(Yicai) June 17 -- Many Chinese biopharmaceutical companies with products still at the research stage are battling to stay afloat as a prolonged industry downturn spooks investors.

It is hard to find any form of institutional investment at the moment, the head of the financing department of a biopharma firm told Yicai. The leading institutions we are in contact with are slowing down investment and may invest in just one project or less in a year, while the smaller ones have made it clear their priority is to exit, he added.

Biotech companies with a market valuation of less than CNY4 billion (USD551 million) and with products still in the pipeline will struggle to survive, said Bao Kaijun, deputy general manager and assistant to the Board Chairman at Sciwind Biosciences. If they are unable to raise new financing, they have a less than 10 percent chance of seeing out the next two years.

In order to ensure adequate cash flow, biotech firms are reducing the number of products at the research stage, looking into licensing drugs to external partners or sharing equity.

The number of cross-border licenses for drugs developed by Chinese biotech firms has soared both in number and in value in recent years, according to Mauritian market research firm Insight. Last year, there were 98 cross-border licensing transactions, with a total value of USD45.6 billion, both of which were new highs.

China’s biotech startups were able to attract a lot of outside investment from 2015 thanks to an improved drug review and approval system as well as new stock market rules that made it easier for unprofitable biotech firms to go public. This only accelerated during the Covid-19 pandemic, greatly pushing up the market valuation of drug developers and creating a market bubble. 

But the bubble soon burst. “In the second half of 2021, the stock price of pharma firms listed on the Hong Kong bourse plummeted. At the time, everyone thought that the sector would rebound within a year, but it hasn’t stopped tumbling and it remains to be seen when the market will bottom out.”

Investor Exodus

"Our company’s current focus is to exit projects as soon as possible," an investor in the biomedical sector told Yicai. The firm made most of its investments in 2019 and 2020, and some in 2021, when there was a big market bubble.

“Investment institutions are also under great pressure, so it is difficult to raise more funds for projects that they have already invested in,” the person said. “In addition to the downturn in the industry, there is great uncertainty about the return on investment because of the difficulties of getting innovative drugs into the medical insurance system and hospitals, which also dampens investor confidence.”

It is not easy to completely withdraw from investments in less than two years, the investor said. “The best way is if the companies go public, but only a few firms can do this at present. The second is to merge with a stronger partner but even if we find such a partner, the other party will hammer down the price.”

There has only been one initial public offering by the pharmaceutical and biological sector on the mainland since the start of the year, according to Eastmoney’s Choice. This was the listing of Zhejiang Chemsyn Pharm on the Beijing Stock Exchange. And only six healthcare firms have gone public in Hong Kong so far this year.

“Our company fortunately secured a sum of money when the situation was better, otherwise we would not be able to survive,” the founder of another biotech firm told Yicai.

Editor: Kim Taylor