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| Attracting Capital to China's Bio-pharmaceutical Industry |
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Shanghai Biopharmaceutics Industry Association (SBIA), the first biopharmaceutics industry association in China, recently held an international forum to celebrate its 5th anniversary. The main agenda of this forum was about biopharmaceutics and the capital market, which was also a hot issue in China's fledgling biopharmaceutics industry.
The term "biopharmaceutics" has varied definitions in different countries. In China, it usually refers to medical products made from organic and biological ingredients, such as bacteria, virus and plasma extracts from human and animals, for the purpose of anti-virus, anti-tumour and immunity enhancement.
Robust growth for the bio-pharmaceutical industry
According to Mr Tao Jianhong, Deputy Chief Director of The Southern Medical Economy Research Institute, between January and September of 2007, China's pharmaceutical industry had produced output of US$59.4 billion, up 25.21% on previous comparable period (pcp). Among the sub-industries, the bio-preparation industry had grown faster than the industry average, up 28.1% on pcp to US$4.3 billion. In terms of sales, the bio-preparation industry had grown 27.6%, slightly higher than the industry average of 26.64%.
Mr Tao's statistics indicated that China's bio-preparation industry had been growing faster than the whole pharmaceutical industry in the past few years, with an average annual output growth rate of 29.3% between 2001 and 2006, up from US$16 billion in 2001 to US$56 billion in 2006. Sales revenue from the bio-preparation industry had also been growing fast at 30.94% per year between 2001 and 2006, registering US$52 of sales in 2006. The industry's profit had also grown from US$200 million in 2001 to US$550 million in 2006, equivalent to 23.4% per year.
Between 2002 and May of 2007, China's State Food and Drug Administration approved registration of 800 new drugs, including 129 bio-pharmaceutical drugs, which are mostly generic drugs with high technological content. There are about 200 bio-pharmaceutical companies in China with more than 2000 bio-pharmaceutical products, 95% of which are generic drugs, including genetic engineering drugs, vaccines, antibodies and diagnostic products. |
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But it is worth noting that between January and September of 2007, although the bio-preparation industry had a higher output value than the industry average, its profit growth and sales/output ratio were lower than the industry average. The bio-preparation industry's profit growth and sales/output ratio in the period were 40.72% and 94.6%, as opposed to the whole industry's 30.8% and 93.72%.
Stock market darling
According to Mr Zhang Changhong, CEO of Shanghai Wanguo Shares Research, the whole listed bio-pharmaceutical sector, including bio-preparation companies, had outperformed the Shanghai Composite Index in 2007. And the proposed Growth Enterprise Market in 2008 may be a new source for bio-pharmaceutical companies to raise capital, which will be a positive development for bio-preparation and bio-technology companies in China.
There are currently 12 listed companies in the area of bio-technologies, animal vaccines and genetic engineering in China. They had collectively achieved sales of US$730 million and profit of US$77 million between January and September 2007, up 11.52% and 66.42% on pcp respectively. The whole pharmaceutical sector went up 170% in 2007, against the Shanghai Composite Index's 96.66% increase.
Mr Zhang pointed out that there is a close relationship between the bio-pharmaceutical sector and the capital market. Bio-pharmaceutical companies can source funding directly from the capital market, in order to reduce their investment risks and funding costs and consolidate industry resources. On the other hand, the share market needs long term growth sectors, and innovations from bio-pharmaceutical companies and the current healthcare system reform in China can provide potentials and possible achievements to investors.
Expert in the forum suggested that China's pharmaceutical industry has never seen such intensive government attention and such expansion speed and depth like today. Meanwhile, the US$16 billion new market provided by Chinese government's expanded Medicare coverage has created a benign environment for bio-pharmaceutical companies to secure capital. As the final version of the government's healthcare system reform is due to be announced in 2008, the Chinese pharmaceutical market situation should become clearer, which would be helpful for positioning and development of bio-pharmaceutical companies.
International capital favours contract research organisations (CRO)
While most of the bio-pharmaceutical companies listed on Shanghai Stock Exchange are product-oriented companies, overseas stock markets, venture capitals and private equities are more interested in service-oriented bio-technology companies. The successful listing of Wuxi PharmaTech, a leading pharmaceutical R&D outsourcing provider in China, on the NASDAQ of US has been highly praised in the industry. PharmaTech's float has not only brought in sufficient expansion capital for the company, but also prompted attentions from international capital on other Chinese CRO companies.
Sundia MediTech CFO Mr Yu Peijia commented that "the successful listing of PharmaTech has no doubt brought lots of interested investors to us. In recent months, we've been receiving so many investment inquires from venture capitals, private equities and investment banks that we can't fulfil all the meeting schedules with them. The investment interests in our industry situation are overwhelming." Sundia MediTech had just received several tens of millions funding from a consortium of Japanese, US and Chinese venture capitalists in January 2008.
A principal from Bioveda China Fund, which is the first healthcare venture capital fund with an exclusive focus on China, said that in US, more than 27% of investment capital goes to the field of life science, equivalent to 40 times of the proportion in China. As medical research is now moving to Asia and the healthcare market in this region is rising, there will be more and more life science-related funds going into China. At present, investment funds favour companies conducting research in aging diseases, diabetes, central nerve system diseases and tumours, and bio-technologies like molecular diagnosis, biomarkers and vaccines are also heating up. Furthermore, companies providing clinical trial services and softwares are also popular among investors due to their low capital requirements and good prospects.
Amid the warming capital environment for bio-pharmaceutical companies generally, CEO of Kehua Bio-engineering Co, a Shanghai Stock Exchange-listed bio-pharmaceutical company with US$1 billion market capitalisation, Mr Tang Weiguo, had given a cautious opinion. "The capital market will not be so good forever, as real products have to be worked out, not calculated out. You have to put money into product R&D first and then float the company with successful products, not the other way around, or you'll be deserted by the market eventually. Even in a good capital market, you still have to build up your technologies, so that they can be combined with capital to achieve the best outcome."
Source: www.21food.cn
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