After a robust 2018, in which over $17 billion was invested in the sector, a 50% increase, the Chinese biotech industry is experiencing a cooldown of venture capital funding. In the past few years, China’s biotech companies have made great progress, with over 800 new molecules currently in clinical trials or pre-trial testing phases, a massive 233% increase since 2012. Chinese companies have also greatly surpassed their US peers in areas such as CAR-T therapy, with more clinical trials taking place in China than in the US. Additionally, last April, the Hong Kong stock exchange started allowing listings of research-stage biotech companies that had not yet generated profits. The six Chinese companies that listed in 2018 raised HKD $25.4 billion ($3.2 billion); however, three companies ended up trading below their initial prices, leaving investors trying to match the high valuations before listing.

This led to an overall slowdown in investments in the biotech sector, which was also affected by the government’s initiative to slow credit growth in order to reduce debt levels. The vast majority of investments in 2018 were made in the first six months of the year, and by the last quarter of 2018, Chinese venture capital investments in biotech were down 12%, with the number of deals falling 25% to 713.

New asset management regulations that necessitate a much more stringent matching of asset and liabilities maturities on startup capital from banks, trusts and listed companies greatly contributed to the cooling of investments. Chinese financial experts predict that 2019 will be the worst time to invest in biotech startups in the country, with funds requesting that companies accept lower valuations and cut operating costs.

Source: Financial Times