companies are springing up to help Western biopharmas bring their drugs to the China consumers. Meanwhile, Western investors are providing capital to help fledgling China life science companies develop their products and bring them to the market. In 2008, these ties between the West and East can not help but become even closer, and they will continue to provide news flow in the new year, much as they have in 2007.

Among our articles published during the last week, our Executive Editor, Greg Scott was interviewed by Interfax China on the relative merits of investing in China medical device and biotech companies (see story). He also discussed the IP pitfalls of some China companies and the Western perceptions of safety as they apply to China biotech.

Immtech (IMM) put a hold on a Phase III trial of pafuramidine, including a China arm that was just getting underway (see story). Elevated liver readings were the culprit. So far, no patients have exhibited any extreme reactions, but the FDA and SFDA will have to understand the problem and be assured that patients are safe before the hold can be lifted.

Sirnaomics of Rockville, MD announced that it will start a Phase I trial of its lead drug candidate in China during the year 2008, probably the first trial of the prospective drug (see story). The molecule, called STP601, uses an RNA interference mechanism to target neovascularization in the eye. Siranomics plans to pursue parallel development STP601, with trials in both the US and China. In an exclusive interview with ChinaBio Today, CEO Dr. Patrick Lu said that Sirnaomics is exploring a merger with China-based Top Genomics, a company with which he is also involved.

Asymchem Laboratories of North Carolina, a contract manufacturer that has all of its production plants in China, will increase its investment in its China facilities (see story). Asymchem makes chemical intermediates and APIs in China. The company will put another 300 million RMB ($40 million) to work building a 100,000 square meter facility in the Dagang Development Zone [DEDA] of Tianjin, north China. Asymchem has already spent 1.7 billion RMB ($227 million) on its China facilities.

And finally, Sinovac Biotech (NASDAQ:SVA) reported positive data from a Phase II clinical trial of its pandemic flu (H5N1) vaccine (see story). In a double-blind test, the top two dosage levels of Sinovac’s vaccine met the EMEA evaluation standards for seasonal flu vaccines without causing any significant side effects.

Disclosure: none.

Source: China Biotech Week in Review: East-West Interdependence in 2007