By Simeon Bennett

Jan. 8 (Bloomberg) -- China is stifling biotechnology research with regulations that deter foreign companies from investing in an industry that grew 30 percent a year from 2000 to 2005, a new study found.

Venture capital is also being hampered by intellectual property laws that don't adequately protect innovations from being copied, researchers at the University of Toronto said. Drugs created from biotechnology are among the most expensive prescriptions. They are made with living cells and consist of more complex molecules than traditional chemical compounds.

Impediments to growth may put China behind India and other countries in Asia seeking to create a biotechnology hub, and slow the development of new medicines. Sales of biotechnology drugs, which include anemia treatments such as Amgen Inc.'s Aranesp, as well as insulin and human growth hormone, are growing at more than 10 times the pace of chemical compounds.

``The critical missing part in the Chinese biotechnology industry is the venture capital community,'' said Sarah Frew, who led the research at the university's McLaughlin-Rotman Centre for Global Health, in a telephone interview. ``You have very few venture capitalists who are willing to invest in what are risky biotechnology projects that have a long turnaround time on investment.''

Companies such as Shenzhen-based SiBiono GenTech Co., which makes the first gene therapy drug approved in the world, show that China is capable of developing novel treatments, said Peter Singer, one of the study's co-authors.

The study, published yesterday in the journal Nature Biotechnology, is based on interviews with representatives from 22 companies. The authors say it is the first publicly available survey of the industry in China.

Contract Research

Insufficient foreign investment is spurring some local drugmakers to generate revenue by selling generic medicines or by providing contract research services to overseas rivals, according to the study. That practice can dilute resources and deter venture capitalists who prefer ``a well-defined targeted strategy,'' the authors wrote.

Not all Chinese companies are flouting intellectual property, the authors said.

WuXi PharmaTech Inc., whose stock has more than doubled since an initial share sale on the New York Stock Exchange in August, conducts research for nine of the world's top 10 drugmakers. The Shanghai-based company's survival depends on protecting clients' confidential data, Frew said.

China's biotechnology market increased to $3.5 billion in revenue in 2005 from $230 million in 1990, according to San Francisco-based venture capital firm Burrill & Co., which is looking to invest in Chinese biotechnology companies. U.S. biotechnology companies had sales of $50.7 billion in 2005, according to the accounting firm Ernst & Young LLP in New York.

To contact the reporter on this story: Simeon Bennett in Singapore at