Editor's note -- Change and growth are the watchwords for China's life science industry: both seem inevitable. But for an individual company the question becomes "How do you capitalize on change to maximize growth?" To consider that question, 150 senior life science executives came together at the recent ChinaBio® Leadership Retreat in Changshu. In his keynote presentation, Greg Scott, Founder of ChinaBio®, told the Forum attendees that 2014 is on track to break records in several investment areas, most notably the extremely strong sector of biologics cross-border partnerships. BioWorld Asia was there to cover the conversation (see story; subscription required), and they have graciously allowed ChinaBio® Today to reprint their report.

China’s Cross-Border Partnering Deals Set to Break Record in 2014
By Shannon Ellis, Staff Writer
BioWorld Asia

SUZHOU, China – The China growth story continues to buoy the life science industry, even in the face of challenging headwinds of change. That was the message from PricewaterhouseCooper experts who extensively surveyed executives and all innovators across device, service, venture capital and pharma, many of whom were in the room for the recent collegial ChinaBio® Leadership Retreat in Changshu. 

“Change is the theme in this market,” said Simon Sun, international director at PwC Strategy& Ltd [PwC's new name for the management consulting firm Booz & Company it acquired earlier this year]. “About 80 percent of the people surveyed said in the next three years there will be fundamental changes in the Chinese market that will bring significant impact to the business.”

China is on track to be the second largest health care market in the world by 2020, averaging 15 percent growth rates, due to a mix of forces that have a lot to do with a rapidly aging population, increasing incidence of chronic disease and the burgeoning affluent class that is becoming very digitally savvy.  

While that is a familiar explanation for China’s appealing growth story, it often obscures the numerous challenges each company faces on its own to wring the most from the onslaught of changes. Looking for a little dose of rejuvenation is what brought together the 150 senior executives to the unique ChinaBio® gathering. “Industry is tough, so making friends is the highlight of the journey,” said Yuwen Liu of Biobay, the successful biotech industrial park brand that hosted the event.

Cross-Border Partnering, Easiest Way into China

The session opened with a recap of rosy financial investment numbers across the life science industry, presented by Greg Scott, founder of ChinaBio® LLC and organizer of the event. So far, 2014 is set to break investment records in a number of categories – but none more surprising than the amount of cross-border partnering deals for biologics, a spike in partnering that has already doubled the number of last year’s deals.

With the year not yet over, there have been 20 cross-border deals announced (and one domestic deal), compared to nine deals over 2013, illustrating that partnering is still the preferred route into the complicated China market and for Chinese companies seeking to introduce Western biotechnology.

Pulling out some of the more noteworthy deals from the list, Scott called out Eddingpharm Co. Ltd.’s $95 million acquisition of ACT Biotech Inc. assets, a basic research project on cardiovascular disease with AstraZeneca plc and the prestigious Shanghai Institute for Biologic Sciences under the Chinese Academy of Sciences (CAS) and Beike Biotechnology’s equity play worth a potential $200 million to acquire rights to a novel cancer immunotherapy from Altor Bioscience Corp. (See BioWorld Today, Sept. 17, 2014.) China’s drug sector has tallied up $538 million in partnering deals, about a third of those in biologics, totaling $180 million.   

And licensing deals have been on the rise this year, accounting for more than half of all partnering, with co-development agreements making up a quarter. 

The good news for upstream biotech companies is that the overall trend in the market is for earlier-stage partnering, moving away from phase I/II and going toward preclinical. Oncology dominates – making up about half of all deals – while diabetes and infectious diseases each make up 13 percent, although the number of infectious disease agreements has declined significantly over the last several years. 

The commitment-heavy joint venture approach is typically a less popular deal structure in China. And looking at the numbers reveals an eye-catching decline in joint venture partnerships, with only 3 percent of partnering deals going this route compared to a more robust 15 percent in 2013. Interestingly, though, that could be a case of looking in the rearview mirror not being a good predictor of the road ahead.

The PwC survey indicated that industry executives expected a surge in Sino-foreign partnerships and joint ventures, with 44 percent of multinational corporation (MNC) players strongly agreeing, compared to 29 percent of Chinese pharma companies.

Picking up a strategic deal with a pharma is a fairy tale ending that many Chinese biotechs are hoping for, in part because initial public offerings (IPOs) are still relatively few and far between. After last year’s freeze, this year has only seen eight life science companies on the mainland go the IPO route, generating $1.3 billion in capital. And half were pharma companies, raising 73 percent of the cash total, or $961 million.

The most notable in the biopharma space was Zhejiang Wolwo Biopharma Co. Ltd., garnering $83 million from investors. That was significantly overshadowed by Luye Pharma Group Ltd., the winner with $764 million in capital raised, the largest in the IPO pack. (See BioWorld Today, Jan. 8, 2014, and July 2, 2014.) 

Venture capital investment in Chinese life sciences this year has already hit the $1 billion mark, beating last year’s total of $900 million. If that number seems surprisingly small, that might be because investments in China are often kept well under the radar.  

Scott also shared that the number of M&As are set to break records for the fifth year in a row, for a total deal value of $9 billion (the pharma category again making up half), with average deal values increasing to $123 million. The largest in the biologics space, was the Shanghai RAAS Blood Products Co. Ltd. acquisition of Tonrol Bio-Pharmaceutical Co. for $767 million, for a 90 percent stake. 

Feel Good Vibe

With life science investments on the upswing, it was not surprising that the mood of the retreat was one of optimism. The survey highlighted the different points of view of global vs. domestic players, showing that Chinese companies are focused on R&D improvements and chasing talent, while MNC mindshare is taken up with issues largely beyond their control, including compliance issues, partnerships, price erosion and market access for high-priced drugs.  

But any sense of divide between global and local companies was not in evidence during the retreat, which had a wide swath of the life science community represented, and engaged in some blue sky thinking in a large-scale workshop setting. The open, cross-pollinating of ideas on the first day broke the ice for casual networking opportunities on the second day, over a round of golf for some, or a day of sightseeing at a Chinese historical site for others.

“I think 2014 is a watershed and, hopefully, 2015 will go forward from here,” said Scott in closing.  “The general sentiment has been positive,” added Sandy Johnston, partner at PwC Strategy&. “It is hard to be negative when you see the opportunities out there in the marketplace. How to get at that opportunity is the challenge.”

Disclosure: none.