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AstraZeneca backs $1bn China biotech fund for smaller ventures

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Via Financial Times

AstraZeneca has signalled its confidence in China’s biotech sector by partnering with state-owned investment bank CICC on a $1bn fund to invest in local start-ups.

The Anglo-Swedish drugmaker would “contribute a “substantial” amount to the fund, which would have Singaporean sovereign wealth fund Temasek as a partner, and would finance mainly “smaller ventures,” said Pascal Soriot, chief executive.

It would be AstraZeneca’s largest fund, said Mr Soriot, adding that he expected it would reach its target within four years.

Chinese start-ups aiming to develop new drugs, often managed by former executives from multinationals, have proliferated in recent years, raising billions in venture capital investment.

Several have gone on to list on Nasdaq and Hong Kong’s stock exchange. According to consultancy McKinsey, there are approximately 800 innovative molecules in development at Chinese biotechs, 70—80 of which are in late-stage trials.

Most Chinese pharmaceutical innovation consists of copycat “me-too” products. These are similar to existing drugs and aimed at the Chinese market — the world’s second-largest after the US with $137bn in sales last year.

“Much of (Chinese) innovation in the last three to four years has been “me too”, but now on the horizon we can see first-in-class innovation,” said Mr Soriot.

Part of AstraZeneca’s plans involve doubling staff at its research centre in Shanghai to 1,000 over the next few years. “What we want to do is give our Chinese team the leadership of some global programs,” said Mr Soriot.

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After the US, China is AstraZeneca’s second-largest market with sales of $3.8bn last year and a forecast of nearly $5bn this year, according to Mr Soriot.

US pharma company Eli Lilly was one of the earliest big pharmaceutical companies to invest in Chinese start-ups, establishing Lilly Asia Ventures in 2008, which now manages $1.2bn of capital and focuses on China.

Fundraising by Chinese biotechs slowed markedly last year, as tighter financial conditions hit China’s venture capital sector. The reception for Chinese biotechs listing in Hong Kong has also been mixed.

“China is going through what California has gone through in the past, a heated market where some valuations have become unreasonable. So the market has started to normalise,” said Mr Soriot.

CICC is partly owned by CIC, China’s sovereign wealth fund, and the two groups share a chairman. CICC has set up several funds with foreign investors in recent years, most recently with US private equity group TPG.

“AstraZeneca and CICC are both veterans,” said Yu Tongle, a partner at Chinese venture capital fund Highlight Capital. “Now the valuation of the entire market is heading down. It is actually a good thing for investors in the primary market.”

Additional reporting by Wang Xueqiao

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