SHANGHAI – Suzhou-based Cstone Pharmaceuticals Co. Ltd. continues to wow observers, having obtained the largest series B financing for a Chinese biotech to date, raising $260 million in venture capital financing. That follows a record-breaking series A in July 2016 for $150 million.

In just 22 months, Cstone has raised $410 million.

The immuno-oncology (I-O) focused biopharma got its start as the brainchild of Wuxi Healthcare Ventures' "find and build" strategy – as in, find the assets, build the company. Today, Cstone has 10 assets, with four already in the clinic in China and Australia. (See BioWorld Today, Oct. 24. 2016, and July 19, 2017.)

Its lead candidate is CS-1001, a fully human and full-length PD-L1 that is nearing the end of its dosing study and about to move to registration and combination trials in China. Plans are underway to commence a U.S. study shortly. (See BioWorld, Oct. 25, 2017.)

The other three assets are all in phase I dosing studies in Australia as of late December. Those include CS-1002, a CTLA-4 inhibitor; CS-1003, a humanized IgG4 anti-PD-1 monoclonal antibody developed by Cstone's hybridoma platform; and CS-3006, a small-molecule kinase inhibitor designed to inhibit the growth of cancer cells by binding to key enzymes, MEK 1/2, in the MAPK signaling pathway (RAS-RAF-MEK-ERK).

According to Cstone CEO Frank Jiang, the robust pipeline that has been designed specifically for combination therapies was only part of the story that attracted investors to such a "young and pragmatic" company. A crucial selling point was the team. Cstone is staffed with members that have rich global and local experience, having worked for multinational corporations (MNCs) abroad and in China. For example, Jiang is the former Asia-Pacific R&D head for Sanofi SA.

The third point was a business strategy geared to move assets quickly through the clinic.

Jiang said within two months investors had oversubscribed the round, and Cstone was in the enviable position of turning investors away.

While the Cstone raise seems to prove that China VCs are still flush with cash, it was the Singaporean government's foreign exchange reserve fund, GIC Private Ltd., that was the lead investor. It was joined by other funds with China connections: Sequoia China, Yunfeng Capital, 6 Dimensions Capital (a partnership between Wuxi Healthcare Ventures and Frontline Bioventures), Citic PE, Taikang Insurance Group, Arch Venture Partners, Hillhouse Capital, King Star Capital, 3W Partners, Avict and Terra Mafnum Capital Partners.

Existing investors also participated in the round, including Oriza Seed Venture Capital, Boyu Capital and Wuxi Healthcare Ventures (currently a 6 Dimensions Capital fund). Altogether, the round totaled 14 VC investors.

The company has said the funds will be used to push forward the clinical development of CS-1001, other pipeline candidates in standalone and combination studies and to expand its pipeline through external partnerships and licensing.

Furthermore, Cstone is using biomarkers to take an adaptive design approach to clinical trials and has set up the Suzhou Translational Medicine Research Center to liaise and cooperate with academics and biomarker specialists, particularly those in nearby universities.

The financing will also be used to attract top talent. There is a fierce talent war at present, especially for people with clinical development experience – a key area that Jiang is focused on improving in China.

The timing of the investment raise worked out well for Cstone. It was raising money just as the Hong Kong Stock Exchange (HKEX) announced it will open a biotech chapter, allowing pre-revenue biopharma like Cstone to raise capital on the public markets as early as June.

Jiang told BioWorld Asia that Cstone is looking at both Hong Kong or the U.S. as possible IPO destinations in future.

While it is still unclear how generous the HKEX will be in support of biotechs, the possibility that it will be a good source of financing has added to the frenzy not only of investors but also for talent.

Both biotechs and MNCs offer equity to employees as an enticement and incentive. But in the case of startups like Cstone, there is the potential for a much bigger upside when the company lists than what MNCs, with established share prices, can offer. Jiang said that most people joining Cstone receive equity.

China's VC rounds getting bigger, especially in I-O

As tracked by Chinabio, China-focused life science venture funds have been raising plenty of capital, almost $40 billion in 2017, and are on the hunt to find good investments fast before their funds' hit their term limits.

Biopharmas in the I-O space continue to be the most popular with investors.

Innovent Biologics Inc. is another Suzhou-based I-O biotech that has received large cash infusions from VCs. The lead candidate in its pipeline is a PD-1, IBI-308. An NDA for Hodgkin's lymphoma has already been submitted to the authorities, and that candidate is also being studied in late-stage trials for non-small-cell lung cancer (NSCLC), esophageal cancer and NK/T-cell lymphoma.

In late April, Innovent received $150 million in a series E financing, following a $260 million series D raise in 2016 – a record-breaker for the industry at the time. In 2015, it raised $97 million in a series C and $25 million in series B in 2012. Innovent is expected to list on the HKEX in the coming months.

It so happens that Innovent and Cstone share some of the same backers, such as Hillhouse and Taikang Insurance. Innovent also has a Singaporean government investor – though, instead of GIC, it was Temasek, a Singaporean SOE and national wealth fund that invested in Innovent.

But the overlap stops with the founding investors. Innovent's founding investors are Fidelity (now 8 Roads) and Lilly Asia Ventures, while Cstone's early backers are Wuxi Healthcare Ventures/6 Dimensions.

Hillhouse, which invested in both Innovent and Cstone, is also the early investor in a third I-O biotech looking to corner the combination therapy space: Beijing-based and Nasdaq-listed Beigene Ltd. Its PD-1 candidate, BGB-A317, is in phase III trials for NSCLC, esophageal cancer and hepatocellular carcinoma and in phase II studies for Hodgkin lymphoma, uroepithelium cell carcinoma, gastric cancer, SCLC and NK/T-cell lymphoma.

The race is on to see which one, or if all three, will succeed in their ambitions to provide much-needed cancer therapies to Chinese patients and provide a return to their investors.

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