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商业周刊 2007年 11月 26日

Cash injection

Editor's note: Eli Lilly Co, one of the top-10 pharmaceutical companies in the United States, announced in early November that Lilly Asian Ventures has begun full operations in China with its headquarters in Shanghai. The venture capital subsidiary is now looking for potential investment opportunities in the life sciences and healthcare industries. Lilly, which opened its first office in China in 1918, plans to invest at least $100 million in pharmaceutical research and development (R&D) in the next five years.

Lilly China's president Jorg Ostertag, Lilly Asian Ventures' senior managing director Darren Carroll and managing directors Bryan Dunnivant and Shi Yi recently talked to China Business Weekly reporter Jin Jing in Shanghai about their business strategy in China.

Q: What has Lilly China done to date and what are your plans for the coming years?

A: Lilly has launched five new products in China this year and plans to introduce an additional 15 new products and line extensions through the year 2012. Our sales in China increased 25 percent in 2006, better than the average of the members of the Research and Development-based Pharmaceutical Association of China.

In the past two years, our staff numbers increased by 50 percent. Our goal is to make Lilly China one of the top-10 affiliates in Lilly by 2010.

Lilly started research cooperation with Chinese academic institutes in the 1990s and was one of the fist foreign pharmaceutical companies to conduct R&D in China. We worked with ChemExplorer, a Shanghai-based chemical research company in 2002, and the research team has now expanded to hundreds of staff members. In addition, Lilly Asia Ventures recently established its first office in China to invest in China's life science and healthcare companies and to support innovation in those industries.

Q: What's the investment strategy of Lilly Asian Ventures in China, and how does it operate?

A: There are two stages of our investment strategy. In stage one, which is now complete, we made a $10 million fund-to-fund investment in BioVeda China Fund II, which is an international venture capital fund for life science investments in China. This allows us to better understand the characteristics of high-performing life science companies and the evolving nature of the Chinese market.

We have now entered stage two, in which we will make direct investments in promising life science companies. We will also continue to work closely with the BioVeda to help identify good-quality life science companies in China.

Our investment in a project usually takes $1 million to $5 million at the initial stage. During the lifecycle of the project, the total investment is expected to increase to as much as $15 million.

We don't simply provide money. We will work closely with the company's board and management team to help them grow their business. We can tap into Lilly's more than 8,000 R&D scientists and a global sales and marketing network to add value for our portfolio companies.

Q: What are your criteria in evaluating investments in China?

A: First, the company should be addressing a sizable market or an unmet medical need in the life sciences and healthcare industries. Second, the company should be developing promising technologies, products and services. Third, the company must have talented management teams that have the expertise and capabilities to make the company a success. Overall, we are looking for organizations or companies that we believe have the potential to be a dominant player in China or in the global market.

In terms of industry focus, we are primarily interested in pharmaceuticals, biotechnology, medical devices and diagnostics, and healthcare services.

Q: Why the interest in China? Do you have any geographical focus within the country?

A: There are two important trends in China over the next 10 to 15 years with regard to the pharmaceutical industry. First, China is increasingly important as a pharmaceutical market. Projections are that China will surpass Japan to become the world's second largest pharmaceutical market by 2020, following only the US. Second, China is becoming one of the world's most important R&D centers for pharmaceuticals. If we put these two trends together, there will have huge investment opportunities.

Most of the companies we are looking at are at the east coast and in major cities, including Beijing, Shanghai, Guangzhou, Dalian and Shenzhen.

Q: What's your exit strategy in China market?

A: Because we are in the pharmaceutical industry, we understand the timeline of developing an innovative product, as well as the risks that are involved. In our world of investment, the rule of thumb is that if we invest in 10 projects, three of them may fail, three will break even and only four will make money. In that case, we would like to see our successful projects generate fourfold or even tenfold of return on investment.

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