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Wall Street expats angle for piece of China's biotech drug boom

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Work being done in the Syngenta Biotech Center in Beijing. China has made it easier to get new drugs approved and to raise funds in the stock market.

Boston

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.

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Together, those shifts have created opportunities for experienced health industry players to profit in a once-impenetrable market. New firms are sprouting to acquire Chinese sales rights to drugs that big pharmaceutical companies have de-emphasised 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 specialising 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.

Said the man who has also been named a managing director at C-Bridge: "I am 45 years old, so it very much feels like if I want to do something different, now is the time. 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 US$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 had 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 were not thinking about making a US$1 billion company. We were thinking of making a US$30 billion to US$50 billion company. US investors don't have a full appreciation about the commercial power in China," he said in an interview at the firm's Boston outpost in the Prudential Center.

One of C-Bridge's most closely watched investments is Ascletis Pharma Inc, a China-based firm specialising in infectious diseases. Last year, Ascletis raised US$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 US$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 (ETF) designed to give US 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 US 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 commercialise the drug in the US 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 US, according to the Centers for Disease Control and Prevention.

Roche declined to comment. Ascletis didn't respond to email 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 US 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 US$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 China deals in the last five to seven years, and let's just say not all of them have gone according to plan," he said, adding 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." BLOOMBERG