With the ongoing progress of research on human genome, investment in bio-pharmaceutical industry has been in the spotlight once again. Especially as China is emerging as an important center of global drug R&D, domestic investment in the bio-pharmaceutical area has soared up. At the same time, VC investment in this field is moving towards segmentation and specialization.
In 2009, while the world is still struggling to shake off the impact of financial crisis, the M&As in the global pharmaceutical industry have been on the upsurge. On January 26, Pfizer Inc. was reported for the M&A of Wyeth with a cost of US$68.00B, and the completion of this transaction was finally announced on October 16. Later, on March 12, Roche and Genentech announced on their respective official websites that they had reached an M&A agreement, according to which Roche would acquire 44.0% of the remaining shares from Genentech at the price of US$95 per share in cash (Roche had already held 56.0% of such shares before that). Upon the merger of these two companies, a new company, the 7th largest pharmaceutical company (ranked by market capitalization) in the United States will be formed, which is expected to realize an annual operating income of US$17.00B.
In China, KPCB China and several institutional investors launched the second round of investment in Kerry Bio-Science with a total amount of US$13.00M in January 2009. Subsequently, Tigermed Consulting Ltd. and Qiming Venture Partners jointly invested in Macrostat (a professional company engaged in clinical research data statistics), but no details about the investment fund have been disclosed yet. In May 2009, KPCB China unleashed its strength to invest in a bio-pharmaceutical company—Nanjing Genscript Corporation (renamed in Chinese name) at the price of US$15.00M. Successive investment events are sufficient to reflect the potential growth of bio-pharmaceutical industry. And the high tech companies, which take advantage of genetic engineering technology to develop genomic drugs, were even more favored by the VC investors.
According to the data of Zero2ipo Research Center, the whole bio-pharmaceutical industry (including medical services) secured a total investment of over US$130.00M from various types of institutional investors in the first half year of 2009, accounting for 20.0% of total investment in China during the same period. Among which, there were some huge investments, such as the one made by Nanjing Genscript Corporation.
A Historical Review and Progress
From the historical development of international medical market, it can be seen that the advancement in pharmaceutical technology each time has given a tremendous impetus to the market. Historically, the introduction of statin drugs (in the mid- and late 1980s), anti-viral drugs (in the early 1990s) and biotechnology drugs (in the early 21st century) has strongly stimulated the demands from international medical market at the grade of billions of US dollars.
In 1980, the stock price of Genentech soared from US$35 to US$88 within only an hour after its IPO, creating a miracle for all biotechnical companies. Erythropoietin (EPO), developed by the US Amgen Inc., was approved by the US FDA in the mid-1990s, and rapidly became the No.1 biotechnology drug on the market. Even in 2008, its sales amount still reached an amazing US$13.00B after EPO products have undergone a series of competitions. Since 2000, with the completion of human genome sequencing and the continuous development of bio-information technology and systematic biology, bio-pharmaceutical market is expected to grow at an annual rate of about 12.0%.
From the above chart, "overall scale of international pharmaceutical market and annual growth rate", it can be found that the overall scale of 2008 reached nearly US$800.00B. Since 2008, the growth rate of global pharmaceutical market has slightly declined due to the negative impact from the financial crisis. However, according to the forecasts from IMS Health, an authoritative pharmaceutical advisory body, the market scale can still exceed US$820.00B throughout 2009.
According to the statistics of Zero2ipo Research Center, a total of 18 Chinese enterprises engaged in biotechnology (Excluding raw material medicine manufacturers, traditional Chinese medicine manufacturers or integrated manufacturers, etc.) obtained investments from institutional investors from January 2007 to September 30, 2009. Such companies which focus on a particular high-tech field or excel in a particular segmented field are more likely to be highly favored by institutional investors. For example, Progentech specializes in R&D of nucleic acid and protein drugs, while Beike Biotechnology is mainly engaged in the research of stem cell drugs.
Research and Investment Directions
At present, the modern biotechnology has been ushered into a stage of large-scale industrialization worldwide. Upon the completion of human genome sequencing, many new technologies and products have been developed, such as somatic cell cloning, stem cell, gene therapy, bio-chip, genetically-modified animals and plants, while emerging biotechnology industry clusters are flourishing. The comprehensive utilization of genetic engineering, cell engineering and antibody engineering and other biotechnologies to develop new drugs represent the leading direction of modern biomedical technology in China. As a result, targeted drug, monoclonal antibody, nanomedicine, stem cell engineering, bio-chip, bio-information technology, micro-genetic technology (e.g., MicroRNA and RNAi), and so on have attracted the attention of the academic community and the pharmaceutical industry.
Tonghua Dongbao Pharmaceutical Co., Ltd. is one of few recombinant human insulin manufacturers in the world. In 1998, it successfully developed China's first recombinant human insulin preparations with independent intellectual property rights by adopting gene technology. Since the products were launched onto the market, the company has still earned nearly US$50.00M through exports despite its limited production capacity.
Generally speaking, only one winner drug can eventually come on the market among every 5,000-10,000 candidate drugs. With the development of large-scale high-throughput drug screening technology and improvement of a variety of gene technologies, drug research and development process have been significantly shortened and efficiency greatly upgraded, which cannot be made possible without the supports of target positioning and high-throughput analysis.
On the 21st Conference of International Union of Biochemistry and Molecular Biology in August 2009, Beijing OriGene demonstrated its unique monoclonal antibody preparation, gene target screening platform and other projects for industry experts. The company boasts a strong and comprehensive biotechnology research and service platform, which now owns the global largest database of human full-length cDNA clone. The new products, such as shRNA (used in RNAi) and TissueScan (used in the research on cancer gene), can greatly speed up the R&D progress of biotechnology drugs.
In May 2009, scientists from Roche reported on the latest research achievements in gene interference (RNAi) and other aspects at the 2nd Annual China Biopharma Opportunities Summit held in Shanghai. They have taken advantage of the specificity of nanotechnology to transfer particular minigenes (siRNA) into the cells so that drugs work only on cancer cells without affecting normal cells. In the category of RNAi, some drugs have already entered into the clinical phase Ⅲ, which are very likely to come on the market within a few years.
Opportunities and Risks
According to the requirement of the Tenth Five-Year Plan for National Economic and Social Development of the People's Republic of China and Eleventh Five-Year Plan for Bioindustry Development, the added value of China's bio-pharmaceutical industry is expected to reach RMB500.00B by 2010. On this basis, the added value of China's bioindustry will exceed RMB2 trillion by 2020 and emerge as a pillar industry in high-tech fields and a leading industry of national economy.
At the present stage, the talent pool in the biotechnology field has been relatively abundant in China, and a large number of high-end biotechnology talents have been attracted to return to the country. But a great gap in R&D of genomic drugs still exists between China and developed countries. And there are many risks for the commercialization of research findings on genetic engineering drugs, which demands high technological support and huge follow-up capital investment. If an enterprise introduces VC investment at an appropriate time, it can not only increase its funding, but also be provided with the relevant value-added services. However, the risks always herald more opportunities. Bio-pharmaceutical industry in China will definitely enjoy a broader and brighter prospect, and its investment potentials will become ever-increasingly apparent in the days to come.
