Notable Insights:
- ProfoundBio, a cancer treatment developer, is set to be acquired by Denmark’s Genmab for a hefty $1.8 billion
- This marks the fourth acquisition of a Chinese biopharmaceutical company by a foreign entity in the last four months
Exploring uncharted territories has its benefits, but sometimes it’s smoother sailing with a wealthy navigator at the helm. A revelation recently experienced by the innovative Chinese drug maker ProfoundBio Inc., as it disclosed its acquisition by the Danish behemoth Genmab A/S for a staggering $1.8 billion in cold, hard cash.
This buyout is just the latest spectacle in a series of akin acquisitions involving Chinese biopharmaceutical entities. The trend kicked off with the announcement by the British titan AstraZeneca a few months back, confirming its acquisition of Gracell Biotechnologies for a sum reaching $1.2 billion. The subsequent flurry saw three additional acquisitions of similar Chinese drug-makers unfolding, culminating in this most recent pact, bringing the tally to a grand total of four.
The stroll through the year is still in its infancy, beckoning the potential for an uptick in such alliances in the foreseeable future. In an upcoming exposition, we shall delve into the specifics of each transaction, ranging from publicly traded companies to pre-IPO ventures. However, prior to that, let’s dissect the forces propelling this newfound pattern and the curious delay in its advent.
For Chinese innovative drugmakers, venturing into foreign stock markets was a novelty until 2018, when Hong Kong loosened its listing protocols to encompass such entrants. Preceding this alteration, Hong Kong mandated most corporations to display profitability for listing on its primary board – a prerequisite that the majority of startups in the pharmaceutical domain found insurmountable.
This tweak unleashed a torrent of initial public offerings in both Hong Kong, as well as a few like Gracell’s in the U.S. The majority of these entities were engrossed in the development of state-of-the-art drugs, many targeting cancer through an innovative breed of highly precise therapies.
In conventional Western settings, such entities would often secure funding from private channels until their drugs advanced into late-stage clinical trials. At that juncture, upon observing encouraging results, a major affluent pharmaceutical entity such as AstraZeneca would swoop in and procure these embryonic startups, yielding handsome profits for their backers.
However, a tangent narrative unfolded in China. Instead of opting for acquisition by larger entities, several Chinese enterprises armed with promising drug portfolios opted for self-publicization to facilitate the exorbitant process of advancing their products. This maneuver was enabled by an eager cohort of stock investors willing to purchase their shares at premium valuations, notwithstanding the faraway prospect of profitability for most of these offspring.
What transpired post the ebullient phase shortly after the Hong Kong policy revision metamorphosed into a pervasive despondency over the past triennium, leading to a freefall in the share prices of numerous listed drug producers. The initial buoyancy was partly underpinned by sanguine aspirations for the Chinese market, where multitudes of these entities intended to peddle their medications.
These aspirations were grounded in falsehood, as China enforced substantial price cuts for medications to secure a spot in its national health framework benefitting a significant portion of the populace. Coupled with the exorbitant expenses involved in new drug development, the interlude to profitability was inadvertently stretched out for several enterprises. Concurrently, shareholders exhibited an accelerated loss of patience and enthusiasm toward these organizations.
Fusion of Cultures: China-U.S Symbiosis
In light of this background, let us revert to the recent convergence encompassing Genmab’s acquisition of ProfoundBio. Although ProfoundBio designates its headquarters in Seattle, it boasts robust ties to China, rendering it a fusion of sorts between the U.S. and China. The company oversees a research and development stronghold in the realms of Eastern Chinese Suzhou. Established in 2018 by its Chairman and CEO Zhao Baiteng, a Chinese luminary who honed his acumen at Peking University before traversing to the U.S. to earn a doctoral laurel at the University of Texas.
The company boasts a trio of drugs ensconced in varying stages of clinical trials. Foremost among these is rinatabart sesutecan (Rina-S), a groundbreaking antibody-drug conjugate (ADC) tailored to combat ovarian cancer and sundry solid tumors. This therapeutic agent is currently navigating Phase 2 clinical trials and procured fast-track accreditation from the U.S. Food and Drug Administration (FDA) in January, a milestone poised to expedite its journey to the commercial realm.
This transaction transpired a mere two months subsequent to ProfoundBio’s announcement of securing a princely $112 million in its Series B funding. Among the company’s backers are OrbiMed and Lilly Asia Ventures, the Asian investment arm of the U.S. pharmaceutical titan Eli Lilly, figures intertwined with a medley of the Chinese companies metamorphosing into acquisition targets lately.
The other twin acquisitions in recent times were unveiled just the antecedent month, both presided over by pre-IPO entities. Renal drug manufacturer SanReno Therapeutics disclosed its impending procurement by the Swiss pharmaceutical giant Novartis, although the transaction specifics remain clandestine. The alternate accord witnessed AnHeart Therapeutics Ltd., specializing in precise cancer interventions, announcing its acquisition by Nuvation Bio Inc. in a comprehensive stock exchange. AnHeart disclosed obtaining a stake equivalent to one-third of Nuvation’s expanded share capital, a segment translating to roughly $240 million, grounded on Nuvation’s prevailing market valuation.
The gamut of transactions canvasses an assortment of valuations, ranging from the $240 million entailed in AnHeart’s case, all the way to ProfoundBio’s substantial $1.8 billion acquisition figure – enveloping the majority of listed Chinese pharmaceutical entities. The prevalence of unlisted entities in three out of the four transactions suggests the predilection for pre-IPO pharmaceutical enterprises as acquisition candidates, plausibly attributable to their pressing urgency for capital infusion.
Nevertheless, listed entities could conceivably transmute into burgeoning targets as well, owing to the mounting challenge in garnering fresh capital from stock market investors to perpetuate their loss-incurred pursuits. Prospective candidates for such overtures could encompass entities entwined with foreign monikers like Lilly, including ArriVent Biopharma, which debuted in the U.S. bourses in January, and ImmuneOnco Biopharmaceuticals, which undertook an IPO voyage in Hong Kong in September last year.
The majority of these entities harbor a repertoire of promising drugs that could potentially catalyze substantial expansion within the portfolios of financially robust acquirers. Presently, this cohort of Chinese startups is awakening to the verity that erecting a new pharmaceutical venture exerts a herculean toll and that embarking on a quest to vouchsafe the reins to a munificent patron alleviates the arduous burden of financing a loss-curating endeavor.
