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ProfoundBio discovers the joys of having a wealthy owner

Bamboo Works wrote a column · Apr 8 00:03
ProfoundBio discovers the joys of having a wealthy owner
ProfoundBio discovers the joys of having a wealthy owner
April 8, 2024

The company has become the latest in a recent string of China-related innovative drug makers to be purchased by larger foreign buyers
Key Takeaways:
Cancer treatment maker ProfoundBio announced it will be purchased by Denmark’s Genmab for $1.8 billion
The deal is the fourth acquisition of a China-related innovative drugmaker by a foreign company in the last four months

By Doug Young
After years of trying to go it alone, innovative Chinese drug makers may finally be starting to realize it’s much easier to have a wealthy parent to look after your finances. The latest company making that discovery is ProfoundBio Inc., which it would be acquired by Danish firm Genmab A/S (GMAB.US) for $1.8 billion in cash.
The sale was the latest in a sudden string of similar deals for Chinese innovative drugmakers over the last four months, starting with British giant AstraZeneca’s (AZN.L) December announcement that it would buy Gracell Biotechnologies for up to $1.2 billion. Since then, at least three other deals involving acquisitions of similar Chinese drug makers have been announced, including this latest one, bringing the total to four.
The year is still quite young, meaning we could very well see many more such deals in the months ahead. We’ll do a quick review shortly for each of the deals, which involve both publicly and pre-IPO companies. But first we’ll look at what’s fueling this new trend, and why it’s taken this long to start.
Chinese innovative drugmakers were largely absent from foreign stock markets until 2018, when Hong Kong – where the big majority of such companies are listed – modified its rules to allow such listings. Before the change, Hong Kong required most companies to be profitable to list on its main board – a condition that nearly all drug startups couldn’t meet.
That change unleashed a flood of new listings in both Hong Kong, and also a smaller number like Gracell’s in the U.S. Most of the companies were developing cutting-edge drugs, many to treat cancer using a new generation of highly targeted therapies.
In the West, such companies would typically get funding from private sources until their drugs reached late clinical testing phases. At that point, if the results looked promising, a major, deep-pocketed drugmaker like AstraZeneca would typically swoop in and buy out these smaller startups, whose investors would earn a tidy profit.
But something different happened in China. Instead of selling themselves to bigger companies, many Chinese companies with promising drugs chose to go public themselves to finance the very costly process of developing their products. They could do that because stock market investors were willing to buy their shares at strong valuations, even though most of these companies were still years away from becoming profitable.
But what started as a wave of strong interest shortly after the Hong Kong rule change has turned into far more bearish sentiment in the last three years, causing shares of many listed drugmakers to plunge. The original bullishness was partly due to big hopes for the China market, where many of these companies planned to sell their drugs.
Those hopes have turned out to be unrealistic, as China often requires big discounts for drugs to be included in its national health plan that provides care for the vast majority of Chinese. That reality, combined with the huge expenses of developing new drugs, has delayed the potential for profitability by years for many companies. In the meantime, stock buyers are rapidly losing their patience with – and interest in – the group.
China-U.S hybrid
With that background in mind, we’ll return to the latest deal involving Genmab’s plan to purchase ProfoundBio. ProfoundBio actually lists its headquarters as Seattle, though it has strong China ties that make it a sort of U.S.-China hybrid. The company operates an R&D facility in the city of Eastern Chinese Suzhou. It was co-founded in 2018 by its Chairman and CEO Zhao Baiteng, a Chinese who completed his undergraduate work at Peking University before coming to the U.S. to earn his PhD at the University of Texas.
The company has three drugs in clinical trial stages. Of those, the most advanced is rinatabart sesutecan (Rina-S), a cutting-edge antibody-drug conjugate (ADC) used to treat ovarian cancer and other solid tumors. The drug is currently in Phase 2 clinical trials, and in January received fast-track designation from the U.S. Food and Drug Administration (FDA), a step that could help to bring it to market more quickly.
The deal comes just two months after ProfoundBio announced it raised $112 million in its B-series funding. The company’s backers include OrbiMed and Lilly Asia Ventures, the Asia venture arm of U.S. drug giant Eli Lilly (LLY.US), whose names are associated with several of the Chinese companies that have announced recent acquisitions.
The other two acquisitions were both announced last month, both by pre-IPO companies. Renal drug maker SanReno Therapeutics said it would be purchased by Swiss drug giant Novartis (NOVN.SW), though no terms were given. The other deal saw AnHeart Therapeutics Ltd., a maker of precision cancer therapies, say it would be acquired by Nuvation Bio Inc. (NUVB.US) in an all-stock deal. AnHeart said it would receive one-third of Nuvation’s enlarged share capital as part of the deal, which values AnHeart at about $240 million, based on Nuvation’s current market value.
The various deals vary in value from AnHeart’s $240 million at the lower end, to the $1.8 billion for ProfoundBio – a range that encompasses most listed Chinese drug makers. The fact that three out of the four deals involved unlisted companies seems to suggest the pre-IPO drugmakers might be more preferred acquisition targets, possibly because they are in greater need of cash.
But listed companies could also become growing targets as well, as many are finding it increasingly difficult to get stock market investors to cough up new money to keep financing their money-losing operations. Candidates for such buyouts could include companies with ties to foreign names like Lilly, such as ArriVent BioPharma (AVBP.US), which listed in the U.S. in January, and ImmuneOnco Biopharmaceuticals (1541.HK), which made a Hong Kong IPO last September.
Most of these companies have relatively promising drugs that would be valuable additions in the portfolios of larger, cash-rich buyers. Now, this group of Chinese startups is finally realizing that it’s quite difficult to build a new drug company on your own, and is often far easier to sell yourself to a rich backer who can worry about paying for your money-losing operation.
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