While the COVID-19 pandemic has brought disruptions to R&D, market activities in the biopharmaceutical sector have remained active during the first half of this year in China. Venture capital investments, IPOs and partnering activity showed upward trends, except for M&A activity, which has declined for two years.
“If we look back at 2019, which was a down year, 2020 is looking very good, almost twice as much in new funds raised and also up significantly by 30% in VC investments in life science,” said Greg Scott, founder & CEO of Chinabio, as the virtual Chinabio Partnering Forum opened Aug. 25. “M&A activity is continuing to trend down … IPO and partnering activity are trending up to set new records.”
During the first six months of this year, new funds raised for China health care amounted to $21.1 billion. Estimated to double to $42.2 billion this year, it will have grown 180% from 2019 and rebound to be on par with 2018. Over the past five years, over $140 billion was raised in new funds.
Meanwhile, VC investments into life science companies were $9.4 billion and are expected to grow to $18.8 billion this year. Similarly, the segment is projected to rebound to 2018 levels and be up by 30% on 2019.
When looking at VC investments by regions, Scott noted a growing trend of China funds investing in China companies, as the China assets become more valuable. Meanwhile, most of the cross-border investments are still with the U.S., but Europe has gained almost one-third of China’s outbound investment. By sector, biopharma attracted 35% of the investment, followed by iHealth (25%), diagnostics (15%) and devices (15%) in the first half of this year.
A banner year for IPOs
More noteworthy are the IPO funds and partnering activity, which are expected to set records this year. IPO funds came in at $5.5 billion in the first six months. It could set a record at $11 billion this year, up 37% from 2019. The number of IPOs is also projected to reach 60 this year, double that of 2018.
In terms of listing destinations, the first half of this year showed a preference for Shanghai’s STAR market after it welcomed pre-revenue listings. The Shanghai bourse represented 37% of the IPOs, followed by the HKEX (23%) and Nasdaq (20%). During the first six months, seven biotech unicorns were created, with three on the HKEX, two on STAR and two on Nasdaq.
Partnering shines too
Sharing the same strong momentum, partnering activity is projected to hit a record deal value of $29 billion this year, after recording $14.5 billion in the first six months. This would represent a 170% increase from 2019.
The number of deals and average deal size may also set records, climbing to 570 deals and $250 million on average this year. In comparison, 2019 saw 503 deals valued at $221 million on average.
Cross-border partnering remained active in the first half of this year, accounting for 80% of all pharma deals. Most partners came from the U.S. (41.8%), followed by the EU (17.4%) and Asia Pacific (14.7%).
While oncology remained the primary targeted indication, COVID-19 has shone lights on infectious disease space, in which the number of deals executed almost doubled during the first six months compared to 2019. By asset type, most companies collaborated on preclinical assets (43%), then marketed products (21%) and phase II candidates (18%).
M&A activity is the only area that saw a downward trend. Deal values stood at $5 billion from January to June. It is estimated to be only $10 billion this year, a 70% decrease since 2018.
“This is really the first time we've ever had a two-year decline in any metrics,” said Scott. “I don't know if it's going to bounce back at any point, maybe if the IPO market softens. But right now, M&A is pretty quiet.”
Strong fundamentals, but uncertainty remains
Delivering a positive note, Scott said: “Things are looking very good for 2020, much better than we would have expected with the COVID-19 crisis that we're looking at worldwide.” He explained that “the fundamentals are still in place in China” to drive biotech investment.
To begin with, the country continues to see the middle class grow, now exceeding 300 million people, and also an aging population that will make up 31% of the total population by 2050.
Meanwhile, the Chinese government continues its robust support for health care innovation supplying over $100 billion per year in funding and producing better policies. Regulatory changes are also in place to spur biotech innovation by moving toward global standardization, accepting foreign clinical data, and identifying orphan diseases at a policy level, for example.
As such, VC investments and partnering activity have grown significantly in China, surging by 10 and seven times the level five years ago, respectively. Currently, China is second only to the U.S. in VC investment in healthcare.
However, as health care has always been a strategic sector heavily influenced by government policy, how biotech investment will continue to develop remains uncertain. Scott named a few mitigating factors, such as the uncertainties generated by the U.S.-China trade war and the outcome of the U.S. presidential election in November. It is not yet clear whether there will be a phase two trade deal, or how the impacts of CFIUS and FIRMMA will play out to affect biotech investment in and from China.
Meanwhile, in China, doubts about its economic strength and the difficulty of doing business in the country will continue to cast a shadow on biotech investment, Scott said.