Chinese venture capital investment in US biotech companies fell by more than half in the first half of the year as Washington tightened scrutiny of funding from overseas, raising fears that US start-ups will struggle to raise fund s and access the large Chinese market.
Chinese investors took part in venture capital funding rounds for US biotech companies worth $725m in the first six months of 2019, down nearly 60 per cent from $1.65bn in the same period last year, according to Seattle-based data provider PitchBook.
After accusing Beijing of systematically stealing intellectual property, Washington in November began subjecting any foreign investment over 5 per cent in several kinds of technologies including biotech to review by the Committee on Foreign Investment in the US, a government security committee.
William Haseltine, a serial American biotech entrepreneur, said he had been forced to abandon the creation of a new company, Constructive Biology, after a Chinese investor who pledged $30m in seed money for a fabrication laboratory pulled out.
“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.
Chinese funding had been particularly useful to bridge the so-called valley of death between the inception of a new concept and the creation of a working prototype, he said. “What they’ve been willing to do was extremely useful: fund very, very early stage seed companies very generously — with $5m, $10m, $20m.”
Mr Haseltine rejected the idea that the Chinese investors could be stealing intellectual property, arguing that biotech inventions were protected by patents.
US life sciences companies raised $20bn in venture capital funding last year, according to PitchBook, the highest amount in 10 years, due in part to a record-breaking influx of funds from China.
Health, pharma and biotech was the top sector for Chinese VC investment in the US in 2018, according to consultancy Rhodium Group, with $1.5bn invested.
Chinese fund managers have said they view US biotech as a potential source of high returns, and hope to use their connections in China to help companies expand in their home market, which has a huge unmet need for medical treatments.
With Beijing and Washington still at loggerheads over trade, “the direction of Sino-US relations is still unclear, which is impacting the confidence of investors”, said Liu Ji, head of Chinese fund Shanghai Zhangjiang Leading Venture Capital.
Most Cfius decisions remain private but in April, the committee showed its interest in health information when it forced PatientsLikeMe, a health platform that collects sensitive data, to divest the majority stake taken by iCarbonX, a Chinese company.
Jeremy Levin, chair of the board of the Biotechnology Innovation Organisation, a US-based industry association, said the investment slowdown could hurt the ability of US biotech companies — which produce 80 per cent of the world’s innovative drugs — to access the fast-growing Chinese market.
US companies that “are counting on being able to expand their sales into the Chinese market will not find it as easy as it was in the past”, he said. “Establishing relationships . . . does not happen overnight.”
Despite the fall in funding for early-stage biotech companies, Chinese pharma groups recently have been paying record-breaking amounts to license drugs developed by US biotechs. Unlike VC deals, such licensing deals do not usually involve taking an equity stake.