While the rest of the world has felt the negative effects of COVID-19, China biotechnology M&A transactions have nearly doubled this year. The main reason for this explosion is investors’ interest in capitalizing on the development of a cure for the coronavirus disease.
From January to June of this year, there have been 19 deals worth $3.1 billion recorded in the biotechnology sector that focuses on the research and development of novel drugs and medical devices. There were only transactions worth a total of $1.74 billion in the prior six months, according to data compiled by Mergermarket.
In the IPO market, there were also 19 deals in the broad health care industries worth $3.9 billion recorded in the first half of 2020. The volume has eclipsed the $3.8 billion tally from 16 transactions in all of 2019.
One expert remarked that there was heavy US dollar investment funds ready to seize biotech opportunities with an average of five companies pursuing one M&A target.
The leap in the China biotech M&A market is due to the fact that investors now have a new understanding of the importance of health amid the pandemic, according to Zhu Jielun, chief financial officer in Shanghai at I-Mab Biopharma, who said that investors are also searching for values in China amidst the battle to fix its faulty health care system.
“Many investors have reallocated money from cyclical industries to health care,” said Zhu. “Even if there will be a slowdown in the rest of the year, capital-market fundraising in the sector will reach a historical high.”
“Don’t Eat Me” Signal a Growing Area of Immunotherapy
I-Mab Biopharma is a US-listed oncology and autoimmune disease drugs developer. The company, which has a presence in China and the United States, recently closed a $418 million financing deal with Asian and US biotech funds. The deal with AbbVie is comprised of a $180 million upfront payment and a $20 million milestone payment — up to $2 billion all-in — with $1.74 billion of that figure about half split between commercial royalties and R&D funding.
I-Mab Biopharma announced its news on the same day a nearly $1.9 billion deal to license US-based drugs developer AbbVie the rights to develop and commercialize one of its oncology drug candidates globally, except mainland China, Hong Kong, Macau, and Taiwan.
AbbVie said it would partner with I-Mab Biopharma on the development of lemzoparlimab, a drug that targets CD47. The antigen target, also known as the “don’t eat me” signal, is a growing area of immunotherapy. This spring, for example, Gilead’s acquired Forty Seven for $4.9 billion. Forty Seven is a clinical-stage immuno-oncology company focused on developing novel therapies in the fight against cancer.
As a target, anti-CD47 got a lot of notice earlier in 2020 when Gilead Sciences bought Forty Seven, which gave it the midphase anti-CD47 antibody magrolimab that delivered data that delighted investors late in 2019. Forty Seven was working toward validating this approach by stating that 50% or more of the myelodysplastic syndrome and acute myeloid leukemia patients who took magrolimab and Celgene’s Vidaza had a complete response. That’s what sparked the interest from Gilead.
China Activity Shows Trade War Won’t Hinder M&A in Biotech
The growing attraction to M&A deals in the biotech sector emphasizes the opinion that the US — China trade war won’t thwart the long-term trend for more cross-border drugs development cooperation.
Although there is the possibility of temporary issues, these ventures typically require global partnerships to succeed, and many expect China, via Hong Kong, to retain its advantage in attracting top biotech listing candidates after its 2018 listing reforms to permit pre-revenue firms to sell shares to the public.
These developments happened even with the efforts by Shanghai and Shenzhen stock exchanges to match Hong Kong’s listing rules.
Hong Kong offers high valuations as well as greater flexibility to move quickly on business spin-offs, dual listings, and secondary shares sale, one analyst in the area said who believes that the market has more room to grow.