How China's Biggest Biotech Company Cracked The U.S. Market
Shu-Ching Jean Chen Contributor
Forbes Asia
Wang Jian, co-founder and president of BGI Shenzhen, China's largest biotech company, found a shortcut into the U.S. market through its acquisition early this year of Complete Genomics . He says the acquisition was also a defensive step to fend off Illumina, the world's largest manufacturer of gene-sequencing machines known as the biotech equivalent of Apple Computer.
"If we did not buy [Complete Genomics], we'd be restricted. We had to make this acquisition. There was no other alternative. Iluminia was in machine manufacturing, but it has gone into services to compete with us. It has played a supporting role, but has now also become a player," he said.
Complete Genomics has bled cash continuously since its founding in 2005, despite its superior technology in sequencing human genomes. Wang blamed competition from Illumina for Complete Genomics' demise. "They were killed by Illumina," he said. Wang's company, BGI, was featured in the latest issue of Forbes Asia magazine.
By combining with Complete Genomics, BGI has acquired the know-how to make the machines that process the data and a foothold in the U.S. sequencing service market, enabling it to serve local clients directly. "Buying Compete Genomics enables us to have our own weapons. It is a big machine gun," Wang added.
Professor George Church of Harvard University and other analysts estimate BGI's gene-sequencing capacity at about 10% of the world's total, making it the global No. 1, and that a combination with Complete Genomics would give BGI a particular edge in sequencing "whole human genomes" (over 95% of the genome). "Complete Genomic is the only large group I know entirely focused on whole human genomes," Church said.
Wang met Compete Genomics CEO shortly after Complete Genomics put itself up for sale in a public auction in June 2012 and pledged $30 million bridge financing to see it through the transition before a deal was completed.
Paul Scrivano, a Silicon Valley-based partner at law firm O'Melveny & Myers, who advised BGI in the acquisition, said BGI's partnership with The Gates Foundation "was a positive factor in the transaction," and that unlike other controversial Chinese acquisitions in the U.S. made by state-owned companies, BGI stood out for its private ownership. "It's very clear that BGI is funded by private investors," Scrivano said.
The BGI founders' combined ownership is vested in a foundation, which owns 51% of the company, down from more than 80% in the early days. BGI employees collectively own 49% through stock options. Various plans are being discussed among remaining founders over how to donate their stake.
The Gates Foundation sought out BGI before both signed an MoU in September 2012 to join hands in global health and agricultural development, a partnership that has earned BGI many fans in the U.S., including officials who approved of BGI's acquisition of Compete Genomics.
Ross J. Muken, senior managing director at ISI Group, said BGI is trying to become a service organization that serves labs globally in genomics, a strategy similar to Complete Genomics' approach. "This will certainly help them quicken their pace at the least going into the U.S. market," Muken says, adding that its chances of succeeding depend on what they do over the next 12 months.
"This is a dynamic market. The winners will be decided over the next five to 10 years. It's a fluid industry," Muken says. "Technology has been developed so quickly… you have to choose the right technology to buy the instruments. You have to make sure because it's a multiple-year purchase."
Justin Saeks, an analyst at Kalorama Information, points out "the big differences with BGI are its sheer size and its focused expertise in genomics compared to more traditional research institutions. Aside from its specialization, particularly location and size will provide major advantages in Asia relative to other competitors. "
Illumina, for its part, has just gone the other way, inking a partnership with Beijing-based Kindstar Global to tap into Asia. BGI's Wang responded by saying "BGI will be more and more competitive. Competitors can also push us to walk faster. "
Shu-Ching Jean Chen
I cover regional corporates and entrepreneurs for Forbes Asia magazine as a contributing correspondent. Previously, I was a staff writer with Forbes, producing stories