http://www.bioworld.com/content/it’s-still-early-days-vc-china’s-early-stage-biopharmas-0

By Shannon Ellis
Staff Writer

SHANGHAI – There are more bees than flowers in the China biopharma space, with venture capital (VC) interest outstripping the number of early stage companies with novel biologics to develop.

“There are more venture capital funds with interest than actual companies to work with,” Yi Shi, managing director of Lilly Asia Ventures, told BioWorld Asia. “There will be more but it will take a long time. Many companies are very interested in novel biologics but there just aren’t that many companies in China.”

The limited data on publicly announced venture capital deals supporting early stage biologic companies plays this out. Only a very few, such as Shenogen, are developing homegrown discoveries.

“In China we are seeing there is more VC money chasing deals, than there are deals,” said Greg Scott, president of ChinaBio LLC. “There is a lot of interest in bringing Western technology, and even in some rare cases Western start-ups, to commercialize in China.”

China offers several advantages that VC players try to capitalize upon – namely the relatively lower cost of preclinical and early stage clinical development. Innovent Biologics Inc. has taken this strategy. The Suzhou-based company develops biosimilar monoclonal antibodies licensed from abroad to commercialize in China. Lilly Asia Ventures invested $25 million in Innovent in 2012.

Ascletis Inc. attracted its own substantial honeypot, the biggest for a biologics company, with a similar strategy. In 2011, it received $100 million in funding from Hangzhou Binjiang Investment Holding Co. Ascletis, of Hangzhou, is a specialty therapeutics company focused on in-licensed therapies for cancer and infectious diseases.

“We see a lot of activity in biologic start ups whose role in life is to commercialize biosimilar drugs from elsewhere,” said Scott.

Shi concurs, “If you look at VC portfolios there are probably over a dozen biologics companies. Out of those dozen the majority, 75 percent to 80 percent, are biosimilar or biobetter type products.”

There are several types of VC players in the biologics space in China. The main life science VCs active here – such as Orbimed Advisors LLC, Kleiner Perkins Caufield Byers and Sequoia Capital – are looking to gain from the phenomenal growth coming out of China’s life sciences, but in many cases their deals are not announced.

There are the newer players, such as Cenova Ventures and Morningside Group, which have broader portfolios with an Asia focus. Also cropping up are strategic deals arranged by local companies with a good cash position that start out making strategic investments and in some cases set up professionally managed VCs of their own. Wuxi Apptec, the hugely successful CRO, is but one well-known example.

Scott said he is familiar with many VCs saying they are interested in supporting early stage companies but it is rare to see any financing novel preclinical work. As always, risk is a factor.

“In the U.S. you may have more hits on a goal,” says Scott.

Given the small numbers of targets, a concern is how to have a viable portfolio strategy in China. VCs may be looking to invest in at least five to 10 drug companies in order to get at least one winner. The attitude for some in China is that “doing a one-off drug company does not make sense,” Scott said, adding, “I would argue that approach because if you are doing devices and services you can diversify across sectors to be sure to have a hit.”

The main barrier for Shi is more concrete, and more predictable.

“It is a tough game because in addition to developing the product you have to build a manufacturing facility. The investment that is needed is not for the faint of the heart. It takes a lot of capital, a few hundred million dollars, to build a manufacturing facility. A lot of people are interested (in early stage investment of novel biologics) but they realize the investment required and they back away,” Shi said.

Last year’s ban on initial public offerings had little effect on VC financing for novel biologics since the rules state only profitable companies are eligible to list in the first place, effectively eliminating early stage R&D companies.

“IPOs only impacted later stage deals,” said Shi.

But Shi is optimistic the trend is increasingly toward early stage companies.

“Some people are seeing there is a healthier ecosystem, you can count on other people and other VCs to come in, so there is more early stage investment.”

But he points out that VC is but one financing option needed to get to the finish line. “You cannot rely on one type of capital it is likely to take a combination of government, partnership and bank loans,” Shi said.

2014年04月21日

It’s still early days for VC in China’s early stage biopharmas

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