Many industries have been affected by the Trump administration’s escalating trade war, from agriculture to technology. Few people are talking about the problems faced by small biotech companies and researchers who are unable to move forward with their research due to restrictions on foreign investments.
My company, PepVax Inc., began developing a novel DNA-based treatment for an aggressive form of breast cancer called triple-negative breast cancer in 2013. Last year we worked for almost six months to secure funding from a group of Chinese investors to move our lead candidate therapy into late-stage animal studies and then into human trials. These investors had been in the process of creating a biotech venture fund in the United States and had already invested in other companies.
That effort was scuttled by arbitrary rules released by the Trump administration on foreign nationals, especially those from China, that classified investments in U.S. biotechnology companies as a national security threat. The trade war forced us to give up the deal.
With that investment opportunity in tatters and no U.S. investors willing to fund us without further research in human trials, we considered working directly with Chinese companies and universities to take advantage of the immense amount of investor money available in China. We even contemplated moving the company and its intellectual property to China. Further restrictions and the constant threat of a trade war and tariffs hampered those opportunities as well, chilling interest by potential investors and potential Chinese research partners.
These events have forced my company to the brink of closing its doors and facing the real possibility of ending the promising research it has been building for nearly a decade.
Foreign investment plays an important role in early biotech companies. In just the first quarter of 2018, China invested more than $1.4 billion in early therapeutic startups, some of which have gone on to become public companies. While there is plenty of money for biotech investment in the U.S., a majority of that goes toward late-stage experimental therapies. Much of the bridge funding between government grants and venture capital funding comes from foreign investors who, unlike many U.S. angel investors, are willing to take long-term risks in early-stage research in the hopes of moving a few into late-stage development and profiting from their early equity stakes. Biotech funding from Chinese investors has dramatically fallen since 2018, and I have seen a large decrease in biotech funding for early-stage research because of that.
The Trump administration’s policies on foreign investment, especially from China, stifle innovation. Science has always been about learning and sharing the findings so it benefits everyone, not just this country or that market. Limiting funding sources for innovative research hurts the U.S. economy by forcing companies like mine to close, leaving fewer in the future for late-stage investment by larger biotech VCs and investors.
In order to expand these restrictive trade measures, the administration has accused China of stealing intellectual property and forcing companies to move their intellectual property to China. But with no notable examples in biotech, and with the risk of such theft existing just as much within the U.S., the accusations don’t hold water.
Caught in the crossfire by the Trump administration’s efforts to limit the exchange of information between the U.S. and China are Chinese-born or Chinese-American scientists working on much of this cutting-edge research, some of whom are being viewed as agents of the Chinese government with no real evidence and ignoring their role in the industry or their contributions to it. A purge in foreign nationals and the ensuing brain and talent drain will come back to haunt every industry, but especially the drug development industry.
If the Trump administration is worried about China catching up to the U.S. on research through the theft of intellectual property, then rather than waging a trade war it should increase research spending here, much as China has invested more than $100 billion in its life sciences sector, instead of cutting spending for government agencies like the National Institutes of Health and stopping investors from other countries from funding U.S. biotech companies. This combination presages a grim forecast for the biotech sector.
One way to address this without hurting the American economy is to add $100 billion a year to the NIH’s budget, which would immensely change the outcome of drug development. The public would benefit from the increase in research, which would contribute to newer and better drugs coming to market to treat new diseases without relying on foreign or VC funding that is expecting substantial returns on their investments. This approach can also lead to a decrease in the cost of drug prices, another major problem for the Trump administration, since the NIH will not need to mark up prices in order to pay back its investors.
It is my sincere hope that either a deal is reached soon to halt the trade war and re-ignite business collaborations between the U.S. and China, or the Trump administration considers new policies to mitigate the damage it is causing to the biotech industry.
Mahesh Narayanan is the CEO of PepVax Inc., an early-stage life sciences technology company based in Bethesda, Md.