China Biopharma Investing Looks Good for 2008

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Includes: BAX, CPHI, WX
by: ChinaBio Today

As the new year began, KPMG LLP polled 350 venture capitalists and other insiders to delineate their communal forecast of what 2008 would bring. These informed analysts declared that China would gather the most investment dollars of any country outside the US, while biopharma took second place as the industry sector most likely to receive the most funds (see story). The cognescenti also declared that venture capital is starting to see competition from private equity firms and hedge funds, a form of “mission drift,” as the drive for investment returns gets more intense among these various forms of funds. All in all, it was a ringing endorsement of the prospects for China biopharma investing.

The trend toward mission drift was already evident last year, as shown by another ChinaBio Today story last week: private equity investing had a banner year in 2007. Fund raising for private equity was up 151% in 2007, and $12.8 million was actually invested (see story). The investments were roughly equal to 2006 levels in dollars, though the numbers of deals jumped 37%. Bio/healthcare was not as big a player in private equity as it is in venture capital. Just 5% of the private equity dollars ended up in bio/healthcare companies, though it accounted for 11% of the number of deals, a total of 19.

In other stories, we printed the fourth (and last) installment of our review of changes in China’s patent laws and regulations (see story). These changes remain proposed, though they are likely to be implemented. Part IV discuses four topics: “Patent Misuse and Unfaithful Proceedings,” “Compulsory Licenses,” “Disclosure of Genetic Resources” and “Designation of Patent Firms to Handle Foreign-Related Matters.” As before in this series, the changes are necessary reading for anyone involved in an innovative enterprise in China.

Turning to stories that came from individual companies, Shanghai CRO WuXi PharmaTech (NYSE:WX) brought in its various suppliers for a discussion about the coming year (see story). After telling them the company expects to increase spending by as much as 100%, WuXi asked its suppliers to grant better terms: longer payment periods, quality guarantees and lower prices. WuXi has grown to its present eminence partly because of its low-cost services, and the company apparently wants to maintain that edge. WuXi expects to dole out between 300 million RMB ($45.5 million) and 400 million RMB ($54 million) to its suppliers in 2008.

Baxter International (NYSE:BAX) announced that it had won an auction to buy the 40% of its Shanghai-based JV that it does not already own (see story). Baxter will pay $24.3 million, an amount that was enough to beat a competing bid from Beijing Double Crane. The JV makes infusion drugs, and Double Crane wanted to be involved in the sector. Worldbest Treeful Pharmaceutical owned the 40% share of the JV, but the company’s banks ordered Worldbest to sell the stake to improve its distressed financial condition.

As one JV gets taken in-house, another one begins life. bioMérieux [Euronext: BIM], a French diagnostic test company, set up a JV with Shanghai Kehua Bio-engineering (SHE: 002022) to produce bioMérieux’s diagnostic test kits (see story). bioMérieux positioned the move as a cost-saving initiative, implying that the prices of its tests would be lowered. bioMérieux is in the process of closing down its Dutch plant that currently makes the microplate immunoassays. Because Shanghai Kehua is also in the diagnostic business, further sharing between the two companies is possible in the future.

There was also news last week on the drug approval front. China Pharma Holdings (NYSEMKT:CPHI) was granted SFDA approval for a generic version of Bumetanide injection, a diuretic (see story). As an observation with far-ranging implications, China Pharma said the approval shows the SFDA is back on track, having adjusted to the new drug approval regulations implemented on October 1, 2007. China Pharma itself has four drugs awaiting approval.

And finally, AlphaRx [ALRX.OB] said it had begun the process of applying for China approval of its topical arthritis drug, Indaflex (see story). If all goes well, AlphaRx expects to complete the application in April and then conduct a clinical trial, which should be finished in Q4. Indaflex is a novel formulation of a standard therapy for osteoarthritis, a COX-1 and COX-2 inhibitor known as indomethicin. So far, Indaflex has been approved only in Mexico.

Disclosure: none.

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