Fund focus: Pivotal’s urge to incubate

Incubation has become the prevailing trend among early-stage China healthcare investors. Lilly Asia Ventures pursues an incubation model whereby the GP launches new start-ups internally or backs entrepreneurs who join as venture partners. Eight Roads Ventures and 6 Dimensions Capital are said to have similar mechanisms enabling them to help shape life science companies from the outset.

James Huang, previously of KPCB China, has a gone step further with his new firm: Panacea Venture will specialize in incubating companies ahead of their first institutional funding rounds. Pivotal Bioventure Partners China, an investment platform established by Hong Kong’s Nan Fung Group, will operate in the same vein.

“In the US, Pivotal looks at early-stage biotech and new technologies. The idea for Pivotal China is to license or acquire those products and technologies and bring them to China,” says Jimmy Wei, a managing partner for Pivotal in China. “Sometimes we find the team first; sometimes we get the assets first and then acquire the team. Before we make the final investment, we must have a great team and high-quality assets in place.”

Nan Fung Life Sciences has been making healthcare investments, mainly fund commitments, for several years. Pivotal was set up in the US last year as a captive GP with a $300 million fund. The China team is led by Wei, who previously worked for iBridge Capital and KPCB, and Meng Gao and Shannon Cheung, formerly of The Blackstone Group and Averest Capital, respectively. They will invest $200 million in 8-10 companies, but over a longer-than-normal fund life.

The team has identified several areas of focus, based on unmet medical needs in China. Oncology is an obvious target and Pivotal will concentrate on conditions such as gastric cancer and liver cancer. However, Wei is also keen to leverage the Sino-US data divide and develop products for the global market. “In the US, it is hard to recruit patients for trials of some indications, but in China it might be easier because the treatment background is different,” he explains.

Wei identifies two further reasons why the early-stage space is attractive. First, it is comparatively cheaper than the late-stage space, where there is too much capital chasing too few high-quality deals. Second, the China Food & Drug Administration has made several favorable regulatory changes. For example, it is more open to foreign data, which should shorten approval timelines because trials that have already been conducted overseas do not have to be repeated in China.

Above all, though, he believes the Pivotal model can save time by systematically identifying the best people and assets from the beginning. “A lot of early-stage biotech companies in China were either started by one scientist, so they don’t have a big enough team, or the product portfolio is not broad and highly validated,” Wei says. “That’s why early-stage biotech investment is hard.”   

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• Topics
• Greater China
• Venture
• Healthcare
• Fundraising
• China
• Venture
• Pivotal Bioventure Partners China