‘Overinvested’ China healthcare sector set for shake up -top venture fund

People queue to be tested for coronavirus disease (COVID-19) at a nucleic acid testing site in a residential area, following the COVID-19 outbreak in Shanghai, China, 25 September 2022. REUTERS/Aly Song

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SINGAPORE, Sept 27 (Reuters) – Chinese healthcare and biotech companies are ripe for consolidation on a sharp drop in valuations after the COVID-19 pandemic led to overinvestment in the sector, a top local venture capitalist has said.

The global healthcare sector has seen an investment boom from venture funds and private equity players in recent years, boosted by the outlook for growth during the pandemic.

China’s massive healthcare sector, which includes pharmaceuticals and fast-growing technology and biotech companies, has also been bolstered by rising public and private spending.

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“The entire healthcare sector has been overinvested globally because of COVID-19,” Nisa Leung, managing partner and head of healthcare investments at Qiming Venture Partners, said in an interview with Reuters.

“The money has dried up a bit, especially for companies that aren’t in a very defensible position,” she said, highlighting companies that don’t have a large pipeline of drugs in development or enough intellectual property rights.

Speaking on the sidelines of Forbes Global’s CEO event in Singapore, Leung said the turmoil will likely be like the tech bubble bursting in Silicon Valley in the early 2000s.

Qiming Venture, an early backer of tech giants like Meituan and Xiaomi, announced in July that it had completed its latest fundraiser totaling $3.2 billion.

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China’s fragmented pharmaceutical sector has been hit by sharp falls in generic drug prices, but has also seen overseas pharmaceutical giants strike deals with global counterparts.

According to Refinitiv data, China’s healthcare deals totaled $16 billion by mid-September, down from $31 billion a year earlier.

Founded in 2006, Qiming Venture Partners manages seven renminbi funds and 11 US dollar funds with a total volume of US$9.4 billion. It has 180 healthcare companies in its 400+ portfolio and the majority of its total investments are in what are known as Series A or B rounds.

China’s health index (.CSIHCSI) has halved to its lowest level in three years since February 2021.

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“Due to overinvestment in recent years, many TMT and general funds are inherently reluctant to enter healthcare. We now have more time for due diligence and can also better negotiate valuation,” Leung said.

Still, she said companies with strong R&D and pipelines stand a good chance of securing funding in China’s huge market with long-term growth potential.

Qiming co-led a $120 million fundraiser for OriCell Therapeutics, which is developing novel immunotherapies, in August, the company announced at the time.

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Reporting by Yantultra Ngui and Anshuman Daga; Editing by Uttaresh.V

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