Biotech development

What does Chinese biotech want from professional investors?

Biotech investment is the new gold rush in China. But firms still struggle to find steady investment from private equity players and industry heavyweights.

It might be the hottest sector in China, but there can be a distinct draft of cold air for the founders of biotech startups when they are looking for investors to back their business.

Some of these chills come from the underwhelming performance of Chinese biotech and pharmaceutical companies that have listed domestically. Of the 303 public companies in the sector, 67% of them saw their share prices shrink in the first half of the year, according to capital markets research firm SWS Research.

In terms of profit, 37% of them suffered a net loss in the first half of 2019 too which has had a knock-on effect on their willingness to spend on R&D.

That has affected people’s attitude in the private market. “Some professional investors are not willing to pay for innovation,” Feng Tian, chief executive of biopharmaceutical company Ambrx, told FinanceAsia at China Renaissance’s healthcare and life sciences leadership summit.

Tian’s company provides genetic-coded protein therapeutics, which optimise the effects of proteins and antibodies and can be used in the treatment of many diseases. Although Ambrx itself has been backed by a group of funds including Fosun Pharma, Hopu Investment and Everbright, Tian still feels that it is not easy for biotech startups to win the trust of professional investors.

A capital push

It is easier for biotech companies in the US to get continuous funding while their counterparts in China can only raise money once or twice at the early stage, according to data shown on Vcbeat.

About 14% of US biotech startups are able enter Series C fundraising, while in China only 9% of them can. Most Chinese biotech startups are under pressure to  “make some progress” within 2.5 years after fundraising, according to Vcbeat's survey. 

Some Chinese biotech companies mention pressure from investors as they have an investment cycle and a need to make money. Because private equity firms have their own investment agenda, some biotech startups have turned to bigger pharmaceutical companies. But when listed companies are not making a profit, it is hard for Chinese pharmaceutical companies to take a leap of faith and bet on small startups. 

At the healthcare and life science summit, entrepreneurs said that they were eager to raise money. IPOs and fundraising were the most frequently heard words from the PhDs at biotech startups.

The reality is that biotech startups always need money. They need to think carefully before going public. “It is important for a biotech company to have the ability to refinance,” said Jielun Zhu, chief financial officer of biopharmaceutical firm I-Mab. “That is why we chose the US market for our IPO.”

Chinese A stocks might give biotech startups a high valuation, but listing costs are high and require a company to stay profitable for three years. It is also a difficult market on which to refinance. No wonder then that biotech startups often prefer an overseas listing over a domestic one.  

Biotech startups demand

Despite the upsurge of biotech investment in China, the firms themselves need more support.

“Educating the market is a big challenge,” said Jie Qin, founder and chairman of Forerunner Medical. “And it is a long process.”

It is still hard for biotech companies to turn their research into an actual product. The headwinds come from both data aggregation and regulation.

Apart from long term financial support, the sharing of medical data, especially from clinical trials, is needed by most startups. Many hope that the government can be the leader in building a cross-industry platform and take some of the responsibilities of sharing essential data.

Biotech startups have also been asking for regulatory support. China might have speeded up approval for both imported and domestic drugs and medical devices since the end of last year, but it is not enough. “The US Food and Drug Administration offers help to pharmaceutical companies when manufacturing drugs,” said Ye Yuxiang, managing director  of pharmaceutical company Salubris. “The Chinese FDA is more cautious and always concerned about doing the wrong thing.”

Luckily China is catching up, which gives hope to hundreds of biotech companies. Chinese innovative drugs now make up 5% of the total domestic market. The proportion is getting larger and the process is speeding up. “I hope that one day the China FDA can approve a drug ahead of the US FDA,” Yuan Ruihua, president of Sinovant Sciences, said. “That will be significant progress for our biotech industry.”


¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media