Why did John Oyler, an American entrepreneur, decide to build a global biopharmaceutical company with roots in China?
Ask the chairman, cofounder, and CEO of BeiGene that question and you’re going to hear a lot about how, in the next five years, Asia, with a population of 4 billion, will become a much bigger part of the global life sciences system as it begins reimbursing for innovative drugs. He’s also going to spout off a series of metrics related to incidences of cancer in China by 2020 along with reimbursement percentages. But you will quickly realize that the answer to the question goes beyond a simple business opportunity. This is a guy who is dedicated and passionate about building something bigger — and longer lasting — than just a pharma company. He believes that if drugs in China can be reimbursed even at 60 to 70 percent of the going rate of other countries, this could make pharmaceuticals more affordable across the globe. Of course, to get to that goal, he needed to first build a company.
RECOGNIZING THE CHANGES THAT LEAD TO OPPORTUNITY
After graduating from MIT as a mechanical engineer, he took a job with McKinsey & Company, an American worldwide management consulting firm. “Some of the first work I did for McKinsey was in mainland China, so I had extensive exposure and spent a decent amount of time in Beijing and other cities in China during the early 1990s,” he explains.
Oyler returned to the States and went back to school, this time completing his MBA at Stanford while still at McKinsey. And soon, he became involved in several successful startups in technology/IT and biotech. Ultimately, he decided he wanted to spend his career fighting for life. “That’s why I made a full-time commitment to biotech,” he affirms.
After doing some consulting with a company out of MIT, he began putting together his view for how the biopharmaceutical industry was going to evolve. Then, in the 2005, he returned to China and was blown away by how things had changed — and were continuing to change at a rapid pace. “At the time in pharma, people were downplaying the effectiveness of R&D, and everyone was talking about patent cliffs,” he explains. “They were saying that because the industry had already created drugs for all the easy targets, there was no more future in biopharma. But I never believed any of that.”
His business background and experience had honed his skill at anticipating the catalysts of change within an industry. Thus, he developed a theory that the state of the global scientific research industry was improving and evolving rapidly in China, which would enable companies to develop more — and better — drugs than ever before. To him, the patent cliff was just a temporary lull that was about to be rejuvenated by an inevitable wave of change with the Chinese research industry playing an important role.
For that change to happen, though, he knew that many of the best and brightest scientists who had gone to the U.S. to study would need to come back to China once they were done with their training — something that, at the time, had not been happening in great numbers. “I began talking with people about how Japan had experienced a similar phenomenon,” he explains. “But there, they were seeing a trend of many top scientists now returning to their home country, which led to the building of some of the great academic labs in Japan.” Oyler predicted the same scenario would happen in China, with a substantial amount of research eventually being done there or by companies linked to China.
That led him to anticipate how the healthcare system was likely to change in China, specifically in regard to reimbursement. “When I started considering how reimbursement was shifting from less evidence-based medicine to the latest and best medicines in the world, I saw the incredible opportunity China held for our industry. The country had the capability to pour tens of billions of dollars back into the global industry to help pay for more research, which would not only make drugs more affordable in China, but across the globe. That could be transformative for patients and the industry. So, to me, it seemed like an incredible opportunity and time to build a company that could play a role in that, especially if focused on oncology.”
LAUNCHING A CRO AND MEETING A KINDRED SPIRIT
It was 2005, and the company he started was a CRO called BioDuro. When he sought top Chinese biologists to recruit, many people suggested he talk with Xiaodong (pronounced shough-dong) Wang, Ph.D., at China’s National Institute of Biological Sciences (NIBS) in Beijing.
Dr. Wang was one of the youngest ever U.S. Academy of Science members, a full Howard Hughes investigator, and a distinguished chair/professor in biomedical sciences at the University of Texas Southwestern Medical Center. He did some groundbreaking work at a young age with Nobel laureates Michael Brown, M.D., and Joseph Goldstein, M.D. In 2003, he had started returning to China to build NIBS.
Oyler never was able to meet with Wang, and so he proceeded to launch BioDuro, locating it just down the street from NIBS. “A few months later, Xiaodong unexpectedly walked into our lobby, and I just happened to be there,” Oyler recalls. “He was curious about what we were doing, and so we started chatting. I had no idea who he was until much later in our conversation!”
Over the years the two gradually got to know one another; their two organizations even competed in intramural sports. Wang was eventually approached by a U.S. investor inquiring if he would contribute some technology to a new startup. “This was happening around 2009 when the CRO I had built was being bought by PPD,” Oyler explains. The investor asked Wang if he knew Oyler and, if so, would he see if Oyler had any interest in being the company’s CEO. The investor had ties to the San Francisco Bay Area and knew Oyler did as well. His idea was to use Wang’s technology and start the company there. “The investor was talking about putting $10 million into the company, and if successful, he would want to sell it to a larger company,” explains Oyler. “When Xiaodong talked with me about it, I told him I didn’t want to put in the energy it takes to build something only to eventually give it up for adoption. The Bio-Duro experience was heartbreaking. I wanted to build something here —in China — that is lasting, impactful, involved in great science, and can really help people.” The two men quickly realized they both aspired to do what many thought impossible — build a truly global biopharmaceutical company with its beginnings in China, only organized as to how they envisioned the industry should be. Now they just needed to figure out how.
THE BLUEPRINT OF A PHARMA COMPANY TAKES SHAPE
The two men agreed that the company that would become known as BeiGene needed to be built around the concept of doing great research in China. They believed it possible to run high-quality clinical trials in China that were global in nature and design, so they weren’t managing different clinical trial systems (i.e., one for China and one for rest of world). In doing so, they could enroll patients more rapidly and run trials more quickly, providing for a lower cost basis. “Costs add up when trials take a long time, and big trials, like those for lung cancer, were taking an average of two years to enroll,” Oyler says. Cutting that time by a quarter or half could obviously have a dramatic impact on development costs. Their plan was to identify these time- and cost-saving measures and apply them across the globe — not just in China.
Oyler and Wang also agreed that it was inevitable that the Chinese healthcare system would soon begin reimbursing for innovative drugs. “That large revenue stream would help industry pay for the up-front costs of developing innovative drugs,” Oyler asserts.
A SLOW AND TEDIOUS PROCESS
Since Oyler already had built a company in China, he knew what to do next. “You need to create a shareholders’ agreement, and you need to create articles of incorporation and set up an appropriate structure so you can receive money from anywhere in the world.” This meant having an offshore parent company in the Cayman Islands, a Hong Kong intermediary, and a China company. To handle those details, he quickly hired a couple of law firms.
“When starting a company in China, nothing happens quickly, and there are mounds of paperwork to submit,” explains Oyler. “There are licenses needed for everything, and you have to do the steps in the right order, and then wait.” As he and Wang had done this before, they already knew many of the details of what to do and had some of the necessary relationships in place to get it done.
With a site chosen for the lab, they began recruiting staff. “We got to well over 100 people almost without doing anything other than saying we were open for business,” says Oyler. He attributes much of the success of this recruiting exercise to the reputation of his cofounder. “Xiaodong is known to be a brilliant and good guy, and I think people were attracted to work with someone like him, along with the notion of building a global biopharmaceutical company with Chinese roots,” he states.
MERCK BECOMES AN OUTSIDE INVESTOR
Oyler says it was his cofounder’s reputation that also contributed to the company developing a relationship with one of its first outside investors — Merck. He explains that in the beginning they actually preferred not taking outside investment since it helped BeiGene better control its own destiny. “Whenever you take money from anyone that isn’t yourself, you lose some control, because your investors often have different objectives, and often those objectives are more short-term oriented,” he says. But the Merck deal was different.
According to Oyler, the Big Pharma had been trying to do some work in China, and at some point, decided to give entire programs over to outside organizations to run. He had done some business with Merck when he ran BioDuro. “In those two projects we far exceeded their expectations, so I think that created some goodwill with Merck.” That experience, coupled with his cofounder’s reputation, led to Merck investing $20 million in BeiGene. “It actually was an equity and convertible debt instrument, and the company was given a board seat,” Oyler clarifies. And though this was when BeiGene’s board began to take shape, the CEO says that he and Wang pretty much operated BeiGene as they saw fit. “We had advisors and asked for a lot of advice, as we didn’t think we knew everything, but we operated fairly unencumbered and had the freedom and flexibility to drive the business until we eventually began taking professional investments.”
AN EARLY MISSTEP WITH IN-LICENSING
In those early years, Oyler admits to making some mistakes. One of those involved in-licensing. “Early in the company we had our research, but as it takes several years to materialize and get an asset into the clinic, we were looking for other opportunities to begin generating revenue.” As such, the company in-licensed a couple of later-stage assets from Janssen, a Johnson & Johnson company. “They looked quite exciting, and we liked them at the time we did the deal,” he contends.
But the folks at BeiGene soon began to hear talk. “Some of the best investors in the industry were worried about the most advanced asset, informing us that the melanoma space was much more competitive than we imagined,” he relates. What BeiGene didn’t realize at the time was that these investors were talking to their advisors, and these advisors were involved in clinical research. “They couldn’t tell them anything confidential, but they would give them advice,” he states. At the time, PD-1 trials were starting to read out, and the results in melanoma were starting to change the way people thought about melanoma treatment. “We had incredibly bad timing and wound up spending several millions of dollars on an asset that PD-1 made obsolete, eventually terminating the program and returning the assets to Janssen.”
That left BeiGene in a tough spot, building a business model in anticipation it could raise money on a late-stage valuation. “And then suddenly we couldn’t,” Oyler explains. “Further, we had spent a substantial amount of money on development only to give it up.” And while the company was eventually able to do some other deals, raise other money, and get things turned around, the initial situation created a few bootstrap years in the early days. “A handful of people who weren’t in it for the same values moved on to other places, but I think we wound up being a much stronger company with an even bigger focus on IO as a result,” he contends. Today, BeiGene is very selective with what it in-licenses. “We’ve become very cautious, because when you bring something in, you’re going to spend money, energy, and time on it, so you really need to be committed to whatever that something is,” he asserts.
Today, BeiGene is valued at over $8.5 billion and employs over 2,700 people. And while many pharma companies have a global footprint, Oyler looks at his company’s footprint a little differently. “I was at this meeting in Singapore with the current Minister of Finance Heng Swee Keat, and at some point, he said, ‘You’re building this company, it’s global, but doing a lot of work in China and the U.S., so where’s your headquarters?’” Oyler responded by saying something he had never said before, “Our company headquarters is on Zoom [an audio and video communications platform]. That’s where all the important decisions are made.” He elaborated by pointing out how BeiGene’s CFO and strategy officer, along with the company’s chief counsel, are in Boston. The company’s chief medical officers of IO and hematology are in Emeryville, CA, and San Mateo, CA, respectively. “Our GM/president is in Beijing, as is our cofounder and head of the research,” Oyler explains. “Our head of biologics manufacturing is in Guangzhou, China, while our head of BD is in Europe, and I’m everywhere.” In other words, employees of BeiGene don’t think of any one geographic area as being the company’s control center. “So, we’re everywhere and nowhere,” he laughs. According to Oyler, when he made this statement to the finance minister, those in the room from life sciences looked at him as though he were insane, while those from the tech industry were nodding in agreement as if to say, “Of course you are.” Neither Wang nor Oyler wanted BeiGene to be a Beijing-headquartered organization. They also didn’t want to have a U.S. headquarters and then a subsidiary in China. “Because the second you do that, you’re belittling somebody,” he concludes. And while he believes the BeiGene approach takes some getting used to, he believes it necessary when building something that’s transformational to the industry — and lasting.
In 2010 when John Oyler first started seeking investors for his new company, BeiGene, he also made an important commitment to his cofounder and the rest of the team. “I told them that I’d put every penny I had at risk, which was $10 million,” he says. “When a project or an initiative — like building a company — ends up being successful, it’s easy to look back and say that making this kind of financial decision was easy. But even though I never believed BeiGene would fail, there were times I was nervous about having made that promise.” Why? Well, for starters, when he made the commitment, he didn’t have a family, and that situation was different when he was writing some of those final checks. “But I had made that commitment, and I believe in sticking to a promise and figuring out how to make it work.”