Deal focus: Haihe's biotech out-licensing ambition

Private investors have plowed more than $5.5 billion into Chinese biotech since 2017, a near sevenfold increase on the combined total for the preceding four years. Yet Warburg Pincus held its fire, waiting until last week to announce a first foray into the space. And in Haihe Pharmaceutical, the private equity firm believes it has something different to the standard high risk, high return pre-revenue fare.

“The risk-reward profile is like that of other private equity investments we make in China,” says Min Fang, a managing director at Warburg Pincus. “Haihe Pharmaceutical has 11 core assets and eight of them are in the clinical trials stage and few more are in preclinical trials. We conducted thorough due diligence on the ones in stage two and three; the chances of getting approved are high and the commercial market potential is significant. It’s not like in the US where biotech companies typically have one or two assets and if those fail the company has no value.”

Warburg Pincus took the lead in a RMB1.2 billion ($171 million) Series B round for Haihe Pharmaceutical, with additional contributions coming from the likes of CMB International, Legend Capital, CICC Capital, Beijing Langzi Asiana Asset Management, and Chaos Investment. It follows a $146.6 million Series A last year led by Huagai Capital.

These investments are large for early-stage bets in China biotech, which reflects the relative maturity of Haihe Pharmaceutical's portfolio. Although the company was formed as recently as two years ago through the merger of Haihe Pharmaceutical and RMX Biopharma, the research that underpins its drug development efforts is of a much earlier vintage. 

Meeting of minds

RMX was the classic biotech upstart. Founded in 2015 by Dr. Ruiping Dong, who has 20 years of experience working for global pharmaceutical companies, most recently as head of emerging markets R&D for Merck, it focused on treatments with a clear path to monetization. “If you tell VCs that in 4-5 years you might have a drug on the market, they will give you money,” Dong explains. “If you say you’ve got a molecule that might be on the market in 15 years, you won’t get anything.”

The original Haihe, on the other hand, had spent the best part of a decade building a discovery platform for early-stage oncology drugs. They made for complementary bedfellows. Put together, the portfolio and internal resources were balanced. RMX was late stage to Haihe’s early stage. While RMX was asset-light – it had four products and a staff of five, with all processes outsourced – Haihe had a team of more than 180 with dedicated resources covering every stage of the development process, from preclinical evaluation through validation.

Dong’s international experience was also a good match for the domestic networks of Haihe’s Dr. Jian Ding, a Chinese Academy of Engineering alumnus who specializes in oncology treatments. “Both have deep experience, they are in their 50s, and they have a track record of getting innovative drugs approved in China and overseas,” says Fang. “In most Chinese biotech companies, you have only one person of this caliber. We thought it was a good combination.”

The four treatments Haihe Pharmaceutical has in phase-three trials arguably represent the company’s past, present, and future. One is a traditional Chinese medicine used to treat inflammation in diabetic foot ulcers and chronic wounds. RMX licensed it from Taiwan’s Microbio Group; an opportunistic play that formed part of its late-stage portfolio.

Two more target cancers and tumors, respectively, and are aligned with the post-merger strategic decision to concentrate on oncology treatments, but still licensed from overseas for distribution in China. While in-licensing is expected to remain a feature of Haihe Pharmaceutical's product offering – Dong observes that it is difficult for a mid-size innovative drug developer to advance a diversified portfolio on its own – the long-term objective is out-licensing.

The last of the stage-three treatments, a tumor drug called Simmitecan, was developed in-house by the Haihe team, starting in 2010. Most of the preclinical products were also built from scratch. While Warburg Pincus expects some of Haihe Pharmaceutical's more advanced treatments to receive approval within two years, others will take longer to pay out. But those revenues, when they come, could be substantially larger if the company holds a global license and can address a global market.

Tumors first

For the time being, anti-tumor remedies are the core focus. According to China Insights Consultancy (CIC), the country recorded 4.5 million new cases of cancer in 2019, more than the US and Europe combined. The total is projected to reach 5.8 million by 2030. However, targeted therapies and immunotherapies – which avoid the side effects of chemotherapy – accounted for 26.7% of cancer treatment by revenue last year, compared to 85.6% in the US.

“The medication cancer patients get in China is still underdeveloped. The most advanced therapies are only just emerging – for example, PD-1 [a class of drugs that block a key protein in order to activate the immune system to attack tumors] started last year. There is a huge market for these therapies that can really improve the quality of life of patients,” says Fang. He adds that Chinese regulators are also keen to see the mass-market get access to advanced treatments, which is good for approvals and for inclusion on the national reimbursement drug list.

Dong is keen to expand the current offering of small molecule drugs and deliver more complex large molecule or biologic drugs, but it will be in a global context. “We never positioned ourselves as a Chinese biotech company; we positioned ourselves a global biotech company,” he says.

This is an area in which Warburg Pincus hopes to be of use, leveraging its international knowledge and networks. “Most Chinese biotech companies have only focused on the China market. Their researchers are in China, they target approvals and commercial sales in China. They don’t have the bandwidth to recruit and manage a team outside of China. They might have in-licensing capabilities, but there aren’t many that can do on the ground research in the US or Europe,” says Fang.

If Haihe Pharmaceutical can make the transition and sell its products at prices that reflect its lower costs – thanks to having operations in China – there might be ample demand from a US market where drugs are very expensive. Moreover, it is claimed the gap between China and more developed markets in terms of research for advanced therapies is narrowing. “Take any complex compounds or targets being researched by big pharma in the US, almost all are being developed in China as well,” Fang adds. “They are working hard to catch up."

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• Topics
• Greater China
• Early-stage
• Healthcare
• China
• Pharmaceuticals
• Warburg Pincus Asia
• Legend Capital
• CICC