As 1400 life science executives, investors and entrepreneurs gather in Shanghai for the 11th annual ChinaBio® Partnering Forum, they have much to be happy about. Regulatory changes are speeding development and approval timelines for novel imported drugs in China, and VCs raised over $40 billion in new funding last year.

But there are things to worry about. Can the tremendous growth in investment activity continue? The China and US governments seem to be moving towards restricting cross-border activity. Is this an unfounded fear, or is it having a real impact? Is money still flowing out of China into US biotechs? And are US and EU pharmas still partnering their drug candidates with China?

The simple answer is “yes,” but as with everything in China, the real answer is more complex.

To review, China investment activity in 2018 was terrific. Across the board, the metrics were impressive, the increases in each category rising from a low of 7% (Amount of Money Raised), to 66% (Partnering).

With four months of 2019 data in the books, it seems as though some of the categories will be lower, at least if current trends continue. The Amount of Funds Raised, M&A Investment and IPOs are all running behind last year's rates. VC Investment is roughly equal to last year.

And Partnering is, once again, the star performer of the group: partnering agreements are forming at about 2.5X the record rate of 2018, a rate that seems almost impossible to sustain.

The cross-border in-licensing/partnering model has been one of the key changes in the overall China market during the last five years. Young China biopharmas are gaining access to novel western drug assets and progressing? them through China's much improved regulatory system. The business case logic behind the activity seems rock solid.

For example, in the last month, the following deals were announced:

• Everest Medicines, a Shanghai company backed by C-Bridge Capital, announced an $835 million agreement for China rights to an antibody-drug conjugate developed by Immunomedics of the US.
• Cytovant agreed to a $1 billion package for China rights to four T- Cell immunotherapies from Germany's Medigene.
• And Eddingpharm will pay $375 million for two Lilly antibiotics and the China plant that makes them, which isn't a partnering deal, but it is a cross-border licensing agreement.

Also, IPOs are showing some life. Since the beginning of April, Junshi expressed plans for a Shanghai listing, just four months after completing a Hong Kong IPO. Hansoh and Chi-Med are both in the IPO queue in Hong Kong, with expectations of transactions that could raise between $500 million and $1 billion.

The Shanghai Technology and Innovation Board, with requirements similar to Hong Kong's pre-revenue rules, should be operational in 2018's second half, providing a new listing alternative for young China life science companies.

Not everything is perfect for China life science, of course. Perhaps most worrisome is the continuing fight over trade between the governments of China and the US. The relationship between the two countries, already tense, has gotten worse over the last week, as they argue over a broad list of issues in many industries. It isn't at all clear how this will end.

Although drug companies continue to expand in China, and China continues to approve drugs from US companies, making it see that the conflict does not affect them, that is no long true.

For the first time, US regulators are said to have forced a US company to return a China investment. In April, the Committee on Foreign Investment in the United States required a Boston company, PatientsLikeMe, to return a $100 million investment from China's iCarbonX. PatientsLikeMe is a Boston social media company that allows people with the same disease to communicate with each other. It also gathers structured quantitative data about a disease that can be used for research.

While PatientsLikeMe seems like a company with a benign business plan, the idea of data may have spooked the regulators. No official announcements have been made so the details of the situation are not known, though it remains true that no China-US cross-border drug agreements have been rejected by officials.

Though that may be beside the point. By itself, the threat that deals will be under increased scrutiny may have had an effect. Some China investors may have decided that a deal in the US isn't worth the risk, and possible official denials may be raising caution signs and driving some of the investment categories lower.

All of that is ominous and not certain. But don't forget, not long ago, a US FDA official (in charge of oncology) asked China biopharmas to bring their PD-1/PD-L1 drugs to the US market. US-developed immunotherapies are too expensive, Richard Pazdur, MD, said. The US will accept China data as a basis for approvals, he added, because competition between multinational pharmas isn't having any effect on prices.

Maybe the future will see greater cooperation between China and the US, not less. Stranger things have happened.

Disclosure: none.