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Feature Articles : Mar 1, 2009 ( )
China Stays Committed to Biodevelopment
Country’s Life Science Companies Attract Investment Despite Global Economic Meltdown
The global economic meltdown has finally slowed the unparalleled engine of growth responsible for China’s 30-year economic miracle. Chinese GDP, which has been growing at an annual rate of 10–15%, is projected to grow at only 8% or less in 2009. For the first time in three decades, the suddenly anemic global demands for consumer and durable goods, many of which are made in China, caused a sharp drop in Chinese exports and a loss of manufacturing jobs in China.
This is forcing China’s leadership to rethink its economic growth strategy beyond heavy export and investment. The $586 billion Chinese economic stimulus package unveiled in Beijing late last year signified a move to promote domestic consumption and build better infrastructure.
The good news is that the biotech and pharmaceutical industry, one of the pillar industries counted on by the Chinese government to fuel its sustainable future growth, may come out of the economic crisis as a bigger winner.
The government will not slow down its support for the life science industry. In fact, it plans to increase its investment in the sector through various grants and awards in some of the leading science and technology parks, and through the National Program 863, originally founded in March of 1983 by Deng Xiaoping, to award grants to science and technology projects that have important commercial value.
The sense of optimism was palpable at the recent “ChinaBio Investor Forum” held at the Zhongguancun Life Science Park in the heart of Beijing’s biotech industry, where a cluster of domestic and overseas life science companies are hosted.
The conference showcased 20 early- and mid-stage drug development services, diagnostics, medical device, and drug delivery companies. Those companies are currentlyseeking investment from Chinese investors and U.S. or European venture capital (VC) funds, many of which have established China offices to look for promising deals in the emerging Chinese life science scene.
The event attracted about 200 attendees from China, North America, and Europe, including big pharma looking for early-stage drug-licensing opportunities, investors, emerging companies, law firms, and other life science executives.
The prevailing enthusiasm about China’s life science industry is backed by solid statistics presented by conference organizer Greg Scott, CEO of ChinaBio Accelerator. While the U.S. public market did not have a single IPO for VC-backed biopharma companies in 2008, there were five IPOs of Chinese life science companies on the Shenzhen Stock Exchange and Hong Kong Stock Exchange, with a total of $178 million raised.
In addition, by the end of October, 48 merger and acquisition deals were closed with a total transaction value at $1.2 billion. “I think it is China’s time to leapfrog ahead,” commented Scott. Interestingly, the top two deals have Chinese companies as the acquirers of U.S. companies, signaling the changing of tide.
One is the $151 million acquisition of St. Paul, Minnesota-based AppTec by WuXi PharmaTech in Shanghai (now renamed WuXi AppTech); and the other is China’s Mindray Medical, a medical device and diagnostic concern, which purchased New Jersey-based Datascope’s patient-monitoring business at a price tag of $202 million.
As the Chinese CRO outsourcing service industry continues to grow and consolidate, more M&A deals are bound to happen between Chinese domestic companies, as well as between Chinese and overseas companies, yielding a number of truly dominant players across the Pacific.
The global economic downturn did have a negative impact on China’s fledgling life science industry. The stocks of most of the NYSE- and Nasdaq-traded Chinese life science companies have dropped dramatically in the past few months, in line with the overall bleak global stock markets. In addition, the valuation of many Chinese start-ups seeking funding has come down substantially. VCs are becoming more cautious and it takes a longer time to get deals closed, according to panelists discussing the challenging investment climate.
Looking on the bright side, Chinese domestic market demand for healthcare products and services will continue to grow as a result of the government’s strong mandate to provide healthcare to the country’s entire 1.3 billion population, including the 70% living in rural areas.
“The large patient and talent pools, coupled with massive layoffs in the U.S. life science industry, makes China a highly attractive place for biopharmaceutical talents,” remarked Jonathan Wang, managing director at Orbimed, a private equity firm.
Among the presenting companies and those who have achieved funding success, a common theme has emerged: many founders are “sea turtles” (overseas returnees), Chinese nationals who came to North America or Europe for graduate studies and subsequently gained industry or academic research experience, then returned to China as entrepreneurs.
Some of them belong to the new class of “sea gulls” who commute back and forth between China and their second home overseas. Many have established a joint presence in China, where much of the service or discovery operation is ongoing, and in the U.S. (or Canada, Europe) where business development and other corporate functions are maintained.
In the “Funding Success Stories” panel, Alex Wu, CEO of Crown Biosciences, shared his nontypical path to success. “Most U.S. VCs don’t invest in service companies because they view service as low margin and low multiple business. On the contrary, Chinese VCs and U.S./European VCs with China presence look to service companies with revenue as the prime target for attractive investment.”
Many Chinese CRO companies try to expand their services beyond their core areas of expertise by M&A or organic growth. Crown Biosciences chose to stick to its niche, where it has its best capabilities: oncology preclinical services, a substantial and growing sector with strong demand for specialized service.
Acorn Campus Ventures was among Crown’s early investors. Hambrecht Suma Capital and China Renaissance Capital Investment invested in Crown’s series B round, which closed in July 2008. Karen Liu, vice president of China Renaissance Capital Investment commented about things to look for in an investment deal.
“Companies with strong differentiating advantages in their technology, market, and/or business model are of great interest to us.” On investing in Crown Bio, “it was one of a few leading companies focusing on biology and translational research,” Liu continued.
At the time of the conference, a number of Chinese early-stage companies were in term-sheet negotiations with VCs, while here in the U.S., the picture for start-ups is much bleaker and investors are sitting on the sideline as the global economy goes down the drain.
Zhu Shen, Ph.D. (bioforesight@ gmail.com), is CEO of BioForesight. Web: www.bioforesight.biz.
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