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China comes to Europe

Chinese investors are looking to Europe for innovation at attractive prices

The historically underfunded European biotech sector is in the early stages of tapping into a new stream of capital thanks to the explosion of biomedical innovation in China, which has spawned a wave of investors looking for high quality science at attractive prices.

The influx is not only welcome in a region that historically has struggled to gain the attention of U.S. investors, but could open the door to the fastest growing healthcare market in the world.

BioCentury’s annual review of the European financing environment finds that European biotechs continue to tread water in the competition for capital compared to their U.S. counterparts.

As the pie has grown over the last decade, Europe’s take has hovered at 20-30% of the total raised in the U.S. and Europe.

Last year, European biotechs raised $14.4 billion in public and private capital, less than one fourth of the $47.4 billion raised by U.S. companies (see “Competition for Capital”).

Figure: Competition for capital

In 2017, Europe’s share of the total of public and private capital raised in the U.S. and Europe was 23% , in line with the prior decade where Europe’s cut averaged about 21%. But the size of the capital pie has increased substantially. During the five year period 2013-17, the annual total amount averaged $54.9 billion, more than double the previous five years’ annual average of $26.8 billion from 2008-12. Data includes both public and private financings, including debt. Financings for companies that inverted are included in the region of domicile at the time of the offering. Source: BCIQ: BioCentury Online Intelligence

Chinese investors are seeing that as an opportunity. All nine Chinese investors contacted by BioCentury said they’re increasingly busy in Europe.

The quality of European science isn’t in doubt. But for Chinese investors, it often comes at a much lower price than they find either at home or in the U.S.

“High quality science is cheaper than in the U.S.,” said Sofinnova Partners’ Antoine Papiernik. “With Chinese investors right now, it is more about them investing in Europe because they can see the arbitrage with the U.S. and EU.”

He and other European investors said the Chinese presence is both noticeable and likely to grow.

Alex Pasteur of F-Prime Capital, the U.S. and European successor to Fidelity Biosciences, said his firm frequently fields incoming interest from Chinese investors, noting the level “has gone up threefold or so in the last two years.”

Chinese investors bring more than funding; they also have connections that can help European companies perform clinical trials and find partnering opportunities in China.

On the other hand, the path into Europe is challenging because it is fragmented and lacks the networks of Chinese that have provided access to deal flow in the U.S.

“If you’re willing to spend the time, learn the landscape, I think there’s less competition in Europe,” said Bosun Hau of Sailing Capital in Hong Kong. “There is a lot of innovation, but one of the challenges for Chinese investors generally is that Europe is so fragmented.”

“Most of our go-to contacts for industry and academia make it easier for us to tap into the U.S.

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