AVCJ Awards 2019: Exit of the Year - IPO: Innovent Biologics

Nine Chinese VC-backed drug developers have gone public in Hong Kong since regulations were amended in 2018 to allow listings by zero-revenue biotech companies, according to AVCJ Research’s records. Only three are currently trading above their IPO prices, and just one can claim to have seen its market capitalization double.

Innovent Biologics has experienced a degree of volatility since its debut in October 2018 – not unlike the Hong Kong market as a whole – but its value has risen from HK$17.6 billion ($2.3 billion) to HK$35.2 billion. This is more than three times the average market capitalization for the company’s eight fellow biotech players. At HK$3.3 billion, the amount Innovent raised in its offering is also the largest in the peer group.

A string of investors – which together contributed more than $560 million across several private funding rounds – are sitting on handsome paper gains: 6 Dimensions Capital, Ally Bridge Group, Capital Group Private Markets, CBC Group, Cormorant Asset Management, Cowin Capital, Hillhouse Capital, Legend Capital, Lilly Asia Ventures, Rock Springs Capital, and Temasek Holdings. Several others participated in the cornerstone commitment as part of the IPO.

However, Eight Roads and F-Prime Capital - independent investment firms backed by Fidelity International - deserve credit for being the first to get involved. Eight Roads helped build the Innovent business and provided Series A funding in 2011. But the thought process began six years before that with an investment in WuXi AppTec, China’s leading contract research organization (CRO), which went public in 2008.

“With that investment, we were able to build insights on the long-term development of the pharmaceutical industry in China and the world, across small molecules, synthetic chemistry and large molecules like biologics,” says Daniel Auerbach, a senior managing partner and head of global ventures at Eight Roads. “We saw the demand for biologics exceeding supply in 10-15 years and we believed China had the capability to fill those supply gap.”

An early pivot

Teaming up with experienced biotech professional Michael Yu, Eight Roads’ initial plan was to create a contract drug manufacturing services business focused on biosimilars – drugs with nearly identical effects to medications already on the market. This investment thesis was then revised to give the nascent company greater control over what it produced. Innovent would become a fully integrated biologics platform with a portfolio that incorporated biosimilars and truly innovative drugs.

By the middle of 2012, Innovent was close to acquiring 10 monoclonal antibodies – six proprietary and four biosimilar. The timing for biosimilars was prescient. It was only in 2006 that Europe became the first market to develop a legal, regulatory and scientific framework for the category. It approved the first monoclonal antibody in 2013, with the US following suit two years later.

“When we conducted some systematic research in 2013 and identified Innovent as a potential target, it had begun to develop biosimilars but there were no products of this type in China,” says Frank Hong, a managing director with Legend Capital. “We invested because we realized the government would introduce regulations for biosimilars. These were announced in 2015.”

Legend led Innovent’s $100 million Series B round in early 2015. The GP drew confidence not only from expected regulatory reforms in China but also from the company’s burgeoning relationship with Eli Lilly. Within months of that investment, the big pharma giant committed $56 million to Innovent and agreed to collaborate on drug development. It was one of the largest such deals between a multinational and a domestic counterpart.

Together, they have successfully commercialized Sintilimab – a cancer drug that targets Hodgkin’s lymphoma – which was approved by the National Medical Products Administration of China (NMPA) in December 2018. Sales commenced in March of last year, and by June revenue had reached RMB331.6 million ($48 million). In November 2019, Sintilimab was included in the catalogue of drugs eligible for reimbursement under government-backed insurance plans, potentially widening its use.

In-licensing to out-licensing

Innovent has also made new drug applications for three biosimilars, while a further 13 innovative treatments are currently in phase three clinical trials. Overall, there are approximately 30 products in the pipeline. The Innovent-Eli Lilly tie-up is unusual in that it turns the traditional Chinese model of in-licensing intellectual property from overseas on its head. And Jafar Wang, another managing director at Legend, believes this could signal the beginning of a new trend: out-licensing.

“Innovent is the first mover. In the future, I think more Chinese biotech companies will be able to establish cooperative relationships with multinationals. Based on my discussions with business development executives, there is an expectation that best-in-class drugs will be coming out of China within five to eight years,” he says, citing an uptick in interest from big pharma in licensing from Chinese biotech companies.

Auerbach agrees that Innovent offers a template for others to follow, while stressing that bringing together all the ingredients is no easy task. “Over time, Innovent succeeded in attracting very sizeable capital from a slate of world-class investors culminating in Hong Kong’s most successful biotech IPO of 2018,” he observes. “Never without challenges along the way, Innovent is a textbook on how to build a world-class company in China in a sector that is hungry for breakthrough and innovation to solve large health problems.”

Pictured: Robert Wright of Baker & McKenzie (left) with Legend Capital's P.V. Wang (center) and CBC Group's James Cen Bonsor

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• Topics
• Greater China
• Healthcare
• IPO
• China
• Pharmaceuticals
• Eight Roads
• Legend Capital
• CBC Group
• Lilly Asia Ventures
• Hillhouse Capital Management
• Ally Bridge
• AVCJ Awards