SHANGHAI – Zai Lab Inc., of Shanghai, has received $30 million in financing from a group of international venture capital investors, led by the well- respected Qiming Venture Partners LLC, headquartered in Hong Kong. The series A funding will support Zai’s pursuit of its “virtual” business model, and the in- licensing and developing of innovative drugs for global markets as well as China.
The announcement comes hot on the heels of Zai’s first deal made public last month, to in-license two Sanofi SA candidates for chronic obstructive pulmonary disease (COPD). (See BioWorld Asia, Aug. 20, 2014.)
The indications that Zai intends to focus on will be anti-inflammatory diseases, oncology and certain antiviral conditions mainly for hepatitis B virus (HBV) and human papillomavirus (HPV).
In addition to Qiming, backers include KPCB, Sequoia Capital and TF Capital, with Hangzhou Tigermed Consulting Co. Ltd. and other institutional investors. Nisa Leung, managing partner for health care at Qiming, will represent the investors on Zai’s board.
It is uncommon for venture capital funds to support innovative drug development at such an early stage in China. One constraint is the lack of exits.
Chinese regulators require that companies have revenues for three years before listing on domestic markets. A tough task for R&D-intensive biotech companies that have burnt through cash before their products can get on the market. (See BioWorld Asia, March 25, 2014, and May 13, 2014.)
Zai’s CEO, Samantha Du, has earned her stripes as a pioneer in China’s biotech space, leaving Pfizer Inc. to set up the first innovative drug development company here, Chi-Med (Hutchison Medipharma), and later learning the ropes “from the other side of the table” at venture capital firm Sequoia. According to Nisa Leung, who spoke with BioWorld Asia, Du has the whole package.
“It is really hard to find an entrepreneur with the vision, proven execution capability, charisma to attract a strong management team, a network of government officials to navigate the system and a working rapport with overseas companies.”
It is Du’s international contacts and savvy that will help the company to grow, and, quite possibly when the time is right, seek a public listing on markets outside of China. There is also the chance of striking a significant licensing deal with a large pharma. “We are very open minded at this point,” Leung added.
THE VIRTUAL ADVANTAgE
The two female serial entrepreneurs met more than 10 years ago. But it was during Du’s time at Sequoia that they started having lengthy discussions about the best business models for drug development in China.
Leung said the timing is perfect for a virtual model in China, one that will leverage the strong CRO clinical capability here, while snapping up the right assets from the U.S. and abroad. As the Chinese government is increasing its funding and grant-making, the funding from the National Institutes of Health is tapering off. She said she has seen a stream of U.S. companies come to Hong Kong searching for greener pastures in China, with good candidates that need just a little help. That is the context that Zai will seek to leverage. By working with third-party service providers, the firm can maintain a lean team based in Shanghai, with the possibility of picking up good assets without spending a lot of money.
Another aspect of the virtual model, according to Leung, is that it is in the interest of multinational corporations to outsource some of their pipelines. With each program, large teams are assembled but then have to be disbanded when studies fail, she said. “They have to think of the livelihood of the team.”
The virtual model makes it easier for the big players to develop more candidates. “It is a win-win for everybody.” There is also the not-insignificant cost-savings benefit when doing clinical trials in China, which means $30 million can carry a company a lot further than it would in the U.S.
It is sometimes figured that it costs $5 billion to develop a drug in the U.S., given that only 1 percent of candidates may succeed to getting on the market. But in China, Leung said, a candidate could progress from preclinical to clinical to approval for about $15 million to $20 million.
“It creates the perfect opportunity for a virtual model to take place,” Leung said. “I was very excited when she started the company. The business model is one we have believed in a for a while.”
LOOkINg FOR A ‘STRONg TEAM’ Leung has invested in a wide variety of companies, with 35 companies in the health care portfolio. Among them are insulin maker Gan & Lee Pharmaceutical and FDA-approved manufacturer Novast Holdings Ltd., as well as early stage drug developer Shenogen Pharma Group, of Beijing, and CRO Tigermed, which has had a successful IPO and exit.
“There is a lot of cross-partnering in our companies and CEOs share experience,” Leung said.
Companies in Qiming’s portfolio also benefit from government relations support. One of the funds managed by Qiming is fully invested by the powerful National Development and Reform Commission, illustrating its strong government connections.
While there are only a few early stage drug companies in Qiming’s investments, there are likely more than most other VCs working in the space. Leung does not rule out investing in more such companies, if there is a strong team in place.
In the meantime, she has high hopes for Zai to build a legacy. She said there is potential to build a company beyond just making money; but rather a company that has the potential “to open doors for more entrepreneurs to go beyond China, to make a mark in the global arena in terms of health care.”
“What is unique about Samantha [Du] is she has the execution capability and experience,” Leung added. “Being a female VC, I am very excited about funding a female entrepreneur, especially such a wonderful one.”
Qiming has offices in Hong Kong, Beijing and Shanghai and manages $1.6 billion in assets across four funds. The venture firm looks for young, fast-growing companies in the areas of health care, media and internet, clean technology and information technology, consumer and retail.
