The News:

New investors including Cormorant Asset Management, Rock Springs Capital and Ally Bridge Group as well as the existing investors such as Temasek, Hillhouse, Legend Capital, Lilly Asia Venture and Taikang Insurance. Innovent reportedly has dropped plans for a US IPO, switching to the sizzling Hong Kong exchange in search of a $300 million to $500 million infusion.

The company–part of a boom in China that is shaking up the global Biotech scene–has 16 molecules in the pipeline: 7 in clinical development, 4 of them in Phase 3 trials and 1 with a biologics license application (BLA) submitted to Chinese Food and Drug Administration.

“After over six years of hard work, Innovent has successfully transformed itself from being primarily a drug discovery entity to a full-fledged drug development platform with a rich pipeline of innovative products,” said Michael Yu, the co-founder, chairman and CEO of Innovent. “The completion of this new round of fundraising has enhanced our ability to accelerate and expand R&D activities as well as build up our commercial capability.”

Steve’s Take:

If you think this relatively innocuous news release about Innovent’s move toward a half-billion-dollar IPO is a fluky, one-off event; think again. The Chinese biotech dragon is beginning to roar for real, and US and other western investors should get used to the sound of “ka-ching,” as billions of dollars begin heading to the other side of the world.

Just a decade ago, when China-born scientists with overseas experience began returning to the country, enticed by their homeland’s fast growth and growing financial means, they found a drug industry dominated by generics. Undaunted, they got busy building the infrastructure for an industry capable of drug discovery and development, buoyed by substantial government support and a thriving economy.

Shannon Ellis at Nature points out that today, biotech specialists arriving in China find an industry at a turning point, with many key elements in place for innovation: a university system churning out doctorates and strong basic research, substantial financial backing from both the private and public sectors, regulations that are becoming globally harmonized and a vibrant group of entrepreneurial leaders with ambitions for China and abroad.

They also find a country facing significant unmet medical needs–particularly in cancer, neurology and diabetes–and a rapidly ageing population. Although China is the world’s second largest pharmaceutical market after the US, some of the most effective modern medicines are not on sale. For example, of the 42 cancer drugs approved globally in the past five years, only four are available in China. But this is in the process of seismic transformation.

Recent regulatory changes will bring imported drugs to China more quickly, and local biotechs are racing to develop domestic–and, they hope, global–blockbuster drugs. For academics and entrepreneurs, it is an ideal time to build on the biotech investments of the past, says Lan Huang, chief executive of New York-based BeyondSpring Pharmaceuticals, which is running drug trials in China.

Building Chinese biotech

What has led to this explosion of the biotech industry over there? Ellis asserts that it’s the energy and excitement—the passion—that Chinese students have for science. And that didn’t spring up accidentally.

It has been fostered by government support for biotechnology that has intensified over the past decade, creating a force attracting scientists and the entrepreneurially inclined to China. Of the 2 million returnees to China over the past 6 years, it is estimated 250,000 work in the life sciences.

And, although many scientists making the move were born and raised in China and have a decade or more experience working in the West, non-Chinese speakers are coming and thriving here, too.

The push for innovation comes from the highest levels of government, with the biotech industry receiving special attention in not just one but three of the government’s latest five-year plans: the strategic blueprints that determine the country’s economic goals for the forthcoming half-decade.

It is estimated that more than $100 billion has already been invested in the life-sciences sector by state, provincial or local governments in an effort to hit the five-year-plan targets.

Chinese investors who are looking to diversify their portfolios away from property and manufacturing are encouraged by the growth prospects of the life sciences, given China’s unmet medical needs and ageing population. Chinese venture capital and private equity funds raised $45  billion for investment in the life sciences in the two and half years prior to June 2017, according to ChinaBio.

So far, only $12  billion has been invested in the industry, with financiers on the prowl for good companies to invest in. Most of the cash is going towards financing innovative biotechs that are, in turn, hiring at a rapid pace.

Everything was moving methodically in the right direction when, suddenly, and inexplicably at the time, last June China’s drug administration body agreed to align Chinese drug regulations with the rest of the world. More evidence of the intention to join the rest of the world in the pursuit of science, unlike Russia.

Now, Chinese CAR-T cell trials impress on the global stage, showing excellent results for relapsed or refractory multiple myeloma, for example. ChinaBio reports that Chinese venture capital and private equity funds raised $45 billion over a period of 30 months for life-sciences investment.

There are already more clinical trials in China than in the US, The Financial Times reports, and executives and scientists say it has several strategic advantages that could allow China to challenge US dominance, including an accommodating regulatory regime, low labor costs and expertise in precision manufacturing.

“The Chinese companies I have met are determined to become leaders in this,” says Brad Loncar, founder of the Loncar Cancer Immunotherapy Exchange Traded Fund, who recently returned from a trip to the country. “These treatments have the potential to be highly disruptive to medicine and I think they view it as a unique opportunity as new contenders to spring to the forefront of the biotech industry.”

At a time when President Donald Trump is fretting about Beijing’s plans to dominate the industries of the future, China’s push to become the pre-eminent destination for cell therapies and other evolving technologies such as gene editing would represent a major shift in modern medicine and an important marker in the growing technological competition between the US and China.

CAR T “is among the few corners of biotech in which China may have a chance to compete globally in the near to medium term …and even leapfrog global pace in certain targets”, analysts at Bernstein wrote in a report this year.

The future for #Chinese #biotech is now. Stay tuned, and I’ll keep you up to speed on the #investment opportunities.
Click To Tweet

Bottom Line:

With a directive from the central government and a less restrictive regulatory environment, China has been at the forefront of using CRISPR for healthcare purposes.

Chinese scientists were the first to edit the genome of a human embryo, and in the year that followed reportedly have used CRISPR techniques to treat 86 patients–far more than any other trials to date.

The respective regulatory environments in the US and Europe ensure that China is likely to keep up, if not lead, in research in this sector for the next several years.

What we have to understand here in the US is that the Chinese model for scientific and economic development in biotech is on a par with, if not superior to, the one that has flourished here. The components feeding the Chinese R&D machine both in human talent, capital infusion and regulatory oversight, for example, are both growing in raw scale and at a faster rate than the US.

Unlike the US (and certainly co-world power Russia), China affords an operating environment that is imbued with more flexibility–not just for cutting-edge research but for capital investment. This is something hardly anyone outside of China was predicting even a decade ago.

Make no mistake, the future for Chinese biotech is now. Stay tuned, and I’ll keep you up to speed on the investment opportunities. They will be many.