With an aging population and a lackluster biotech sector, investors from China are pumping record amounts of money into U.S. companies. The trend aligns with Beijing’s goal of making China a powerhouse in biotechnology within the next few years.
Betting on US companies
As of September this year, the Chinese have invested close to US$9.76 billion in American biotechnology companies, making up about 30 percent of all funding the industry has received in the period. This is a massive change from 2016 when Chinese investments contributed just 3 percent of total funds. So, what is driving China’s mad rush to this industry?
China’s population is aging fast. In a few decades, it will have a large population of senior citizens with different medical needs. Since the country’s biotech industry is lagging at the moment, the only way to meet the growing healthcare demands of an aging population is by investing in America’s robust biotechnology industry.
For U.S. companies, Chinese money is good news, as relying on American investors alone would have limited their ability to raise enough capital. In fact, the huge inflow of money from China is reportedly raising valuations of U.S. biotech firms to sky-high levels. “The entire valuation level is certainly going up… We have heard startups raising some $200 million, although they haven’t even started clinical trials,” Nisa Leung, Managing Partner at Qiming Venture Partners, said in an interview with Forbes.
However, investing in U.S. biotech companies that succeed in creating new medicines does not mean that the Chinese public will get access to the medicines immediately. A cancer therapy drug called Opdivo that was cleared for sale in the U.S. in 2014 was only allowed inside China in 2018. That is a 4-year-long wait for Chinese citizens. Beijing is reportedly trying to cut down such delays and wants to ensure that drugs approved in the U.S. are available to its public as soon as possible.
Such a move will definitely benefit American biotech firms since they will be able to generate more revenue by gaining faster access to the Chinese market. However, increasing investment from China in the biotechnology industry has become a cause of concern for the Trump administration.
China’s ruling Communist Party has already declared that it wants to make the country a world leader in key technologies by 2025. And one industry the Chinese seem to be focusing on is biotechnology. By investing in American biotech firms, China now has a way to influence decisions and sway them to their liking.
For instance, Chinese investors can ask the U.S. company to transfer intellectual property (IP) to Chinese firms in exchange for more funding. Businesses that struggle to raise funds might gladly make that deal just to keep the company afloat. If such incidents become commonplace, America will eventually lose out on its leadership status in the biotechnology industry.
This is why the U.S. administration passed laws to curtail Chinese investments in America. Beginning November 10, a panel will review investments from China (and other nations) to decide whether they would be harmful to America’s interests. If a biotechnology investment from a Chinese investor turns out to be potentially damaging to the U.S., the panel can block such investments.