GemPharmatech Secures Over RMB 400 Million Series B Funding Led by Hillhouse, Sequoia, and CDH

On September 11, Jiangsu Jicui Yaokang Biotechnology Co., Ltd. officially announced the completion of its Series B financing round, raising over RMB 400 million. The round was led by GL Ventures, with participation from YF Capital, Morgan Stanley, HongShan, TF Capital, and other funds. The proceeds will primarily be used for the construction of the company’s headquarters in Nanjing, the development of model animal strains, and market expansion both domestically and internationally. In July 2019, the company completed a RMB 160 million Series A financing round jointly invested by CDH Investments and Sinopharm Holdings, among others. Securing recognition from numerous top-tier investment institutions within just over a year underscores strong capital confidence in this sector and its leading companies.

GemPharmatech was established on December 29, 2017. As a center for laboratory animal germplasm resources and a supplier of mouse models, it supports life science research and the development of pharmaceutical products and technologies by creating, producing, and supplying animal models such as mice. The company boasts core technology platforms in leading areas including gene editing, stem cell engineering, physiological and biochemical functional analysis, and drug efficacy screening for new drugs.

The company’s revenue data has validated institutional analysts’ assessments. Over the three years since its establishment, the company has achieved explosive growth in sales revenue. In the first half of 2020, despite the impact of the pandemic, its industrial clients (pharmaceutical companies) increased significantly, earning strong favor from innovative pharmaceutical enterprises both domestically and internationally. The company is projected to achieve year-on-year growth exceeding 50% in both revenue and profit this year.

What is the market size for GemPharmatech? How has the company established its competitive edge in this industry? Why has it garnered favor from numerous top-tier leading investment institutions? Following this round of financing, what are the company’s plans for capital operations?

Driven by factors such as the accelerating aging of the population, heightened health consumption awareness among residents, and the release of favorable industry policies, the pharmaceutical and healthcare sector is attracting increasing attention from venture capital and private equity firms. Particularly against the backdrop of the COVID-19 pandemic outbreak this year, companies in the primary and secondary markets focused on innovative drug development, diagnostics, and vaccine R&D have secured substantial capital investment and support.

It is a well-known fact that although the success rate in early-stage drug discovery and preclinical research is relatively high, the failure rate in clinical trials remains persistently elevated. Therefore, leveraging insights from basic scientific research, early drug discovery, and optimization of preclinical drug evaluation to provide more effective guidance for clinical studies may be the key to improving the efficiency of new drug development. Optimizing mouse models is central to enhancing this efficiency.

“Ninety-nine percent of mouse genes have homologs in the human genome, and these have been extensively studied; therefore, mice are regarded as the gold standard in medical research. In the modern pharmaceutical industry, virtually no chemical or biologic drug proceeds to human clinical trials without prior testing in mice,” said Gao Xiang, founder of GemPharmatech. “Although other model animals such as dogs, pigs, and monkeys are available, their use in preclinical trials is more constrained due to cost and ethical considerations.”

Data show that demand for mice is steadily increasing, whether for research needs, early-stage drug discovery, preclinical drug evaluation, or even clinical technology applications.

In terms of research demands, China invests 130 billion yuan annually in basic scientific research, while the U.S. National Institutes of Health (NIH) has a budget of $30 billion. Assuming that mice account for 4% of expenses, this amounts to approximately $1.8 billion. Moreover, this market is growing at an annual rate of about 10%.

In drug R&D, global pharmaceutical companies’ R&D expenditures reached $179 billion in 2018, a year-on-year increase of 8%. Assuming that 15% of preclinical R&D spending is allocated to animal models, the annual market for animal models in new drug development in China alone is approximately RMB 30 billion (with a 20% annual growth rate), while the global market size is $3.2–3.7 billion (with a 6.6% annual growth rate).

In the field of new drug development, demand has grown even more rapidly, leading to a corresponding surge in the need for mouse models. From 2017 to 2019, the number of tumor immunotherapy drugs in development increased from 2,030 to 3,876, and the demand for tumor immunology mouse models also experienced explosive growth.

Microbiome functional analysis is absolutely critical for animal models. According to data from Transparency Market Research, the global human microbiome market reached $2.2 billion in 2020 and is projected to grow at a compound annual growth rate (CAGR) of 9.8% from 2022 to 2024, reaching a value of $3.2 billion.

According to GMI data, the global mouse model market exceeded $6.9 billion in 2018 (with the U.S. accounting for $5.7 billion and 90 million units), growing at an annual rate of over 7%, and is projected to surpass $11.7 billion by 2025.

However, substantial market demand is confronted with a dilemma of resource scarcity. In overseas markets, there are only approximately 6,000 precisely conditioned knockout mouse strains available, and commercial utilization is hindered for most due to unclear intellectual property rights. Consequently, this presents a significant market opportunity for GemPharmatech.

The scale of mouse model resources constitutes GemPharmatech’s widest moat. Within less than three years of its establishment, the company has amassed over 10,000 mouse strains with clear intellectual property rights (including nearly 4,000 new strains added in 2020 alone) and close to 300 rat resources. The company is poised to surpass JAX by the end of this year to become the global resource platform with the most diverse range of mouse strains.

The company is also one of the largest global platforms for model animal creation and production capacity. By leveraging optimized gene-editing technologies, it has significantly shortened project completion cycles, substantially reduced costs, and maintained product quality at the forefront of the industry. The company launched the “Spot Mouse Project,” aiming to establish conditional knockout strains for all 20,000 protein-coding genes in the mouse genome by 2021, thereby creating the world’s largest resource library. Additionally, its “Germ-Free Mouse Project” has secured the second germ-free animal production license in China (and the first in Jiangsu Province), and batch supply to the market has already commenced.

Furthermore, the company has been consecutively awarded multiple honorary titles by the Jiangsu Provincial and Nanjing Municipal Governments, including “New-type R&D Institution,” “Technology-based Small and Medium-sized Enterprise,” and “Unicorn Incubation Enterprise.” In 2019, following evaluation by the Ministry of Science and Technology and the Ministry of Education, the company became a co-constructor of the “National Genetic Engineering Mouse Resource Bank.”

Benchmarking against Charles River (NYSE: CRL), the world’s largest supplier of laboratory animals, which reported Q1 2020 revenue of $710 million, including $150 million from its animal models and services segment. Envigo, the second-largest global laboratory animal company, formed by the merger of Huntington and Harlan, employs over 1,200 people across 20 countries. In comparison, GemPharmatech needs to accelerate its global commercialization strategy, leveraging its advantage in animal resource volume and strong capabilities in independent strain development to rapidly expand into international markets.

Jackson Laboratory, the world’s largest provider of genetically engineered animals, reported business revenue of $317 million in 2018, an 11% year-on-year increase. It currently maintains approximately 11,000 mouse models and employs more than 2,200 people. Taconic Biosciences, the second-largest global provider of genetically engineered animals, generates annual revenue of approximately $150 million and has over 800 employees. Compared with these two companies, GemPharmatech has significant room for future development if it accelerates its global commercialization strategy. By leveraging the vast Chinese market, the scale-up advantage of new strain offerings, and strong cost-control capabilities, GemPharmatech is well-positioned for substantial growth.

In terms of commercialization, GemPharmatech serves thousands of international (Europe, America, Southeast Asia, etc.) and domestic (including Macao, Hong Kong, Taiwan, etc.) clients, encompassing renowned pharmaceutical companies, CROs, and research institutions both at home and abroad. Consequently, the company is expanding its global footprint with the ambition to become a world leader in the animal model industry.

The company has established production and R&D bases in western China and the Guangdong-Hong Kong-Macao Greater Bay Area. In addition to its Nanjing headquarters, GemPharmatech currently operates multiple wholly-owned subsidiaries across China. Its subsidiaries in Foshan, Guangdong, and Changzhou, Jiangsu, are already in full operation, while its specialized precision medicine base under construction in Chengdu, Sichuan, is expected to become operational by October. By the end of 2020, GemPharmatech’s mouse housing capacity in China will exceed 150,000 cages.

Meanwhile, the company is actively advancing the development of its European and American bases, with its wholly-owned U.S. subsidiary already registered and operational. GemPharmatech plans to complete the establishment of its European and American bases in 2021, thereby basically achieving a global layout.

In terms of domestic market development, as of now, we have covered nearly 400 research institutes, including the Chinese Academy of Sciences, Tsinghua University, Peking University, Shanghai Jiao Tong University, Zhejiang University, Wuhan University, the Academy of Military Sciences, and Sun Yat-sen University; nearly 300 Grade A tertiary hospitals, such as Peking Union Medical College Hospital, Ruijin Hospital, Shanghai Sixth People’s Hospital, Shanghai Ninth People’s Hospital, Renji Hospital, Qilu Hospital, West China Hospital, and Xiangya Hospital; and nearly 300 corporate entities, including WuXi AppTec, CanSinoBIO, Joinn Laboratories, InnoCare Pharma, Wolwo Biopharma, and CStone Pharmaceuticals.

In terms of its international network, the company has established exchanges and collaborations with more than ten international resource banks, forging partnerships with countries including the United States, Canada, the United Kingdom, France, Japan, South Korea, and Thailand. The company’s strains are among the very few in China authorized for overseas use, directly propagated abroad, or exported to countries such as the United States, Israel, and Germany. Meanwhile, through distributor partnerships, it is gradually expanding into the South Korean and European markets.

How did GemPharmatech gain the endorsement of leading investment firms—including CDH Investments, Sinopharm Group, GL Ventures, HongShan, Morgan Stanley, and YF Capital—in just two years?

Years of accumulated experience in the development of model animals are underpinned by a highly experienced scientific and management team. The company’s founder, Dr. Gao Xiang, established the Model Animal Research Center at Nanjing University and the National Resource Center for Mutant Mice in 2002, focusing on mouse model research. His related work has been honored with the Second Prize of the National Science and Technology Progress Award and the Special Prize of the Ministry of Education’s Science and Technology Progress Award. Dr. Zhao Jing, the company’s CEO, brings over 16 years of experience in model editing and analysis as well as key account development. Dr. Ju Cunxiang, the R&D Director, has successfully developed more than one hundred humanized animal models. Dr. Wang Hongyu, the Technical Director, earned his degree from Saarland University in Germany and subsequently conducted postdoctoral research at the University of Oxford in the United Kingdom; he is an expert in model construction and drug screening.

As of May 2020, among GemPharmatech’s team of more than 500 employees, 268 held R&D and technical positions, accounting for 50% of the total workforce, including 20 individuals with doctoral degrees.

Academic research is a strong suit for Gao Xiang and his team, but having had no prior interaction with the capital markets, they knew little about the fundraising process. However, during the Series A financing round, thanks to the company’s rapid growth and outstanding performance, more than 20 institutions expressed investment interest even when the fundraising intention was only disclosed to a small circle. Gao Xiang shortlisted five firms and sought advice from several close friends. After evaluating both the investment institutions and their project teams, GemPharmatech ultimately selected CDH Investments and Sinopharm Holdings as its investors, even politely declining several other institutions that offered higher valuations just days before signing the agreements.

Why choose CDH Investments? Gao Xiang explained: “CDH Investments is a trustworthy institution, and its investment team is pragmatic and sincere. Many of the people Mr. Wang (Wang Lin of CDH) knows are also my friends. Whether before or after the investment, CDH’s extensive experience in cross-border M&A and transaction structure design will be beneficial to the company. CDH has invested in many leading enterprises across various industries and understands how to engage with them. The common qualities shared by the founders of these leading companies are also valuable for us to learn from.”

From the perspective of CDH Investments, GemPharmatech is also a suitable investment target. Wang Lin, Founding Partner of CDH Investments, stated, “GemPharmatech has established significant technological and know-how barriers through its deep expertise and innovation in the field of gene-edited animal models. The R&D-focused management team at GemPharmatech, led by Professor Gao Xiang, was formerly part of China’s ‘national team.’ They possess the capability, passion, and methodology to succeed. We are confident that they will lead high-quality model animals developed in China to the global market.”

Dr. Liu Dan, Executive Director of CDH Investments’ Innovation and Growth Fund and Investor Director at GemPharmatech, stated, “We sincerely welcome new investors such as Hillhouse to join the Board of Directors and the Shareholders’ Meeting. We will work together with the company to help GemPharmatech become a global leader in the model organism industry.”

The life sciences sector has long been a key focus of CDH Innovation & Growth Fund. The fund has strategically invested in HitGen, a new drug discovery platform centered on DNA-encoded libraries; Harbour Biomed, a platform company specializing in fully human antibodies; Ascentage Pharma, a leading domestic developer of tumor immunotherapy drugs; and other leading domestic platforms in stem cell therapy technologies and bispecific antibody development, achieving excellent investment returns.

Similarly, GL Ventures, the lead investor in GemPharmatech’s Series B financing round, has made significant bets in the pharmaceutical sector, with healthcare being the most frequently invested field by Hillhouse Capital in recent years.

Regarding the company’s next steps, Gao Xiang, founder of GemPharmatech, stated, “Following this Series B financing round, the company will continue to provide one-stop support services for global life science research institutions and pharmaceutical companies in their new drug clinical development. In the short term, we aim to make mice ‘surrogate avatars’ of clinical patients, meeting the R&D needs of research institutes and pharmaceutical enterprises. In the long term, we aspire to lead trends in new drug development through the creation of novel models.”