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ChinaBio® Report: 2020 China Life Science Investment Hits New Records

publication date: Jan 14, 2021
 | 
author/source: Richard Daverman, PhD

In 2020, investment in China life science showed stellar growth. ChinaBio®'s survey  shows four of the five investment categories set new records, often doubling the year-earlier comparison, while the fifth, Mergers & Acquisitions, fell for the second year in a row: 

  • VC/PE Fundraising: $56.1 billion; 2.3 times 2019;
  • VC/PE Investments: $28.5 billion; 2.0 times 2019;
  • IPOs: $23.3 billion; 2.9 times 2019;
  • Partnering: $30.5 billion; 1.7 times 2019;
  • Mergers and Acquisitions: $9.7 billion; a 60% drop from 2019.

Between VC/PE investors and IPOs, there is a lot of capital available to young life science companies, which may explain why M&A underperformed so dramatically. With so much capital support readily available, owners of young life science companies have little reason to sell or merge their companies with competitors. 

China's continued economic growth, its expanding middle class, a wealth of western-experienced returnees, support for better healthcare -- all these factors contributed to last year's explosive growth. 

2020 will go down in history as the year of COVID, but the disruptions caused by the pandemic didn't seem to slow down investing activities in China's life science sector. 

VC/PE Fundraising 

During 2020, VC/PE funds raised $56.1 billion for new investments in China healthcare. That was up from 2019's disappointing $23.3 billion and also higher than the previous record, 2018's $42.8 billion. 2020's fundraising is three times the amount of five years ago. 104 investment firms closed new funds last year, an average raise of $810 million, also a record. 

Over the past five years, VC/PE funds have brough in $180 billion of new capital, but they have invested only $80 billion, leaving $100 billion available to fuel future growth in the sector.   

VC/PE Investing 

VC/PE investors announced $28.5 billion in deals last year, 2.3 times 2019's $14.5 billion and five times the amount of five years ago. 74% of the total was China investors making investments in China companies while the rest was either outbound to the US and Europe or in-bound from overseas firms. 

One-third of all deals went to support drug development at biopharma companies, a number that edged out last year's leader, iHealth, which secured 32% of the capital this year. 

The top three 2020 investments were not for drug companies. They were: 

  • $1 billion for MGI, a China diagnostics company;
  • $512 million for MedBot, a China medical device company;
  • $500 million for DXY, an iHealth company.

The fourth entry on the list was XtalPi, a Boston company that raised $319 million from China investors. Although its purpose is drug discovery, the company's platform sounds more like a medical device firm. It uses quantum physics, artificial intelligence and high-performance cloud computing algorithms to develop small-molecule candidates. 

IPOs 

China IPOs for life science companies posted banner results for 2020, participating in an extremely welcoming environment for initial offerings globally.  The sector raised a total of $23.3 billion in public listings, 2.9 times the 2019 results and a growth of five times over five years. 

There were 80 China life science companies that went public in 2020, a 77% increase from the year earlier.  56% of them were drug companies, and the average size of IPOs overall was $291 million. 

The results were helped greatly by the still-new Hong Kong and Shanghai STAR Board markets that have welcomed pre-revenue companies over the past years. The STAR board was the most favored exchange, hosting 31 IPOs, a 39% slice of the total. The Hong Kong Exchange supported 23 new companies, while the remainder was split between NASDAQ, and the traditional China exchanges in Shanghai and Shenzhen. 

Major 2020 IPOs included: 

  • JD Health, an iHealth company, raised $3.5 billion on the Hong Kong exchange;
  • TigerMed, a CRO, completed a $1.4 billion IPO in Hong Kong;
  • CanSino, a vaccine company, raised $748 million on the STAR exchange;
  • Junshi, a novel drug company with an approved PD-1 drug, completed a $692 million offering on the STAR exchange.

China Partnering 

Of all five categories in ChinaBio®'s annual review, China Biopharma Partnering saw the largest five-year gain: the $30.5 billion in 2020 partnering deals was eight times the amount of five years ago. It was also 1.7 times 2019's results. 

In 2020, there were 374 biotech/pharma partnering deals with an average deal value of $257 million. 72% of the total was for domestic agreements. Of these, 37% involved preclinical assets, while the second largest category, marketed drugs, comprised 22%. Not surprisingly, the largest target for the deals was oncology indications, with 42% of the total. ChinaBio noted that in the infectious disease category, 44 deals were made for products that address COVID-19. 

Notable 2020 partnering deals included: 

  • Innovent's $2 billion in-licensing of Roche's cell therapies and bispecific antibodies;
  • I-Mab's $2 billion out-licensing of its Phase I CD47 candidate to AbbVie;
  • Hua Medicine's $658 million out-licensing of China distribution rights for its new diabetes drug to Bayer;
  • BeiGene's $540 million acquisition of three HBV candidates from Assembly Bio.

Mergers and Acquisitions 

M&A was the only of the five investment categories to show weaker results in 2020. It declined 60% from 2019 to $9.7 billion last year, and it is lower by 55% over the last five years. On top of that, it is the only category during those years to show a decline two years in a row, losing two-thirds of its highest value, a $33.8 billion peak, over the last two years. 

Most likely, the decline in M&A activity is collateral damage from the amounts of capital implicit in the very high numbers of VC/PE cash and investor enthusiasm for IPOs. 

Conclusion 

Despite M&A, despite COVID, last year was a remarkable one for China life science with many new products entering trials and some announcing approvals. Investors lined up to support companies and scientists have a ready audience for their research. To some extent, China is still the place for low-cost drug development. China's PD-1/PD-L1 checkpoint inhibitors are not the first to launch globally, but they may offer significant savings over international big pharmas.  

However, China's immunocology offerings are not generic drugs, but fast followers, and some of them may offer better results. 

Earlier this week, Beijing's BeiGene out-licensed  global rights (ex-China) rights for tislelizumab, its China-approved anti-PD-1 antibody, to Novartis in a $2.2 billion agreement including a $650 million upfront payment. Novartis was developing its own PD-1, which it will now use in tandem with other oncology treatments. 

An eleven year old company, BeiGene has a $28 billion market cap and $4.7 billion in cash at its last report (before the latest deals). It is planning its third IPO, this one on the Shanghai STAR Board, which could raise another $2.5 billion. 

Meanwhile, Suzhou's Innovent signed a $2 billion deal with Roche in 2020. It acquired China rights to develop Roche's bispecific antibodies and a universal CAR-T candidate. If the development proves successful, Roche has an option to acquire ex-China rights to the candidates.

In other words, these examples show China has made itself indispensable. For international biopharmas, the mantra is "You have to have a China policy." 

Disclosure: none.


 

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