A Chinese Affair: Theft of GlaxoSmithKline R&D

Within the past two weeks, two of five indicted individuals have pleaded guilty to stealing trade secrets from GlaxoSmithKline for use in their own China-based company, Renopharma. Yu Xue filed her plea of guilty Aug. 31, while Tao Li filed his plea  Sept. 14 with the federal court in the Eastern District of Pennsylvania.

The three other individuals include Lucy Xi, Yan Mei and Tian Xue. Of these, Yan Mei is resident in Nanjing, China. Lucy Xi (is the wife of Yan Mei) and Tian Xue (twin sister to Yu Xue) have both been arrested and await trial. The likelihood their going to trail has diminished, given two of their co-conspirators have pleaded out and await sentencing in January.

The five were indicted in 2016 for having purloined reams of intellectual property, trade secrets and presentation data from GlaxoSmithKline (GSK).

One of the specific GSK projects compromised was the “Anti-HER3 mAB” (monoclonal antibody) (11 other products were also compromised)—research, development, clinical trial data and product manufacturing opex. They stole the information by emailing documents from inside GSK to private email accounts, using USB drives and other standalone storage devices and copying information to their personal devices. In a nutshell, they took everything they needed to go into direct competition with GSK in China.

They only needed a lab and funding.

Tao Li had successfully raised funds—2 million yuan (US$ 300,000)—and acquired through PRC government grants and awards 4,000 square feet of lab space for two years for free. With office lab space and initial funding in hand, they were in business.

U.S.-Educated Co-Conspirators

As we discussed in our recent piece on how China leverages its students in the United States as part of the long-term economic espionage and intellectual property theft process, the pedigree of these five interconnected ethnically Chinese individuals warrants inspection, as they serve as yet another example.

Yu Xue received her PhD from the University of North Carolina, where she worked for six years prior to joining GSK. She founded Renopharma Inc. (Delaware), Nanjing Renopharma Ltd. (Nanjing, China) and Shanghai Renopharma Ltd. with Tao Li and Yan Mei. Her twin sister, Tian Xue, is the individual who orchestrated the money laundering and handled the transfer of technologies for the group. Similar to all the others, well-educated and versed in biochemistry, she differentiated herself by receiving her PhD from the University of North Carolina, in computer science.

Tao Li is the third of the group to receive their PhD from the University of North Carolina. He was Renopharma’s fundraiser, working with investors, government entities and Chinese universities. Then we have the married couple: Yan Mei, who received his PhD from University of Iowa, and his wife Lucy Xi, who was a colleague of Yu Xue at GSK from 2008-2015.

The two insiders stealing the GSK information were Lucy Xi and Yu Xue.

China Invests in Renopharma and Guts GlaxoSmithKline China

The fact that the government of China was investing in Renopharma, knowing that the underlying intellectual property was being purloined from GSK, is noteworthy. The timing of the creation of Renopharma and GSK’s own problems in China are remarkably contemporaneous.

The five actively worked on the creation of Renopharma from 2012 to 2016, which terminated with their arrests.

At the same time, GSK China found itself in hot water with the Chinese government during 2013 and 2014, which culminated in the arrests, prosecutions and guilty findings by the Chinese courts and a US$500 million fine imposed by China for illicit business practices.

The way the case against GSK progressed in China can only be described as lightening fast, and full of all of the salacious distractions one wants when one wishes to smear and destroy an entity.

The entity in China’s target sights was GSK.

An anonymous insider provided, via email, to GSK headquarters a seemingly endless litany of illegal and inappropriate business behaviors, including bribes with goods, services and money.

In addition, video entrapment of head of GSK China, Mark Riley, with a prostitute in his Shanghai residence was provided to his employer.

Private investigators who were hired by GSK to investigate who the anonymous insider was and how the sex tape of GSK’s senior-most employee in China came to be were arrested, prosecuted and imprisoned.

Following Riley’s arrest, he was prosecuted and sentenced to three years in prison, which was waived when he was expelled from China in lieu of prison.

The events concluded with the Chinese courts whacking GSK with the $500 million fine.

When the dust settled in September 2014, GSK said in its statement, according to The NY Times, it “fully accepts the facts and evidence of the investigation, and the verdict of the Chinese judicial authorities. GSK P.L.C. sincerely apologizes to the Chinese patients, doctors and hospitals, and to the Chinese government and the Chinese people.”

How China Benefited

By stealing the research and development information, China saved approximately US$1 billion in sunk costs.

While GSK claims that no material damage was done to its bottom line, one could argue the company was already gutted in China by China with the bribery investigation and fine. And the fine of US$500 million may have allowed China to fund the competitive buildout for Renopharma or another pharmaceutical using GSK’s own money.

The tanking of GSK in China contemporaneously with the rise of the GSK lookalike in the form of Renopharma may be coincidence, but who today believes in coincidences?

Hanging Threads

There are a few hanging threads.

The University of North Carolina may want to go back to the period of time that Yu Xue, Tian Xue and Tao Li were at the university to determine if any of the intellectual property developed by the university to which they had access was purloined.

And, we await the results of the ongoing prosecution of Lucy Xi, Yan Mei and Tian Xue.

Christopher Burgess

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Christopher Burgess

Christopher Burgess (@burgessct) is a writer, speaker and commentator on security issues. He is a former Senior Security Advisor to Cisco and served 30+ years within the CIA which awarded him the Distinguished Career Intelligence Medal upon his retirement. Christopher co-authored the book, “Secrets Stolen, Fortunes Lost, Preventing Intellectual Property Theft and Economic Espionage in the 21st Century”. He also founded the non-profit: Senior Online Safety.

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