Trade tensions are impeding the flow of Chinese money to US biotechs — but how much?
US biotechs have seen a drastic drop in Chinese venture funding for the industry amid macro level trade tensions between the two countries and the American government’s heightened scrutiny of foreign investment. While VCs from China accounted for $1.65 billion worth of funding in the first half of last year, that figure has fallen nearly 60% to $725 million in 2019, the Financial Times reported citing PitchBook data.
The once-obscure Committee on Foreign Investment in the United States (CFIUS) became a household name in this world late 2018 when it broadened its review of foreign investment in biotech for national security reasons. It has since stirred up fears that fledgling US biotechs may have trouble accessing deep wells of China money, though VCs have largely played down the worries.
So far, there’s only been one known instance of direct CFIUS interference into healthcare. The committee is said to have demanded that PatientsLikeMe — an online service connecting patients with each other and generating real-world data in the process — sell off the majority stake held by Shenzhen-based health data company iCarbonX. (PatientsLikeMe was ultimately acquired by UnitedHealth.) Nevertheless, it is unclear how many funding rounds might have fizzled in the headwind.
William HaseltineAt least one, according to William Haseltine, the researcher and entrepreneur behind multiple startups including Dendreon, Cambridge Biosciences and X-VAX.
Haseltine told the FT that he had been forced to abandon a new project after a Chinese investor called off a $30 million seed deal. In his experience, Chinese funding has been particularly good at bankrolling very early-stage companies generously.
“As soon as the Cfius programme went into place and [US President Donald] Trump started making a lot of noise about Cfius, [the money] began to evaporate,” he said to the paper.
Fosun International, the conglomerate that has its own biopharma business in China, has indicated that it’s turning greater attention to emerging markets as trade relations with the US grow increasingly frayed.
“Trade friction has impacted our investments in the US, but not to the extent of stopping all deals,” Kevin Xie, who manages its US strategy, told Bloomberg.
Leon Chen of 6 Dimensions Capital at the US-China Biopharma Innovation and Investment Summit in Shanghai on October 23, 2018; Credit: Endpoints News, PharmCube
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At the same time, it’s worth noting that some of the most well known Chinese VC firms — such as 6 Dimensions and Qiming Ventures — have dedicated stateside funds investing with US dollars.
Leon Chen of 6 Dimensions previously told me that he’s not overly concerned about CFIUS reviews as they will abide by the system — even if it slows down the process.
“This industry needs more capital than the current investment can supply, and the industry needs much much more risk taking investors than currently we can practically count,” he said.
Frank Yu Ally BridgeFrank Yu, founder and CEO of Ally Bridge Group, echoes that sentiment. Sure, life sciences care about how they would manage CFIUS issues as a non-US investor, but their understanding of what they’re investing in and the capability to add value are more important.
“We are perceived as a truly global life science specialist investor rather than a China VC,” he wrote in an email. “We understand and manage CFIUS-related issues very well, which are very much welcomed by US companies.”
