Chinese biotech firms turn to licensing deals over IPOs for funding

Chinese biotech companies have turned to out-licensing deals as their primary source of funding, eclipsing initial public offerings and pre-IPO fundraising as the lifeline for firms struggling to bankroll drug discovery and clinical trials.

Record cross-border licensing agreements helped transform some loss-making Chinese biotechs into profitable operations during the first half of the year. Yet the sector now faces uncertainty as multinational pharmaceutical companies signal plans to tighten their deal budgets.

Deals dwarf IPO proceeds

The shift reflects the commercial reality facing Chinese drug developers. "This is quite sizeable when compared to the IPO proceeds," said Tony Ren, head of Asia healthcare research at Macquarie Capital.

Healthcare and drug companies raised HK$14.1 billion (US$1.8 billion) through 11 first-half listings in Hong Kong, according to Deloitte. On the mainland, six biotech and healthcare firms went public on China's A-share market, raising a combined 2.12 billion yuan.

Price advantage under pressure

Chinese biotech assets remain attractive on cost grounds even as global pharmaceutical giants grow more selective. "Chinese biotech assets remain highly cost-effective relative to global peers," said Cui Cui, head of healthcare research for Asia at Jefferies. If big pharmaceutical companies tighten acquisition spending, "Chinese biotech assets may look even more attractive," Cui added.

Still, analysts question whether reliance on overseas licensing income can sustain the sector over the long term. The funding model depends on continued appetite from multinational drugmakers at a time when those companies are signalling greater caution about deal budgets.

The sustainability question looms over a sector that has made out-licensing deals the main funding option for advancing new drugs through discovery, clinical development and regulatory approval.

Source: South China Morning Post