Biotech Recovery Begins with In-Person Meetings

Spring 2023 began with in-person meetings for biopharmaceutical professionals.

The JPM Conference in January brought pharmaceutical professionals from around the world together again for in-person interactions. Face-to-face exchanges are the most effective way to gauge the industry atmosphere and bridge the “information gap” that emerged during the three years of the COVID-19 pandemic. Chinese small and mid-sized biotech companies participated with unprecedented enthusiasm.

The same holds true in China. The first wave of the post-reopening epidemic peak has subsided, and as soon as the Spring Festival holiday ended, industry professionals, entrepreneurs, and investors eagerly flocked back into the crowds.

“This year is expected to be a major year for in-person conferences. After several years of remote participation, the demand for face-to-face interaction is set to surge,” said the head of strategy at a biopharmaceutical park in Beijing, speaking to VBNewMed.

The head of strategy had been planning a visit to Suzhou last year, but the trip was repeatedly postponed due to the pandemic. After returning from the Spring Festival holiday this year, team members showed great enthusiasm and are now planning to “visit Jiangnan at the best time” around March.

“During the pandemic, stringent lockdown measures posed significant challenges for many companies, with some able to staff only half or even a quarter of their workforce. However, laboratories at many biopharmaceutical firms could not maintain operations with such reduced personnel. ‘After the relaxation of policies, everyone’s mindset began to ease, and the overall work dynamic changed entirely,’ she said.”

“Already on a business trip,”Dr. Liu Dan, Senior Partner of the Innovation and Growth Fund at CDH InvestmentsHe stated, “One clear takeaway from conversations with peers is that optimism is gradually returning. Companies in the industry have also been sharing positive news, noting a steady influx of investor interest.”

Zheng Fan, Managing Partner and Head of Transactions at YAFO Capital“It was mentioned: ‘We have a project where our partners even traveled round-trip to the factory in Shandong on the Lantern Festival for due diligence. It is evident that everyone has high expectations for 2023.’”

Cold Spring Harbor Asia, which has established its presence in Suzhou, has also unveiled a tightly packed schedule of conferences and activities for the year. The biopharmaceutical ecosystem cultivated by Cold Spring Harbor has sparked countless collaborations and innovations among researchers and innovative companies. After being postponed for nearly three years due to the pandemic, Cold Spring Harbor Asia’s in-person conferences made their comeback in Japan last October. In his opening remarks at that event, Professor Brent Stockwell from Columbia University in the United States stated, “In conferences like today’s, we can seek connections with others, spend time together, and build a community. During the past few years of the pandemic, we forgot what it felt like to be among peers, conduct research together, and discuss science with one another. I hope we can take this opportunity to rediscover that experience.”

As the season of renewal arrives, the entire biopharmaceutical industry is eager to forge ahead, seeking new products, partnerships, and commercialization achievements.

While it remains difficult to say whether the long-awaited recovery has truly arrived, confidence and hope have returned to the industry.

After a prolonged period of bottoming out and hardship, capital has finally begun to flow back into the biopharmaceutical sector.

Hong Kong-listed innovative drug stocks have rebounded consecutively for several months, with some Hong Kong biopharmaceutical companies seizing this opportunity to announce placement plans and seek refinancing. U.S. markets have once again welcomed Chinese concept life science stocks; on February 3, Chinese biotech company Shuodi Biologics listed on the Nasdaq in the United States, becoming the largest biotechnology IPO in recent months, with its share price surging 73.33% on the first day of trading. The comprehensive implementation of the registration-based IPO system in China’s A-share market will also benefit the listing and financing of biopharmaceutical enterprises.

Recovery has been the dominant theme in the biopharmaceutical sector within the capital markets over the past three months, yet overall trading and investment activity remains cautious. Although biopharma saw the largest increase in fund holdings in Q4 2022, both its overall valuation and allocation levels remain at historical lows, with companies possessing stronger innovation capabilities experiencing a valuation rebound first.

“The recovery in the secondary market is ‘differentiated,’ particularly in the field of innovative drugs.”Rong Jing, Managing Director of BlueRun Ventures ChinaBlueRun Ventures China has been committed to identifying next-generation biotech companies with a focus on technological innovation. Rong Jing himself brings over 10 years of investment experience in the biopharmaceutical sector, having led and managed investments in numerous biopharmaceutical companies listed on U.S., Hong Kong, and A-share markets.

Take Keymed Biosciences, a Hong Kong-listed company, as an example. This innovative biotech firm specializing in autoimmune and oncology therapies saw its market capitalization exceed HK$18 billion on its listing day. After a market downturn, its valuation once fell to HK$4 billion. However, it stabilized earlier than the broader market thanks to its interim performance, demonstrating its value through progress and achievements in its pipeline R&D. As the macro environment improved, its stock price continued to rise, bringing its market capitalization back to HK$20 billion and forming a U-shaped bottom.

For another example, 3DMed, which went public late last year, saw its market capitalization surge more than twofold from HK$8 billion on the first day of trading to HK$18 billion. Last month, its pipeline candidate 3D185, indicated for the treatment of gastric cancer and gastroesophageal junction cancer, was granted Orphan Drug Designation by the U.S. FDA.

Other innovative companies with questionable fundamentals or speculative characteristics have not been valued by the market at their previous levels.

Rong Jing analyzed, “Judging from secondary market performance, investors’ understanding of differentiation in biopharmaceutical technology has entered a deeper stage.”

Primary market investment has gradually recovered after a sharp decline, with investors once again frequently reviewing deals and requesting quotes; however, there is now a markedly higher demand for the comprehensive capabilities of target companies.

The primary market has remained relatively tepid over the past year. Many funds, sitting on capital successfully raised in 2021 or the first half of 2022, have adopted a wait-and-see approach, leading to a bottleneck in investment activity. Consequently, 2023 marks the final investment period for some of these funds, making them more likely to deploy capital. Nevertheless, the previous surge—bordering on frenzied—investment landscape is unlikely to reemerge. On one hand, the market is still in a gradual recovery phase; on the other, China’s innovative drug sector has undergone a full cycle of consolidation, making a return to rationality inevitable.

Liu Dan stated, “Projects that were unfairly overlooked will see a wave of positive momentum as investors come to re-evaluate them. Investment activity this year has only just begun; it is unrealistic to expect last year’s valuation framework to be overturned overnight. I believe the current phase is characterized by gradual negotiations between projects and investors.”

Dr. Yang Kun, Managing Director of Efung CapitalIt is believed that a more rational market environment has endowed investors with greater patience and a more extended time horizon to evaluate a broader range of projects. During the previous period of market “exuberance,” it was often impossible to conduct comprehensive assessments of all companies within specific sub-sectors. Now, there is ample time to uncover and evaluate more “underwater” (undiscovered or early-stage) projects. More importantly, investors have adopted a more rational mindset to follow up on and assess new scientific advancements, clinical progress, and the potential of novel therapeutic mechanisms.

“But I don’t think it is appropriate to aggressively suppress valuations at this stage. A truly sound investment is not solely defined by so-called low valuations; the key lies in investors’ profound understanding and insights into disease areas, scientific mechanisms, and the future therapeutic landscape,” he added.Efung Capital is among the earliest specialized biomedical investment firms in China, focusing on global venture capital and private equity investments in the biomedical sector. It has identified and made significant investments in high-quality companies such as Chipscreen Biosciences, Obio Technology, 3D Medicines, and Real Biotech.

Mergers and acquisitions (M&A) also serve as a key barometer for the biopharmaceutical industry. Through MNCs’ acquisition of biotech firms, capital flows back to investment institutions, completing the investment cycle; growth in both the number and value of M&A deals will help revitalize the industry.

The good news is that multinational corporations (MNCs) have taken action. Although large-scale mergers and acquisitions remain scarce, several small-scale deals have recently occurred: AstraZeneca acquired CinCor Pharma for approximately $1.8 billion; Ipsen acquired Albireo for $952 million; Merck, which had issued an offer late last year, completed its acquisition of Imago BioSciences for $1.35 billion; and Takeda, typically known for its conservative spending, announced the acquisition of Nimbus Therapeutics’ wholly-owned subsidiary for $4 billion.

MNCs have also placed significant emphasis on mergers and acquisitions in their strategic plans for this year. For instance, Novartis has expressed optimism about transaction opportunities valued at under $4–5 billion, while Bristol Myers Squibb (BMS) aims to make its portfolio “younger” and “increasingly diversified.”

“Many multinational corporations (MNCs) have actually reported quite strong 2022 financial results in their recent disclosures. I believe that, driven by the impact of the Inflation Reduction Act (IRA), some biotech companies currently facing difficulties may opt for sale. These biotechs often possess highly distinctive technology platforms, innovative models, or potential blockbuster candidates focused on specific disease areas; however, they still have a considerable distance to go before commercialization. MNCs will continue to seek innovative pipelines and novel therapeutic mechanisms, which could ultimately accelerate industry mergers and acquisitions, although this will depend on the availability of truly high-quality targets,” commented Yang Kun.

YAFO Capital, a professional licensing transaction agency for Chinese pharmaceutical companies, shares a similar perspective: many enterprises monetize assets to ensure survival, including selling overseas rights to core product lines, halting the development of non-core product lines, and divesting or spinning off these non-core assets. This explains the sharp increase in out-licensing and asset divestiture deals among Chinese biopharmaceutical companies over the past two years. When asset monetization proves unfeasible and financing cannot be secured, companies will seek merger and acquisition opportunities.

“We anticipate that, starting this year, more mergers and acquisitions will emerge in the coming years,” said Zheng Fan.

Although multiple investors unanimously stated that the underlying logic of the biopharmaceutical industry has not changed, they have all adjusted their investment criteria: they now prioritize projects with a clear path to commercialization.

“We have entered a stage where it is no longer sufficient to merely evaluate technical models; instead, the focus must shift to assessing value integration capabilities,” summarized Liu Dan.

Some high-risk, “absolutely disruptive” projects that were originally in the research phase have spun off into companies. These ventures may prove difficult for investors to back due to their low probability of success or immature innovation.

Rong Jing stated, “I believe that companies with clear product differentiation and a well-defined path to commercialization—those capable of launching blockbusters or fitting well with the preferences of multinational corporations (MNCs)—will see a rapid recovery in financing, potentially even leading to competition for investment quotas. In contrast, companies possessing cutting-edge technology but with uncertain outcomes will not experience significant improvement in their fundraising prospects.”

Innovation in biopharmaceuticals never occurs abruptly, nor do paradigm-shifting targets emerge overnight. Regulatory and safety requirements inevitably make biopharmaceuticals an industry that advances incrementally. For instance, CAR-NK cells and antibody-drug conjugates (ADCs), which are frequently featured in news about new developments, pipelines, and companies, are long-established technologies. Further improvements to these technologies can unlock greater market potential.

However, investors also require technological improvements to deliver “breakthrough” results, rather than merely incremental innovations.“Innovation that fails to significantly amplify market value will lead to the product being discarded,” Liu Dan stated bluntly. “What is needed now are truly competitive products. For instance, if a model’s performance score improves from 60 to 70, the key question is whether this enhancement can justify raising its market price from RMB 60 to RMB 70. If it can only command RMB 62, the investment may not be worthwhile.”

Seeking out unmet market and clinical needs to generate commercial profits has always been a pursuit of investors. Yang Kun believes that,With changes in domestic lifestyle habits and consumption levels, greater attention will be paid to disease categories that have previously been understudied despite affecting large patient populations, such as certain distinct autoimmune diseases and metabolism-related disorders.“In the next three to five years, there will be significant changes in the product portfolio of China’s biopharmaceutical industry, with several new major categories emerging. Accordingly, there will be higher demands on startup teams for their profound understanding of disease mechanisms, robust scientific capabilities, and exceptional operational efficiency.”

In addition,Life science tools and other sectors with advantages in engineered innovation are also areas where shareholders can expect to see returns.

“MNCs are intensively scrutinizing the assets of Chinese companies. On one hand, they are willing to bring these products to the global market; on the other, akin to the high-end manufacturing sector, MNCs are prepared to pay for the engineering capabilities of Chinese firms,” said a senior investor.

Historical downturns in the U.S. stock market have had a median duration of approximately 20 months. From February 2021 to the present, the U.S. stock market has undergone 24 months of decline. Some investors believe that, from this perspective, 2023 may “not get any worse.”

Returning to the domestic market, Zheng Fan summarized: “We believe that China’s biopharmaceutical industry has embarked on a path of recovery and warming. The capital market has historically been characterized by ‘quick bear markets and slow bull markets,’ so the recovery process will be relatively gradual.”

Yang Kun also stated, “I am rationally optimistic about the biopharmaceutical industry in 2023. This optimism is grounded in scientific advancements and differentiated clinical needs. Some promising hidden opportunities will continue to emerge in the upcoming time window.”

At Suzhou BioBAY, a major hub for biopharmaceuticals, the newly opened bioCAFE is bustling with activity. During a brief conversation between VCBeat New Medicine and an AI pharmaceutical professional, the latter got up several times to take client calls.

"My sincerest apologies. We have recently resumed operations, and I am currently busy signing orders with clients."