Biotech Sector Gathers Momentum Amid Industry Conferences and Evolving Commercial Realities

April and May this year have been a peak period for industry conferences. On May 6, the Zhangjiang Science Hall just concluded the three-day Future Healthcare Top 100 Conference, and on May 10, it welcomed the Sequoia Global Healthcare Industry Summit. Prior to these, events such as the EmedBio Manufacturing Conference and the SAPA-China (Chengdu) Annual Meeting also drew large crowds, with every industry conference being bustling with attendees.

Are conferences so numerous that the industry has fully recovered? It remains unclear to many, although business trips have obviously become much more frequent. In mid-April, a senior investor in the industry calculated,I have flown 24 times this year.. His expectation for this year is, “to be able to fly more; anyway, airfares have gone up, and hotel rates have risen as well, which is a good sign. The economy is picking up steam—what we really fear is economic stagnation.”

“"Let's all accumulate more mileage this year.".” another investor suggested.

It’s not just about the mileage; changes are, of course, occurring gradually.In an uncertain and evolving industry, everyone yearns for greater clarity.

Since the beginning of this year, local governments have been the most active players in the biopharmaceutical industry.

A head of the strategic department at an industrial park in Beijing recalled that meetings to discuss this year’s development strategy were held immediately after work resumed following the Lunar New Year holiday—a work pace unprecedented in the past, leaving everyone with a keen sense of urgency.The “involution” in government investment promotion has become a major topic in the industry this year.

In Suzhou Industrial Park, a major hub for the biopharmaceutical industry, government and park officials at all levels were busy with reception duties throughout March. When a delegation from Beijing arrived in Suzhou for an inspection tour, they discovered upon meeting outside the government building that another team from their own organization was also in Suzhou for study and observation. General Partners (GPs) were likewise engaged in hosting these government delegations. The governments aim to restore and boost local GDPs by collaborating with investment institutions through investment-promotion initiatives, as investments often come with conditions tied to local business attraction and establishment.

However, GPs remain quite conflicted: accepting funding from local governments requires registering the fund locally, and if they wish to secure capital from multiple government sources, they must split the fund.Originally capable of raising RMB 2 billion, a RMB 1 billion mega-fund would need to be split into three or four smaller funds."This is a phenomenon that people have not encountered before, and it is particularly prominent this year."

It is a consensus among GPs that fundraising timelines have lengthened, and this trend is not expected to see significant improvement in the first half of this year.

An investor observed that, for a period after the Lunar New Year, it seemed everyone had traveled to the Middle East to raise capital. However, securing funds from wealthy Middle Eastern investors is no easy task; “after all, they have seen every type of general partner (GP) and met with the world’s top-tier fund managers.”

Industrial funds with government backing still predominantly favor upstream enterprises. One investor observed that the Echemi Conference held in Suzhou in March mainly focused on two major segments: the upstream life sciences sector and CDMOs. “Aside from some low-value consumables, there aren’t many investable opportunities.” This year, she reviewed several radiopharmaceutical projects; one innovative company had just filed its Investigational New Drug (IND) application and demonstrated strong originality, yet it was still rejected after multiple rounds of investment committee reviews.

Nevertheless, we have observed a shift in the mindsets of both investors and entrepreneurs. At the beginning of the year, when we discussed with investors how they viewed the “winter,” the responses were often “pessimistic” and “painful.” Limited partners (LPs) are demanding commercialization, yet biotech companies find it difficult to achieve commercial viability in the short term. This has resulted in a disconnect in capital flows, where funds are neither being raised nor deployed effectively.

Over the past month, people have stopped shying away from discussing their understanding of the “winter,” with some even self-deprecatingly remarking, “It’s not winter yet; it’s more like late autumn.”From Believing in Commercial Logic to Seeing It: Investors Are More Inclined to Approach Post-Investment Management with a Commercial Perspective, to evaluate new projects. Determine whether the product is global in scope and ranks among the top worldwide in terms of development progress; if not, assess whether its timeline can be accelerated. For startup ventures founded by scientists, provide management, operational support, and empowerment.

Various institutions have begun forming consortia to evaluate and submit project proposals. During favorable market conditions, everyone aspired to serve as the lead investor; now, securing a co-investment position is considered sufficient, with the primary objective being participation.

Market-oriented funds remain cautious in their investments. In this macro environment, it is not easy for entrepreneurs. An investor revealed at the conference, “Many biotech companies failed to secure funding throughout last year, and when they approached us this year,”Valuation could be discounted by 20% from the previous funding round, yet investor interest remained lukewarm.。”

At the Sequoia Global Healthcare Industry Summit in May, Sequoia’s investors also called for greater confidence among entrepreneurs and investors, stating, “As China’s innovation deepens, there are no longer as many opportunities as before to ‘cross the river by feeling the stones’ laid by others. In some fields, we may have entered ‘no-man’s-land,’ venturing into less charted and less glamorous territories.”

There are also exciting developments. Recent news regarding the overseas licensing of CAR-T and ADC therapies has generated significant enthusiasm. CAR-T and ADC can be regarded as representative sectors in China’s Innovation 2.0 phase. The willingness of multinational corporations (MNCs) to acquire these assets, with upfront payments reaching substantial magnitudes, helps to bolster industry confidence in the innovative drug sector.

Driven by the surge in Chinese enterprises expanding overseas, many predict that this year will be a turning point for business development (BD), with license-out transactions gradually reaching their peak. As companies seek to license their products abroad, there is a severe shortage of BD professionals specializing in license-out deals; headhunting firms have already compiled statistics indicating this trend.The demand for BD talent this year has increased by more than 30% compared to last year.

Mergers and acquisitions (M&A) also appear to be ushering in new structural opportunities. Not only has the U.S. market witnessed major deals such as Pfizer’s acquisition of Seagen, but in March, Liu Xiaodan, known as the “Queen of M&A,” rarely spoke out to point out that with annual primary market investments averaging one trillion yuan since 2016, exiting entirely through IPOs is impossible; thus, M&A has become the focal point of current discussions.Systematic Opportunities Emerge in China’s M&A MarketOver the next five years, China is poised to enter a golden age of mergers and acquisitions, accompanied by the rise of true M&A funds in the country.

Amidst the uncertainty,Industry insiders are particularly information-hungry, eager to understand the current state of China’s pharmaceutical innovation from multiple dimensions—both broadly and in depth.

At various industry conferences, the most frequently discussed topics invariably revolve around the following questions: What dividends has the innovative drug industry yielded over the past decade? Where do we currently stand, particularly in the context of global competition? And in light of this, where lie the short-term and long-term opportunities for the future, especially the systemic ones?

Data may provide some reassurance. A 2022 report by McKinsey shows that in 2013, China’s share of the global pipeline of innovative drugs in clinical stages was less than 2%; today, it has reached 22%, representing a tenfold increase.

Novotech, a company specializing in clinical development in the Asia-Pacific region, released a report in February titled “Global Phase I Clinical Trial Landscape: Focus on the Asia-Pacific Region.” The report shows that Phase I trials in the Asia-Pacific region have grown rapidly over the past decade, reaching a 58% share by 2022, with China leading globally in the number of Phase I trials conducted.

The pipeline only represents “quantity,” but what about “quality”? In other words, how substantial is the innovation?Currently, there is no “gold standard,” and recognition by multinational corporations (MNCs) remains critical.

In 2022, a notable shift occurred as business development (BD) capabilities for global expansion became a critical dimension in assessing the strength of innovative enterprises, even serving as an endorsement of their innovativeness and fundraising capacity. A company’s “spotlight moment” was no longer defined by backing from top-tier investors or securing large funding rounds; rather, only by striking “high-profile deals” with multinational corporations (MNCs) or foreign biopharmaceutical companies could they successfully redirect the focus of both primary and secondary markets.

However,Over the past year or so, which overseas licensing deals have truly been blockbuster transactions? Can these Chinese companies contribute more innovations in technology platforms to the global community?, such as in the CAR-T and ADC sectors? This is perhaps the most substantive benchmark, reflecting China’s indigenous innovative strength in hard-core R&D.This is also a question that the entire industry needs to clearly understand and answer.

VBInsight has participated in numerous industry conferences and interviewed several seasoned industry experts. Currently, there is a broad consensus that China’s efforts and breakthroughs over the past decade-plus in the following three areas have shaped the current fundamentals of the industry:

On one hand, over the past decade or more, the biggest dividend driving the development of China’s biopharmaceutical industry has been the “engineer dividend,” with Chinese CROs and CDMOs having fully integrated into the global R&D ecosystem.

Secondly, regulatory breakthroughs and the continuous efforts by China’s National Medical Products Administration (NMPA) to promote innovation in recent years have had a positive impact.

Consequently, the industry has cultivated a large pool of professionals capable of developing novel drugs. Previously, there was a lack of expertise in new drug development, regulatory review, and clinical R&D; now, however, there is growing proficiency in CMC (Chemistry, Manufacturing, and Controls) and regulatory assessment. Moreover, an increasing number of Principal Investigators (PIs) have transitioned from merely engaging in fast-follow strategies to actively participating in the formulation of clinical development strategies for new products.

This is the industry’s talent and industrial chains, formed through more than a decade of investment and development, which also constitute the sector’s fundamentals.

With talent chains and industrial chains, can we achieve true source innovation? True first-in-class?

After all, domestic companies will never again encounter an opportunity as rare as PD-1—a once-in-a-decade or even once-in-half-a-century chance—to transform themselves into biotech firms, or even biopharma companies, within a short time window.

From the perspective of underlying logic, some industry insiders have already realized that,It is precisely at this moment that China has reached the point where it can truly engage in innovation.

Unique Opportunities in the Biomedical Field:The biopharmaceutical industry remains one with a very weak foundation in basic theory, to the extent that even minor breakthroughs in this area can be rapidly translated into products and industries, giving rise to great companies.

Additionally,China’s Original Biomedical Research Has Leaped Forward Over the Past Two DecadesSince 2005, there has been an order-of-magnitude increase in the number of top-tier biomedical papers published by Chinese researchers in leading global academic journals. Data show that in 2020, more than 150 research articles from China’s life sciences and medicine sectors were published in Nature, Science, and Cell (with domestic institutions listed as the affiliation of the first author or corresponding author). Even after excluding over 50 papers related to COVID-19, the number still exceeded 100. These publications accounted for 10% to 15% of all CNS papers worldwide, ranking second globally after the United States in terms of proportion.

Top-tier papers are the foundational preparation for innovation-driven industrial development, but conversely, it remains to be seen to what extent this foundation has actually helped China in new drug R&D.

For some industrial investors and entrepreneurs,The gap between the two also represents a significant opportunity for all.

An investor with many years of experience in the innovative drug industry has described his mindset as always being"Positivity Amidst Negativity"“, ‘The industry bubble has not yet been fully eliminated, which is the negative aspect; however, China’s past support for the innovative drug industry has built substantial infrastructure, providing opportunities for genuine translational innovation,’ he explained.”“Both the negative and positive aspects stem from these two unchanging fundamentals.”