Sequoia's China Rival Targets Drug Startups That Can Go Global

(Bloomberg) -- Qiming Venture Partners, a top Chinese tech investor that's plowed $1 billion into healthcare companies since 2006, is training its focus on biotech startups it thinks have the best chance of taking on the world's top drugmakers.

The venture capital firm, an early backer of Chinese phone maker Xiaomi Corp. that's now a tech behemoth with a $37 billion market value, is being more selective about its biotech investments, said Managing Partner William Hu.

This year, Qiming expects to match the $130 million it invested in a dozen health-care companies in 2018, and is looking beyond cancer therapies to identify those with promising treatments for kidney, liver, lung diseases as well as other deadly conditions, he said.

“We are looking for startups that have the potential to compete with those in the U.S. and on a global scale,” said Hu, who focuses on the firm's health-care investments, in an interview in Shanghai. Ideally, targets will undertake research and development in China but “sell to the whole world,” he said.

‘More Discriminating'

Qiming is being more discriminate at a time when exuberance about Chinese biotech stocks is waning, after the stocks of Ascletis Pharma Inc. and several other recently-listed Chinese biotech companies slipped below their debut offering prices in Hong Kong. China's increased spending on healthcare for its aging population and its overhaul of drug approvals to accelerate innovation has spurred a rush of capital into the world's second-biggest drug market.

Still, investors are feeling unnerved by a slew of regulatory reforms. China is now rapidly approving novel medicines for use domestically, opening up the vast Chinese market for innovative pharmaceutical startups like the ones Qiming invests in. Yet, it's also moved to drastically slash prices of generic drugs used in its public hospitals, which is putting pressure on drugmakers' revenue streams.

Valuations for Chinese biotech stocks declined about 30 percent on average in the second half of 2018 from the first six months, Hu estimates.

“Very few companies can make it to IPO, which means there aren't as many startups worth investing in," he said.

Still, the venture firm, which has invested in more than 80 health-care companies, is scouting for investments in health services, including private hospitals, where revenue is predicted to reach about $96 billion by 2020, said Hu.

As many as six Qiming-backed health-care companies may go public across the U.S., Hong Kong and mainland China in the next two to three years, he said.

Ark Biosciences

Among those nearing that stage is Ark Biosciences Inc., founded by Roche Holding AG's former China research chief Jim Wu. The company aims to develop the first approved treatment for respiratory syncytial virus, or RSV, a common cause in children suffering from pneumonia and a lung inflammation called bronchiolitis. The Shanghai-based startup may have an IPO later this year in the U.S., Hu said.

Qiming invested in Ark Biosciences when its RSV drug candidate, AK0529 or ziresovir, was in the first of three stages of patient studies usually required for regulatory approval. It's since progressed to late-stage testing. If successful, ziresovir could become China's inaugural first-in-disease medication to be sold globally. Johnson & Johnson and Gilead Sciences Inc. are among drugmakers also pursuing medications for RSV.

Several multinational pharmaceutical companies are looking to buy the rights to sell Ark Biosciences's ziresovir overseas, Hu said.

“This is the kind of startup we want to invest in,” he said.

Still, finding the next Ark Biosciences is going to be more difficult.

“Fewer companies will meet investors' benchmarks going forward," Hu said. “We are setting our sights higher to those can that compete globally.”

--With assistance from Rachel Chang.

To contact Bloomberg News staff for this story: Dong Lyu in Beijing at dlyu3@bloomberg.net;Haze Fan in Beijing at hfan40@bloomberg.net

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net, ;K. Oanh Ha at oha3@bloomberg.net, Jason Gale

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With assistance from Bloomberg