Advances in Biopharmaceutical Technology in China


Chapter 11:   Biopharmaceutical Industry Venture Capital Investment in Mainland China

Zhang Luyang, Ph.D
International Finance Department of Fudan University
Address: #220 Handan Road, Shanghai, 200433
Huang Wei
Graduate at the International Finance Department of Fudan University
Address: #220 Handan Road, Shanghai, 200433

About the Authors:
Zhang Luyang, Ph.D., Professor, International Finance Department of Fudan University, Managing director, China Venture Capital Research Center of Fudan University, Bachelor and master in material engineering, Harbin Institute of Technology, Master and doctor in engineering management, Harbin Institute of Technology, Postdoctoral in finance, Nankai University, and postdoctoral in economics, Fudan University. Since 1996 he earned his doctorate, he has engaged in research on theories and practices of venture capital. He is one of three Chinese experts engaged in research on venture capital at its earliest stages. His expertise in venture capital involves combining theories and practices, and he is the first to research VC with startup of technological companies. He has undertaken over 17 research projects, including those with the National Social Science Foundation, philosophy and social science projects at the Ministry of Education, and projects for the Heilongjiang Provincial Working Committee of Big Enterprises, and other provinces and municipalities. Supported by VC institutions based in Shanxi, Tianjin, Chengdu, Shenzhen, Heilongjiang, Shanghai, he founded the first professional venture capital research institution in China, China Venture Capital Research Center of Fudan University, in 2000. He put forward the "Theory of Venture Capital - Portfolio Investment", which completes a number of venture capital theories. He also put forward the "Methodology for Analysis of Venture Capital - Portfolio Investment Risks". He has been awarded two national invention patents and five software copyrights, published five monographs and over 20 research articles, and discovered the "Three plus Two" growth law of China's technological companies. His research is currently focused on the theory and methodology of "Venture Capital - Portfolio Investment Pricing", corporate governance of technological companies during growth, design of the legal system for China's venture capital, theories and practices about venture capital and intellectual property rights and financial economy of venture capital stock, as well as theories and practices about combination of technology and finance on the background of the new economy.
Huang Wei, Fund researcher, Shanghai Shenyin & Wanguo Securities Research Institute. He studied in Fudan University for a bachelor's degree in economics in 1999-2003, and for master's degree in economics in 2003-2006. His major is venture capital. In November 2005, he published, "Analysis of the Financial IT Service Outsourcing Industry in Contemporary Finance and Economics." During his study for the master's degree, he took part in academic research activities. In 2004, he participated in the survey of the venture capital companies based in Shanghai, which was initiated by the Ministry of Science and Technology. In the same year, he participated in Research on the Law of Growth of Hi-tech Companies in Ningbo City, Zhejiang Province, a joint project between China Venture Capital Research Center of Fudan University and Ningbo Municipal Government.

This chapter includes seven sections. The first section introduces the concept and characteristics of biopharmaceutics and the biopharmaceutical industry. The second section introduces and analyzes the status of venture capital of the biopharmaceutical industry of Chinese Mainland according to the 2005 Report on the Development of Venture Capital Investment. The venture capital investment in biotechnology accounts for just 8% of the total venture capital investment in China. The third section analyzes the characteristics of technical risks of China's biopharmaceutical development process according to the relevant regulations of the Ministry of Public Health. The major issue is that the R&D cycle in China is too long, 9-12 years at least. The fourth section analyzes the risk characteristics of venture capital investment in the biopharmaceutical industry on the basis of the data on international venture capital investment in the biopharmaceutical industry. These risk characteristics include diverse dynamics, open portfolio, and future realization of return. The fifth section analyzes the return characteristics of venture capital investment in the biopharmaceutical industry according to the return mode of the international venture capital investment in the biopharmaceutical industry, particularly, that of USA. The most optimal return mode of venture capital investment in the biopharmaceutical industry is merger. The sixth section mainly analyzes the reasons why China's biopharmaceutical industry is not focused on the biopharmaceutical industry and why it does not draw much venture capital. The major reasons include the high-risk characteristic of the biopharmaceutical industry, the immaturity of China's venture capital industry, and the lack of a strong venture capital environment in China. The seventh section primarily puts forward recommendations on financing mode and environmental mode for developing venture capital investment in China's biopharmaceutical industry on the previous analysis.

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Eric Langer
BioPlan Associates, Inc.
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