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Chinese Ebola vaccine maker to IPO in Hong Kong

The CEO of Tianjin-based vaccine maker CanSino Biologics Inc., which plans to IPO in Hong Kong March 28, is betting that his company can close the gap on vaccine manufacturing in China, where scandals in recent years have roiled the industry and created a crisis of confidence in the public sphere.

The uproar over domestically produced vaccines mounted in 2018 after immunizations manufactured by Changsheng Bio-Technology Co. Ltd. for rabies, diphtheria, pertussis, whooping cough and tetanus were found to be faulty. The company faced a 9.11 billion yuan fine and eventual delisting from the Shenzhen Stock Exchange, while dozens of government officials were removed from their positions.

CanSino Chairman and CEO Yu Xuefeng downplayed the scandal in an interview with S&P Global Market Intelligence, saying it was due to a "bad apple" and that it can happen in many industries. "I think people need to realize that these incidents are not common practice," he added.

Belt and Road Initiative

CanSino, which Yu co-founded in 2009 after about nine years as a director with Sanofi Pasteur Ltd., the vaccine subsidiary of Sanofi, has a number of vaccines in development, according to its IPO prospectus. It has co-developed an Ebola vaccine with the Academy of Military Medical Sciences, a Chinese military medical research institute. The injection, Ad5-EBOV, is approved in China for emergency use and is being stockpiled in case the highly contagious hemorrhagic fever breaks out in China.

SNL ImageChairman and CEO Yu Xuefeng
Source: CanSino

Yu told S&P Global Market Intelligence that the company also intends to supply the vaccine to outbreak areas and is looking into opportunities to start clinical trials in the Democratic Republic of the Congo.

A key advantage of CanSino's Ebola vaccine is its ability to remain effective at between 2 degrees and 8 degrees Celsius, according to CanSino Chief Science Officer Zhu Tao; competitor products in the works from Merck & Co. Inc. and others must be kept at a temperature as low as negative 70 degrees Celsius, which creates distribution challenges, particularly in the African regions where the disease is most prevalent.

CanSino's Ebola vaccine can be seen as an echo of China's Belt and Road Initiative to improve infrastructure in Africa and central and Eastern Europe, said Chen Hao, a China healthcare policy researcher at Huazhong University of Science and Technology.

The professor also noted that as a relatively recent newcomer to the market, the company is less affected by the scandals compared to longer standing companies that need to improve their operations amid the tightened regulations that the government has promised.

However, domestic Chinese development of vaccines still lags behind that of other countries, and the unique characteristics of the products make it hard to catch up, COO Steve Chao told S&P Global Market Intelligence. Unlike molecules and antibodies, vaccines are difficult to copy, he said.

Chen also pointed out that consumers still need to restore their confidence in domestic vaccines, and the industry is not yet immune from regulatory risk, which remains a key hazard for investors. Chinese regulators have been tightening industry regulations after the scandals, including the creation of a vaccine law that is currently under discussion.

"It gets more expensive to break rules, and many manufacturers are getting cautious. Some capped or even halted production," Chen said.

Minding the gap

Yu said the idea of establishing a vaccine company started to coalesce after his visit to Chinese vaccine manufacturers and regulatory bodies around 2006 as a representative of Sanofi Pasteur, when he recognized the need for a strong domestic producer.

The company eventually paved its way to the capital markets, attracting early investors including Qiming Weichuang Venture Capital Management (Shanghai) Co. Ltd. and Lilly Asia Ventures, an investment management firm spun off from Eli Lilly and Co. The two firms joined CanSino's $65 million financing round in 2017.

Nisa Leung, managing partner of Qiming, said CanSino caught her attention four or five years ago when Qiming was looking for a Chinese vaccine company in which to invest. "Vaccine is one of the largest biotech sectors, and in the U.S., all major vaccine companies were bought out by Big Pharma," she said, adding that China should also have vaccine players that have strong research and manufacturing abilities and that CanSino could be one of them.

Yu's trip to China forced him to recognize the difference between the domestic market and the international one for vaccine manufacturing technology and quality. It is tough for regulators and domestic makers to narrow that gap, he said.

"That's what we think we can do, so we got together and had this idea of doing something meaningful," Yu said.

SNL Image

As of March 21, US$1 was equivalent to 6.70 yuan, according to S&P Global Market Intelligence.