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China’s rapidly ageing population has boosted the demand for pharmaceutical and healthcare products. The country’s biotech sector has seen exemplary innovation and development over the past few years and market experts see a further continuation of this trend.
China’s biopharmaceutical industry has transformed due to improved policies and approval processes. Previously it took nearly about five years for the approval of new drugs. In contrast, the changes brought about by Beijing have now sped up the approval process to around 200 working days for normal submissions and 70 working days for priority review.
Additionally, access to foreign innovations has played a key role in bolstering China’s biotech sector, with early access medicines making it to the market. On the other hand, public listings of biopharma firms have aided access to capital. The Hong Kong Stock Exchange in 2018 updated its listing rules to pave the way for listing pre-revenue biotech firms, which has attracted over 50 biopharma firm IPOs till now. On the mainland, the creation of the Sci-Tech Innovation Board on the Shanghai Stock Exchange has aided the public listings of 80 biopharma firms.
China’s biopharma sector has become the talk of the town and has created significant value for investors. A McKinsey & Co estimate found that publicly listed biopharma companies, either in China or overseas, have seen their market value jump to $380 bn in July 2021, up from $3 bn in 2016. Between 2018 and 2020, seven out of the top ten largest biopharma IPOs around the world originated from China.
As China’s innovation in drug development and discovery enters the global platform, the China biotech market is presenting a compelling opportunity for investors.
Joe Biden’s executive order and China biotech sector
The US has a 59% share of the total global biotech value, followed by 11% held by China. The pharmaceutical industry in China is the world’s second-largest after the US but is now seeing massive growth which can propel the country to the top spot in the next couple of years. The 14th Five Year Plan has a special focus on developing the bioeconomy of the country by integrating biomedicine, biological breeding, biomaterials, bioenergy, and other industries. Beijing also has plans to increase cooperation with overseas research institutes and drugmakers.
While the overall outlook for China biotech sector is positive it has now become a part of the US-China tech war. US President Joe Biden recently signed an executive order to bolster domestic manufacturing of biopharmaceuticals in a bid to reduce dependence on China for new drugs. Shares of China biotech firms took a beating the next day, but market experts believe that this was a one-off instance, and the real impact will only be seen in time.
China rebuked the US move, with the foreign ministry spokeswoman Mao Ning saying the US government was ‘artificially’ hampering global tech communication and trade. However, previous research and comments show that closing off the US market for China biotech firms will have a negative impact on the US.
Innovators in Chinese biopharma sector
China-based Wuxi Biologics (2269.HK) provides end-to-end technology solutions for biopharmaceutical development and manufacturing. The stock has a market capitalization of HK$197.82 bn ($25 bn) and has seen its value decline by more than 60% in the past year. Wuxi currently has a PE Ratio of 46.05, with a forward PE ratio of 36.99. The price-to-book ratio of the company stood at 5.35.
Wuxi has offices in China, the US, Ireland, Germany and Singapore, and is supporting more than 500 integrated client projects, with 14 in commercial manufacturing. The company saw its FY21 revenue nearly double to 10.29 bn yuan ($1.4 bn) compared to the previous year.
Founded in 2010, BeiGene is another notable biotech company in China which is leading in cancer drug development. Several of its cancer drugs are used worldwide. Although a Chinese company with a listing on the Shanghai Stock Exchange, it has its headquarters in Cambridge, Massachusetts.
The American Depository Receipts (ADR) shares of BeiGene on NASDAQ have a market capitalization of $14.93 bn. BeiGene’s stock price has fallen over 62% in the past year. The company is yet to post a profit and has seen its losses widen over the past couple of years. However, the FY21 revenue of the company rose more than three-fold to $1.17 bn from $308.87 m the previous year.
Another US-listed Chinese biotech firm I-Mab is involved in the clinical stage of biopharmaceutical development. The firm specializes in developing biologics to treat cancer and autoimmune diseases.
The company has a market capitalization of $388.07 m on NASDAQ and posted a loss of $280 m in FY21 while reporting a revenue of $88 m. I-Mab has gotten some key out-licensing deals with foreign firms which have brought it into the spotlight.
Founded in 2015, CStone Pharmaceuticals made its name when Pfizer invested $200 m in the company for a 9.9% stake. The company is working on cancer drugs and specializes in immuno-oncology. The firm has a market capitalization of $560.5 m and has seen its Hong Kong-listed primary listed shares fall more than 68% in the past year. The company’s FY21 revenue was $34 m, while its net loss widened to $269.6 m.
Some more companies to keep an eye out for are Chi-Med, Innovent Biologics, Junshi Biosciences, RemeGen, and Fosun Pharma, among others.
