“The first criterion for us to invest in a company is that it does not make much money,” Zhang Lei, founder of Hillhouse Capital, told a conference in Heilongjiang province last year. Lei was highlighting “room to grow” as the most salient concern for start-up investors – an idea crystallised from having seeded some of the most prominent high-flyers in China, including Tencent and JD.com. His philosophy might just as well be employed by those looking to buy the initial public offering of I-Mab, a Shanghai-based biopharma specialising in immunotherapies to fight cancer.
The Nasdaq listing saw the five year-old company raise $104 million, following the US listing of rival Zai Lab, another Chinese biotech firm, which raised $173 million in 2017.
In the past three years I-Mab had already raised more than $400 million in three rounds of pre-IPO financing, counting TigerMed (a Hangzhou-based clinical research service provider), Simcere (a generic drug maker), Hillhouse and Hopu among its early investors. The IPO will further drive its valuation up to an estimated $876 million.
With none of its drugs ready for commercial launch, I-Mab is still lossmaking. Of the 11 drugs in its pipeline, only one has started phase three trials, and six are expected to file for a new drug application in China or a biologics licence application in the US – but only after 2024. The company accumulated net losses of Rmb857.3 million ($124.9 million) in the first half of 2019, up from Rmb298.2 million in 2017. The only way it can earn income at the moment is through licencing some of its commercialisation rights to drugmakers overseas and also by co-developing new therapies with them.
Its rival Zai Lab has enjoyed a decent welcome from investors. On Tuesday its market capitalisation reached $3.18 billion, up 206% since late 2018. The bull run followed its successful launch of two cancer treatments in four international markets including the US, Europe, Japan, and Hong Kong.
As for I-Mab, it’s staking its hopes on an anti-cancer product called TJ202, which is designed to work as a third-line monotherapy against malignant plasma cells through targeting CD38, an antibody. Representing nearly 64% of I-Mab’s external research and development expenses in the first half of 2019, the drug is undergoing two registrational trials in Taiwan, and is expected to start the same process in mainland China this year. The earliest possible time for it to gain approval for commercialisation in China – the firm’s target market – is 2021, according to its IPO prospectus. Isatuximab, also a CD38 antibody drug for treating multiple myeloma, will be its biggest competitor. Co-developed by US biotech company ImmunoGen and French pharma giant Sanofi, Isatuximab is undergoing phase three trials both in the US and China. Meanwhile, Johnson & Johnson, which launched the first anti-CD38 treatment (called Darzalex) in the US in 2015, is also testing the drug for the global markets.
So when will I-Mab turn profitable?
“My best estimate is 2024 at the earliest,” Ke Yan, co-head of research at Aequitas Research, told WiC. “Even if they can launch TJ202 for third line [multiple myeloma] in 2021, they will still need to burn cash for clinical trials for other indications.”
Ke had doubts that TJ202 could become a blockbuster drug given the limited market size for multiple myeloma treatments. This constraint could lower its odds of getting included in the government reimbursement programme too. But he believes the commercialisation of TJ202 is a potential demonstration of I-Mab’s strong drug development capability.
Last year the number of Chinese biotech companies that went public went up to 14 from five in 2018. Their total funds raised also jumped 72% to $4.05 billion, data from Dealogic shows. The growth is a result of government encouragement (see WiC406), a widening channel for listings that includes Hong Kong (see WiC461), and investors’ interest in owning a slice of China’s Rmb1.3 trillion biologics market.
The slew of listing is not expected to ebb anytime soon, Reuters Breakingviews suggested, given China’s entry into the International Council for Harmonisation (ICH) in 2017. This body encourages Western drug regulators to more readily accept local clinical trial results, and create better chances for homegrown Chinese firms to incubate blockbuster drugs with international sales appeal.
Beijing-based BeiGene, for example, had its lymphoma treatment approved by the US Food and Drug Administration last November even though the efficacy data was predominantly from mainland China. Such authorisation is a first for a Chinese pharmaceutical player.
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