China's vaccine industry sees increased investor interest amid pandemic

Chinese vaccine companies are attracting increased investor interest as the pandemic puts inoculations under the spotlight and homegrown innovation becomes more commonplace.

So far in 2021, several new Chinese vaccine-makers have secured funding from renowned investors, with some receiving their biggest financing round since the industry was dampened by scandals relating to substandard products around 2017.

"Prior to the pandemic, the scandals had doomed investment in vaccine companies. Though some people thought it was bottoming out in 2018, vaccines were still less popular when compared to oncology and other areas. However, since the pandemic started in 2020, vaccines have already become one of the hottest areas in biotech investment," said Xue Mingyu, partner at venture capital firm Matrix Partners China.

Chengdu, China-based vaccine manufacturer Sichuan Clover Biopharmaceuticals, Inc., for example, raised $230 million in C-round financing from GL Ventures, Temasek Holdings (Pte.) Ltd. and other investors in February, bringing the total raised over the past 12 months to more than $400 million.

"I think the total amount of money raised by Chinese vaccine companies can be four to five times higher in 2021 compared to 2017," Zhang Lunan, executive director of Beijing Advaccine Biotechnology Co. LTD, said in an interview with S&P Global Market Intelligence.

The Suzhou, China-based company is also about to announce a fresh round of financing of about $60 million that Matrix Partners China has been involved in.

The conditions for this rebound in investment were created in 2019, when the Chinese government responded to the Changchun Changsheng Life Sciences Ltd scandal by passing a tough new law on vaccine production and distribution, setting high penalties for manufacturers that make substandard or fake products.

"The tightened regulations and vaccine law have brought back the market's confidence, increasing people's willingness to take vaccines," said Zhang.

Experts said COVID-19 has also boosted investors' interest in vaccine-makers as they see the huge demand and role of these products in resolving the pandemic.

Lu Mengyu, a Hong Kong-based partner of law firm Kirkland & Ellis, said a number of Chinese vaccine-makers are planning to list in Hong Kong this year amid the boom for financing.

"So far, there is still a lack of supply of COVID-19 vaccines, and people do see the demand will last for a while," said Lu.

Beyond the five COVID-19 vaccines already approved by Chinese regulators, including shots by CanSino Biologics Inc. and Sinovac Biotech Ltd., many other domestic companies have products under development, including both Clover and Yisheng Biopharma Co. Ltd., which raised $130 million in B-round financing in February.

Beyond coronavirus

The spike in demand for vaccines is not limited to coronavirus inoculations. Even excluding COVID-19 products, the size of the vaccine market in China is expected to reach 100 billion yuan in 2025, up from 50 billion yuan in 2020, according to Advaccine's Zhang.

"The pandemic has been a direct driver. It has raised people's awareness of infectious diseases and inoculation, which has a positive impact even on vaccines not targeting COVID-19," said Eric Yu, partner at Matrix Partners China.

An estimated 4.2% of the Chinese population received a flu shot in 2020, almost double the 2019 figure of 2.2%, according to Xue. However, the country still trails behind the 45%-50% vaccination rates in the U.S. and some European countries, he added.

"That means we still have more room to penetrate compared to developed markets," Xue said.

Apart from boosting demand, the outbreak has also given new vaccine technologies a chance to shine.

"The pandemic has a paradigm-shifting effect on vaccine companies. It gives innovative vaccines an opportunity to prove themselves and set the right examples [for the industry]," said Matrix Partners' Xue.

Multiple new technologies are now being used and tested — with the most notable example being the red-hot mRNA vaccines. These scored early successes with the U.S. emergency authorization of vaccines by Moderna Inc. and Pfizer Inc.-BioNTech SE, the latter of which has been licensed in China by Shanghai Fosun Pharmaceutical (Group) Co. Ltd.

Meanwhile, companies like Advaccine are exploring DNA vaccines, which aim to use a gene from the virus to stimulate an immune response. Advaccine licensed a coronavirus vaccine from U.S. company Inovio Pharmaceuticals Inc. in January and said its plant in Suzhou can produce more than 100 million doses of the shot every year.

The drawn-out nature of the COVID-19 pandemic has also presented opportunities for vaccine developers that were not available for the previous two coronavirus outbreaks.

Both the SARS and MERS outbreaks were brought under control before phase 3 trials could be conducted, according to Wang Bin, founder and chairman of Advaccine. "COVID-19 gives the time for new technology to be tested," Wang added.

Long-term development

In recent years, China has been approving two to four vaccines every year, and most are innovative immunizers, according to Advaccine's Zhang.

"About half of these are products by overseas companies that are already approved outside of China, and half are by domestic companies, such as Hualan Biological Engineering Inc.'s flu vaccine and Xiamen Innovax Biotech Co. Ltd.'s HPV vaccine," he said.

In the future, more of these innovative vaccines may come from Chinese companies, Zhang said.

Matrix Partners' Yu said his firm is interested in investing in vaccine companies with products differentiated from what is available in the market.

"It can be vaccines for shingles and HPV, and also those that are currently dominated by multinational companies. For example, we still have not seen a good domestic company that produces animal vaccines," Yu said.

"These areas all have a chance to grow in the future. In the long run, we will increase our investment in vaccines, " Yu added.