OR WAIT null SECS
Momentum and uncertainty shape the sector's economic picture.
Investment momentum, tempered by valuation and M&A uncertainties, influence the economic prospects for China’s life sciences
That’s how experts describe the outlook for China’s life sciences economy despite seeing a slowdown in other industries across the country.
In fact, investment activity in China’s life sciences set new records across the board in 2018.
“The outlook for China biotech is very positive at this point. All areas are up significantly from 30% to 50%,” says Greg B. Scott, founder and chairman of ChinaBio Group. “There was over $43 billion raised in venture capital (VC) last year and over $17 billion invested in life science.”
During a presentation at the China Showcase at the J.P. Morgan Healthcare Conference last month, Scott dubbed the current climate the “golden era of healthcare in China.” According to numbers provided by the group, from 2017 to 2018, VC investment in the Chinese life sciences rose 36%, M&As spiked 53%, IPOs 41%, and partnering 65%.
Scott said the predominant factors driving these investment numbers included robust government support; significant VC and private equity funding; sweeping regulatory changes; strong talent base, and a major shift in socioeconomic trends.
“Overall, the China economy is strong compared to almost any other major economy,” Scott told Pharm Exec. “Double-digit growth [is expected] next year in biotech and medical devices, and the VC climate is also strong.”
Not everyone agrees that the record-setting growth in China’s life sciences is going to continue at the same pace. “We have not slowed down as a firm, but the industry has become more cautious,” contends Jonathan Wang, senior managing director at OrbiMed, a private equity and VC firm. “Numbers are still very promising the last 18 months or so, but China is facing major challenges-many things are happening at the same time and those can cause uncertainty. Don’t be fooled by the great numbers you have seen over the last 18 months. There are major uncertainties. But, in the longer run, it’s very optimistic.”
One of those uncertainties the is the valuation of new biopharma companies. “The last few years, China life sciences has been in a valuation bubble,” says Victor E. Tong Jr., a partner at Decheng Capital, an investment firm that provides capital and strategic support to early-stage biotechs. “We are going to see valuations trickle down and become normal this year.”
Tong, whose company has offices in Shanghai and Silicon Valley, says another factor poised to impact the life sciences in China is the fact “large pharma didn’t do as many deals last year.” While some consider this a negative, Tong believes it could actually be advantageous for the industry. “They have some capital and if you combine that with valuations coming down, you will see more M&As this year,” he says.
If it seems like China has catapulted into the pharma and biotech spotlight, it is because it has. Despite large pharma companies having a presence in the country going back years, the industry wasn’t taken very seriously, many believe. Riddled with regulatory issues and IP concerns, China has long been referred to as an emerging global pharma market. According to experts, however, it’s no longer emerging-it’s here.
In addition to the host of factors cited by ChinaBio, one major driver many are attributing this surge to is talent. Talent is an increasingly important ingredient in the biopharma ecosystem in the US, and it’s not any different in China. More and more science, data, and business professionals who have ties to China but either grew up in the US, were recruited by US companies, or decided to continue their education in America, are being courted by Chinese organizations pursuing operations in China.
“China’s time has come,” Christian Hogg, executive director and CEO of Chi-Med, a biotech, told Pharm Exec during a meeting at the JPM conference. “Patients are benefiting greatly, but investors and companies involved are going to have to be really clever in how they execute their business models. But the area has great potential.”