Local VCs boost prospects of China’s life sciences sector

By Marie Powers, Staff Writer

MAY 9 , 2014


SUZHOU, China – Venture investing in China’s life sciences industry continued a three-year upswing in 2013, according to speakers at the Chinabio Partnering Forum, with more than $1 billion in publicly disclosed deals last year. Cynics might correctly argue the amount represents just a fraction of the annual R&D budget of a single large pharma. Still, the steady rise in venture capital (VC) – much of it homegrown – represents another key indicator that China is building a sustainable life sciences ecosystem.

Capital is flowing to China’s life sciences industry from a variety of sources, including government funds and outside partners, Greg Scott, president and founder of Shanghai-based Chinabio LLC, said during a panel on investment activity. But domestic VCs play an increasingly important role. For example, Qiming Venture Partners LLC, which raised its first fund in 2006, now manages four funds exclusively focused on China that collectively account for more than $1.6 billion in assets, according to Nisa Leung, managing partner for health care. Investments in life sciences companies – drug development, medical devices, health care information technology and health care services – account for roughly one-third of the firm’s 90 portfolio companies. For example, the Shanghai-based VC co-led last year’s $20 million series C for Shenogen Pharma Group, of Beijing. (See BioWorld Asia, Nov. 6, 2013.)

Cenova Ventures, a boutique life sciences investment firm founded in 2010, has two funds under management, with Merck & Co. Inc. as lead investor in its Innovation Fund, established in 2012. The Shanghai-based VC invests “very selectively” across China’s health care sector, said Jun Wu, chairman and managing partner. For example, the company holds stakes in immunotherapy developers Birdie Biotech and Oriengene Biotechnology.

Both Cenova funds also are based on China’s yuan renminbi (RMB) currency, mirroring a larger movement in China to conduct business in RMB. Banking experts predict that, by next year, about 30 percent of China’s trade, or about $2 trillion, will be settled in RMB rather than dollars or other currencies.

For small deals looking for an exit in China, RMB can be deployed more quickly than U.S. dollars, VC panelists agreed, characterizing RMB transactions as “more mainstream” than in years past. The downside is that most life sciences limited partners, including big pharmas, are located outside China and don’t want to deal with the currency hassle, Wu said.


Some of China’s life sciences VC investments also are flowing from domestic success stories. For example, Wuxi Venture Fund, the corporate VC fund of global contract research organization Wuxi App Tec, has made a $50 million commitment to the sector, including therapeutics, diagnostics, research tools and technology, said Sofie Qiao, managing director. Before joining the Wuxi fund late last year, Qiao was helping to guide U.S./China hybrid company Lead Therapeutics Inc. to a potential $100 million acquisition by Biomarin Pharmaceuticals Inc. less than three years after the company’s $17 million series A. (See BioWorld Today, Nov. 6, 2007, and Feb. 8, 2010.)

The Wuxi fund invests in companies both in China and the States, “and the U.S.-China hybrid model is favored,” Qiao said, describing life science innovation developed in the U.S. for deployment in China.

The fund is not afraid to invest in promising preclinical assets, last year participating with Arch Venture Partners and Flagship Ventures in a $30 million series A for Watertown, Mass.-based Syros Pharmaceuticals Inc. The discovery-stage biotech is exploring the use of gene control to develop cancer therapeutics. Syros was co-founded by professors Richard Young, of the Whitehead Institute at the Massachusetts Institute of Technology, and Jay Bradner and Nathanael Gray, of the Dana Farber Cancer Institute and Harvard Medical School.

For now, Wuxi is content to follow the lead of U.S. VCs such as Arch and Third Rock, Qiao said.

“As a young venture fund, one way to learn is to work with the best in the field,” she observed. “We’re a balance sheet fund, so we’re definitely looking at leading deals in specific areas in China, but outside China we’ll continue to follow U.S. venture firms.”

The list goes on. Last month, Shanghai-based BVCF (formerly Bioveda China) closed its third fund, raising $190 million for early and growth-stage companies in pharmaceuticals, biotechnology, traditional Chinese medicine, medical devices and health care consumer products, according to Rachel Zhao, principal. Of the 20 portfolio companies based in China, half are in drug development, Zhao said.

Chinabio also is launching an ¥300 million (US$48.2 million) VC fund, Chinabio Life Sciences Ventures, with partners Da’an Gene and the Foshan city government in Guangdong province. The fund is designed to help Western companies with late-stage or commercial medical devices, diagnostics, services and therapeutics that represent a strong fit for China’s market, said Scott, who was a San Francisco-based life sciences angel investor before moving to Shanghai in 2008 to start Chinabio.

The fund, which expects to back 15 to 20 companies over the next three to four years, plans to be lead investor and first money in China for life sciences firms seeking to develop technologies for the Chinese market.

In general, the Chinabio panelists agreed that VC funds invest on the basis of well-defined criteria, with compelling science at the top of the list, followed by management prowess. Although Wu conceded that it’s “almost impossible” to find experienced management teams at Chinese life science start-ups, Qiming Venture’s Leung observed that the skill sets needed in China are different than those in the U.S. For example, the ability to navigate multiple layers of government is much more important in China than in the U.S., Leung maintained.

Like other countries, VCs in China sometimes are willing to overlook their stated investment philosophies to back a serial entrepreneur who will “make things happen,” as Qiao observed. In China, serial entrepreneurs in the life sciences are in short supply, but investors are hopeful about the future.

“China still hasn’t had a really successful story in drug development,” Wu said, defining such an accomplishment as approval and commercialization of a novel drug, developed from original research, that achieves $1 billion or more in annual sales.

“But we hope we can be part of this,” he added. Considering the rapid pulse of China’s life sciences industry, “we don’t want to miss it.”


Local VCs boost prospects of China’s life sciences sector