“The IPO window is absolutely closed,” stated Lisa Walters-Hoffert, managing director, Roth Capital Partners. That limits both the number and size of deals as venture firms work to ensure they can honor existing commitments. Zhu Shen, Ph.D., founder and CEO of BioForesight, suggested that the IPO window may open in China late this year or in early 2010 for companies listing on local stock exchanges.
“In China and India, CROs are looking for alliances and acquisitions to expand,” Dr. Shen commented. “They’re not alone.” To fill the void left by the dearth of IPOs, “we’re seeing a wave of companies looking for strategic deals,” added Vivian Lee, partner at Aqua Partners. “Companies are looking at ways to move up the food chain from their traditional businesses,” and that often means collaborations, mergers, and acquisitions. Importantly, that interest is flowing both ways across the Pacific. WuXi, for example, acquired the U.S. based Apptech Laboratory Services last year.
Currently, Chinese CROs and firms focused on plasma, biologics, preclinical services, and clinical trials services will see opportunities to consolidate and participate in some cross-Pacific acquisitions. “The blood-supply industry is growing tremendously and is exporting products outside of China,” Nancy Chang, chairman and senior managing director, Asia, Orbimed Healthcare Fund Management, explained. In a move to ensure quality, “the government is forcing consolidation in the plasma industry,” by mandating that blood collection centers be closely affiliated with major plasma companies.
Japan is also seeing some acquisition activity. “The Japanese acquiring company allows a fair amount of independence,” according to George Montgomery, managing director at Montgomery, Marshall Healthcare Partners. “That’s indicative of a trend in M&A for more balanced risk sharing.” Typically, the acquiring firm provides a sufficient up-front payment to wrest control from the venture capital companies and then makes milestone payments.
Citing last year’s acquisition of Ranbaxy Laboratories by Daiichi Sankyo, Montgomery said that Japan is looking to India, China, and Europe, hedging bets regarding healthcare reform in the U.S. with potentially huge Asian markets. “They’re taking the long view. To be a global player, you have to serve India and China,” Montgomery reiterated.
Korea, historically, has served its domestic market and now wants to expand, according to Sang Chul Kim, general director of the Korean Trade Investment Promotion Agency. The country plans to boost government R&D investment in biotech from $836 million in 2006 to $3.3 billion in 2016, and to grow the market from $1.4 billion to $25 billion in that same time frame. It also plans to nearly double the number of graduates from master’s and doctoral programs to 17,300 and attain seventh place rankings for its quantity of scientific publications and patent filings by 2016.
“In 2009, for the first time, government spending on biotech was larger than IT spending,” Kim said. The government of Korea also has established a new, $100 million fund for biotech investment. “Ten to twenty percent of the seed money is from the government, and the rest is raised from the private sector,” Kim added. “International venture capital firms will manage the fund.”
In addition to trans-Pacific investment by individual companies, some foreign capital funds are seeking to develop international strategies by investing in North American and European companies. Takeda Research Investment, the corporate venture arm of Takeda Pharmaceutical, for example, initially wanted to expand its footprint into the U.S. and Asia, and now is expanding into other regions also.
According to Juan Harrison, vp, Takeda specializes in early investments. “We don’t put in much money,” he admitted, “but build collaborations among investment groups to provide undiluted funds.” As other venture-capital firms favor late-stage investment, “it’s more and more difficult to put these syndicates together.”
To attract foreign capital, the rule of thumb is to partner with a local company or to locate significant activities locally. That’s especially true in India. Anula Jayasuriya, managing director, Evolvence India Life Science Fund, said she raised a small $100 million fund in Europe and the Middle East to invest in India. “We will look at cross-border deals that have a significant presence in India,” she added.
Other funds with a similar approach, she pointed out, include Venture East for India, and for China, Fidelity Ventures and Orbimed Healthcare Fund Management. Hong Kong based Morningside Ventures is another. Rachel Gong, healthcare investment, said that she has invested Hong Kong capital in the U.S. and China for more than a decade.