Wall Street Expats Angle for Piece of China’s Biotech Drug Boom

(Bloomberg) -- A growing herd of former Wall Street bankers and drug industry veterans from the West are rushing to cash in on China’s embrace of biotechnology.

For years, China has been seen as a backwater in the pharmaceutical business. Despite its vast potential market, cumbersome regulations kept brand-name treatments from reaching patients for years after they became available elsewhere. Facing a bureaucratic gauntlet, many drugmakers either waited or didn’t bother to seek approval for blockbuster therapies in China at all.

Now the tide is starting to turn. China’s government has made it easier to get new drugs approved. It has also cleared a path for young biotechnology companies to raise money in the country’s stock market—an important source of funding for researching new therapies.

Together, those shifts have created opportunities for experienced health industry players to profit in a once-impenetrable market. New firms are sprouting up to acquire Chinese sales rights to drugs that big pharmaceutical companies have de-emphasized or abandoned. A group of startups is also helping smaller drugmakers that lack global marketing muscle get their medicines onto pharmacy shelves from Beijing to Shenzhen.

One such firm is Everest Medicines, which has offices in China and also near biotechnology hubs including Boston, San Diego and New York. The company, backed by private equity firm C-Bridge Capital Partners, has been able to attract seasoned health-care bankers and executives to speed up its expansion.

Ian Woo spent 18 years in investment banking, rising through the ranks to become a managing director specializing in health-care deals at Lazard Ltd. In June, after working for the bank in New York and Hong Kong for more than a decade, he left Lazard to become Everest’s finance chief and president, in a move that would have been almost unheard of five years ago.

“I am 45 years old, so it very much feels like if I want to do something different, now is the time,” Woo, who also was named a managing director at C-Bridge, said in a phone interview. “The most important reason is just looking at this historic opportunity of the growth of the Chinese health-care market.” As of June, C-Bridge was managing about $1.4 billion.

Everest backer C-Bridge has been one of the most visible players in the rise of the China biotech market, taking risks other investors weren’t prepared to. The firm’s chief executive officer, Fu Wei, had never done a health-care deal when he started C-Bridge in 2014, but in previous roles he’d had a hand in deals that helped build China’s infrastructure as its economy grew. He saw the same opportunity in the country’s health sector.

“When we started the business, we are not thinking about making a $1 billion company. We were thinking of making a $30 to $50 billion company,” said Fu, in an interview at the firm’s Boston outpost in the Prudential Center. “U.S. investors don’t have a full appreciation about the commercial power in China.”

One of C-Bridge’s most closely watched investments is Ascletis Pharma Inc., a China-based firm specializing in infectious diseases. Last year, Ascletis raised $100 million in private financing in a round led by C-Bridge. In July it became the first company to go public on the Hong Kong Stock Exchange under new rules that allow unprofitable biotechnology firms to list.

Ascletis trades at a market value of roughly $1.1 billion. Although its shares have recently struggled amid a vaccine scandal in China that has roiled biotechnology stocks in the region more broadly, many investors are optimistic about the sector’s prospects.

“Everybody is talking about this, in that it’s cooled off a lot, but you have to have a long-term view,” said Brad Loncar, who earlier this month launched an exchange-traded fund designed to give U.S. investors access to Chinese biopharma shares. “This is a new breed of companies that have gone public and are developing drugs for this market. I’m still very bullish on these companies.”

Unlike some companies that have raised money in a recent torrent of initial public offerings by upstart U.S. biotechs, Ascletis already has an approved drug on the market, a treatment for hepatitis C called Ganovo. Ascletis bought the Chinese rights to the treatment, which was approved in June in China, from Roche Holding AG. Roche kept the rights outside China, and the value of the agreement wasn’t disclosed by the companies.

Roche never sought to commercialize the drug in the U.S. or Europe after breakthrough medications from Gilead Sciences Inc. and AbbVie Inc. came to dominate the hepatitis C market. Now, in much of the world, sales of those therapies are declining as Gilead, AbbVie and others battle one another on price and the pool of patients who need the drugs shrinks.

In China, however, about 10 million people had hepatitis C in 2016, according to data from the World Health Organization, compared with about 3.5 million in the U.S., according to the Centers for Disease Control and Prevention.

Roche declined to comment. Ascletis didn’t respond to emails requesting comment.

The rights to sell a drug in China have typically had little value for smaller companies that lack the resources or regulatory prowess to give their products a proper push. Everest said it wants to work with small to medium-size biotech companies that are close to getting a first drug approved in the U.S. or Europe but can’t afford to market it elsewhere.

Arena Pharmaceuticals Inc., a San Diego-based drugmaker, agreed to sell the China and certain other Asia rights to two experimental therapies—a hypertension treatment and an autoimmune drug—to Everest in December 2017. Arena had $21.3 million in sales in 2017.

In a phone interview, Arena CEO Amit Munshi said that past experiences made the company want to bring on a partner for the Chinese market earlier in the process.

“I’ve done three different China deals in the last five to seven years, and let’s just say not all of them have gone according to plan,” said Munshi. He said that familiar faces at Everest helped seal the decision to work with them. “Most of their folks I had come across over the years in different capacities.”

Everest also wants to take on drugs that bigger pharmaceutical companies have decided not to focus on. In June, Everest, whose interim CEO Sean Cao previously worked for French pharma giant Sanofi, acquired the global rights to an experimental Novartis AG therapy for a kind of liver cancer. Liver cancer is among the most commonly diagnosed cancers in China, according to researchers at China’s National Cancer Center.

“This is a universe of people I know quite well from my Lazard days. Their calculus is a bit different,” said Woo, the Everest finance chief, explaining that the largest global drugmakers often have to emphasize certain programs at the expense of others. “That, I expect, will play to our advantage.”

To contact the editor responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Timothy Annett

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