'Overinvested' China healthcare sector set for shake up, top venture fund says

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

SINGAPORE, Sept 27 (Reuters) - Chinese healthcare and biotech firms are ripe for consolidation due to a sharp decline in valuations after the COVID-19 pandemic spurred over-investments in the sector, a leading local venture capitalist said.

The global healthcare sector has experienced an investment boom by venture funds and private equity players over the last few years, lifted by growth prospects during the pandemic.

China's massive health sector, comprising pharmaceuticals and fast-growing tech and biotech firms, has also been underpinned by rising public and private spending.

"The whole healthcare sector was over-invested globally because of COVID-19," Nisa Leung, managing partner and head of healthcare investments at Qiming Venture Partners, told Reuters in an interview.

"Money has somewhat dried down, especially for companies that are not in very defensible position," she said, highlighting firms with no big pipeline of drugs under development or enough intellectual property rights.

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

Qiming Venture, an early backer of tech giants such as Meituan and Xiaomi, announced in July that it had wrapped up its latest fundraising activity totalling $3.2 billion.

China's fragmented pharma sector has been hit by big declines in generic drug pricing but has also seen overseas pharma giants partner with global counterparts for deals.

By mid-September, China's healthcare deals totalled $16 billion, halving from $31 billion a year earlier, according to Refinitiv data.

Founded in 2006, Qiming Venture Partners manages seven renminbi funds and 11 U.S dollar funds with $9.4 billion. It has 180 healthcare firms in its 400-plus portfolio and the bulk of its overall investments are in so-called Series A or B rounds.

China's healthare index (.CSIHCSI) has halved from February 2021 to the lowest in three years.

"Because of the over-investment in the last couple of years, a lot of TMT and general funds are basically shying away from healthcare. We have more time to do due diligence now and we are also able to negotiate on valuation better," Leung said.

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

Qiming in August jointly led a $120 million fundraising by OriCell Therapeutics, which develops novel immunotherapies, the company said at the time.

Reporting by Yantoultra Ngui and Anshuman Daga; editing by Uttaresh.V

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