China’s life sciences industry remains opportune despite Covid-19 coronavirus
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Activity in China’s life sciences market remains high as one of the few sectors to have witnessed no slowdown in investment, and indeed something of an uptick, in the face of the virus. Our observations on the market trends in relation to the China life sciences and healthcare market amid Covid-19 include:
The growing role of new and emerging technologies is proving attractive to investors, including private equity and venture capital backers. These investors are attracted by much more than the prospect of providing conventional medical services to China’s population and are increasingly interested in going a step further into the market for smarter medicines.
We expect that development and investment in artificial intelligence (AI) technology will surge in China’s medical devices, pharmaceuticals and medical care sectors in the wake of Covid-19, as hospitals invest in the development of technology for online appointment booking, online diagnosis and health treatment as just one example. This alone marks a significant evolutionary change for China’s medical system, which will see data privacy and data platforms becoming increasingly critical, in turn creating globalisation challenges as data regulatory regimes diverge across borders.
We have seen the ongoing liberalisation of China’s regulatory regime with the passing of the amended Drug Administration Law in August 2019. New rules on market authorisation were rolled out on 1 December, streamlining much of the existing drug administration legislation and making it faster and easier to get new drugs and medical devices approved, manufactured and sold.
One of the main objectives of the reform is to promote drug innovation, placing a particular emphasis on the development of new drugs to treat life-threatening and rare diseases, paediatric drugs and traditional Chinese medicine. There is a focus on reducing the cost of innovation, including through the encouragement of more competition.
Furthermore, the signing of the China-U.S. economic and trade agreement (phase one) in January) strengthens IP protection in China for pharmaceutical companies through the inclusion of a chapter on IP. That chapter is aimed at resolving a number of key issues relating to IP protection and enforcement, including, among other things, patents, pharmaceutical-related IP, and trade secrets. If properly performed and implemented through domestic legislation, the phase one trade agreement looks set to transform and modernise China’s patent system for the benefit of both the innovative pharmaceutical industry and the population in China.
Strong IPO activity in Hong Kong
IPO activity for biotech companies in Hong Kong is still strong and looking forward this listing work shows no sign of slowing. There have been a few Chapter 18A listing applications since December 2019 and the quality of an individual listing applicant is clearly in sharp focus, but all signs are that the Covid-19 coronavirus has not really affected the IPO pipeline for good quality businesses and may in fact have increased investor interest in the sector. There is certainly a great deal of volatility in the stock markets, but often that leads issuers to conclude that tomorrow may be worse than today and thereby opt to go ahead with offerings.
The Hong Kong Stock Exchange and the Securities and Futures Commission have issued guidance for companies struggling to comply with relevant financial reporting obligations as a result of Covid-19. Most businesses had a 31 December year-end and a few were unable to complete audited financial statements by the March deadline, though most problems were outside biotech.
All listed companies and IPO candidates – not just those in life sciences – should address the potential impact of Covid-19 on their businesses and we have been advising clients to update and disclose how the current epidemic and the resulting economic outlook is affecting their business. We have seen some companies holding back dividend payments to bolster cash reserves in case of unexpected emergencies and it is glaringly apparent that very few companies will emerge entirely unscathed.
Given these positive trends in the China life sciences market, it is perhaps unsurprising that activity in the sector remains high across licensing, private equity and venture deals, mergers and acquisitions and investing.
The novel Covid-19 coronavirus is going to be a significant feature of China’s life sciences industry for at least the next three years, as the market continues to respond with advances in treatments, vaccines and practices.
With companies around the world similarly racing to address the global pandemic (read our article: 10 key points to consider to ensure your business is fully prepared amid Covid-19), Covid-19 has served as a wake-up call on the value of the life sciences industry to all of us. More money will flow in from governments and private sector investors alike, and with China simultaneously liberalising its regulatory regime, bolstering innovation and strengthening IP protections, we expect to see much more deal activity in the life sciences market going forward.