Outside biotech money isn’t pouring into China like it used to.

In 2020 and 2021, venture investors put nearly $8 billion into Chinese biopharmas. But in the years that followed, those amounts have plunged as investors have sharply pulled back from China, according to data from DealForma. Private investments last year totaled a mere $600 million. And the decline has been echoed in the public market as well: A November report from McKinsey suggests that among 35 listed China biotechs, $80 billion in market cap had been erased since the peak.

The pullback by outside-China biopharma investors echoes a broader drop in foreign direct investment in the country amid geopolitical tensions with the US. And while American biotechs are slowly emerging from a post-pandemic slump, the recovery for their Chinese counterparts appears more elusive.

“There’s a big disconnect between people’s theses five years ago and what we’re facing right now,” said Yiqi Liu, senior investment analyst at Exome Asset Management, a New York-based asset management company that invests in public markets “across the worldwide healthcare industry.” While the firm does not publicly comment on portfolio exposure, it says it remains “conservative but diligent regarding our stock selections in China.”

The US-China tensions have only been exacerbated by US lawmakers’ attempts to limit the work between American biotech and pharma companies, and the WuXi family of companies and companies affiliated with sequencing giant BGI. Even as disclosures from US biopharmas underscore their reliance on WuXi’s services, a recent report alleging WuXi transferred a US client’s intellectual property to Chinese authorities has raised new concerns about IP protection.

In an environment where cross-border connections are viewed with increasing suspicion, some China-originated companies have chosen to play down their China roots, with I-Mab taking the dramatic step of splitting its China operations to focus on the US.

The reset follows a decade of rapid growth — financially and scientifically — of China’s biopharma sector.

Roderick Wong

“It’s extra-tough probably for a lot of folks investing in China, whether you’re a locally China-based investor or a global investor, because it’s kind of the first bear market you’ve seen in China for biotech since the innovative sector really grew,” Roderick Wong, managing partner of RTW Investments, told Endpoints in February.

The start of the boom in outside investments came from a 2018 reform in the listing rules on the Hong Kong stock exchange, opening the door to IPOs by preclinical- or clinical-stage biotech companies that had yet to earn any revenue. Such companies had previously been barred from going public, and the change opened the floodgates to risk-taking capital from both foreign and domestic investors.

Helen Chen

“When the Hong Kong stock exchange opened up the pre-revenue chapter in 2018, it accelerated the exit process for many of the investors in these companies,” observed Helen Chen, Greater China managing partner and global sector co-head at LEK Consulting. The firm’s Shanghai team advises both investors and life sciences companies on China strategies. “So in some ways, some of the investors may have loosened their standards, because they were anticipating much shorter exit periods.”

But investment returns on the Hong Kong exchange have been subpar, with the Hang Seng Hong Kong-listed Biotech Index plummeting close to 70% over the past three years and down more than 30% in the past year. That compares with a roughly 10% drop on the S&P Biotech ETF $XBI since then — and a post-pandemic rebound over the last year.

Meanwhile, the prospect of M&A, a major exit path for biotechs in the US and Europe, looks equally dim. Large Chinese biopharma companies have limited dry powder, while multinationals may be deterred by regulatory and geopolitical risks, according to the McKinsey report.

The exception has been AstraZeneca, which made a historic move with its $1 billion acquisition of cell therapy developer Gracell Biotechnologies in December — but most sources Endpoints spoke to viewed it as the exception, not the rule.

Leon Tang

“Except for the Gracell-AZ M&A deal, you don’t find an M&A deal with biopharma and China biotech at all,” said Leon Tang, founder of InScienceWeTrust BioAdvisory, a boutique consulting firm founded in 2022 to advise companies on cross-border business development.

Exome had participated in a private placement in Gracell months before the buyout in the hopes that the biotech would generate more promising data on its early clinical program and eventually attract a big pharma partner much like Legend did. The buyout came as a “surprise,” Liu said.

As pricing pressures in the Chinese market keep domestic commercial expectations modest, the “China for global” strategy has become a key value proposition for foreign investors who find it hard to predict changes in the macroenvironment — and an alternative source of cash for companies.

Export of Chinese innovation “has been booming,” Tang said. Antibody-drug conjugates have become a favorite example for many, as drugmakers from Merck to BioNTech turn to Chinese players for their chemistry expertise.

In the meantime, the funding situation for Chinese biotechs may remain challenging for a little longer, leading to hiring freezes or lower R&D budgets. Domestic investors could plug the gap, although sources say many of them tend to focus more on cash flow-positive companies these days.

Top-tier venture investment funds such as OrbiMed, Sequoia, Qiming and Lilly Asia Ventures are “still continuing to search,” LEK’s Chen said. “But certainly they’re more careful.”

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Overview: The focus is squarely on the US employment report. At the risk of oversimplifying, given the position adjustment in the past 48 hours, a solid report can see the greenback recover, while a disappointing report will likely see it deepen the correction of the rally that began with the February jobs report. The dollar recovered in the North American afternoon yesterday and many observers attributed it to the bevy of Fed comments. Yet, the interest rate market saw little reaction. It seemed that it was the dramatic reversal in US equities that helped dragged global shares down today, that forced US rates lower.  Asia Pacific equities tumbled, led by more than 1% losses in Japan and South Korea. Europe's Stoxx 600 is off around 1.2%, and if sustained, could be its biggest loss so far this year. European benchmark yields are 1-3 bp firmer. The 10-year Treasury yield is up a couple of basis points to 4.33%. It settled near 4.20% a week ago. 

The dollar is narrowly mixed against the G10 currencies, with the rally in oil giving the Norwegian krone the biggest lift (~0.3%), while the Swiss franc is the softest (~-0.2%). Emerging market currencies are mostly firmer. The timing of the reversal coincided with reports of Israeli Prime Minister Netanyahu signaling an escalation of the Middle East crisis by warning of confrontation with Iran and its proxies. May WTI bottomed near $84.65 shortly after midday in NY and within a few hours had reached through $87.20. It is consolidating in a narrow range above $86.35 after yesterday's big outside up day. Gold retreated to about $2268 today but has rebounded back above $2290 today.

Asia Pacific

The 1.5% month-over-month rise in Japanese retail sales in February hinted today's better household spending report. In February, household spending fell by 0.2% year-over-year; considerably better than the 2.9% decline median forecast in Bloomberg's survey. It is the smallest decline since last February when household spending rose by 1.6% year-over year. Spending rose by 1.4% month-over-month, the first increase since last September. As measured by GDP figures, Japanese consumption fell in the last three quarters last year, and economists in Bloomberg's survey anticipate a small decline in Q1 24. Looking ahead, the energy subsides are reduced this month and end next month. In June, income tax cuts will be implemented. Note that February labor earnings are due first thing Monday, but it is too early to see the impact of the annual wage round. Besides the wage data and February's current account, which is also to be announced Monday, the highlight of the week may be Prime Minister Kishida's visit to Washington. Security issues will be paramount. We had thought there was a reasonably good chance that Japan would be invited to join the AUKUS arrangement in some capacity. However, with Philippines' President Marcos also arriving for a triparty summit on April 11, a new security initiative may be announced.

Australia recorded an A$122.7 bln trade surplus in 2023, down from A$139.9 bln in 2022. It is off to a slower start this year. The February trade surplus, reported earlier today, of A$7.28 bln was considerably smaller than expected (~A$10.5 bln). That means that in the first two months of the year, Australia's surplus is running nearly 20% lower than in the Jan-Feb 2023 period. Goods exports fell by 2.2% while imports rose by 4.8% in February. Goods exports fell by an average of 0.4% a month last year, and that includes an average increase of 1.3% in Q4 23. Exports rose by 1.2% on average a month in 2022. Goods imports were flat last year, and that includes an average monthly decline of 2.5% in Q4 24. Australia's terms of trade (ratio of export and import prices) set a historic high in Q2 22 and deteriorated last year. 

The dollar was confined to a narrow range against the yen for most of yesterday (~JPY151.55 to JPY151.85). It broke down as cross positions were unwound and fell to almost JPY151.10. The losses were extended in early Asia Pacific trading to about JPY150.80 after the better-than-expected Japanese spending data. The exchange rate did not react to Prime Minister Kishida's threat to act against "excessive yen moves," or BOJ Governor Ueda's suggestion in an interview that summer-fall time period for another hike. In fact, the dollar has gradually recovered to around JPY151.40 today. Still, the inability for the dollar to take out JPY152 shows the power of the communication channel rather than material intervention. Like China's push back against the weakening of the yuan, the broadsides about race to the bottom, seem misplaced. The Australian dollar powered through a trendline that connects the late December high (~$0.6870), the March 8 high (~$0.6670), and the March 21 high (~$0.6635). It came in slightly below $0.6600 yesterday. Despite the intraday penetration, the Aussie's gains were pared in the North American afternoon, and it settled near $0.6585, but still above Wednesday's high (~$0.6570). It has traded in about a third of a cent range today below $0.6600. On a strong US employment report, the Aussie could fall back toward the $0.6535 area. The dollar was so close to the upper end of its band against the yuan that before the yesterday and today's holiday some very short-dated swaps, which implied a move outside the band, were rejected. However, since it is arguably a dollar move taking place, a soft US jobs report, would likely take some pressure off the PBOC. The greenback slipped to an eight-day low against the offshore yuan (~CNH7.2410) but remains above the onshore band (CNY6.9530-CNY7.2368). Monday's fix will be important. 

Europe 

A notable recent development in the eurozone is the outperformance of the periphery compared with Germany and France. This was evident in March PMI. Italy and Spain's composite readings were above 50 while Germany and France remained below. This divergence was also, at least partially, evident underneath today's news that February retail sales fell by 0.5%, a little more than expected. It was also seen in the today's data. French industrial output rose 0.2% in February, half of what was expected. Spain's industrial output rose by 0.7%, well above the 0.2% median forecast in Bloomberg's survey. Germany reported February factory orders eked out a 0.2% increase. The market had expected a 0.7% rise. However, even this small gain was marred by the downward revision to January's series to show a 11.4% drop instead of 11.3%.

Italy's 10-year premium over Germany dropped from over 200 bp last October to almost 120 bp in the middle of last month. That was the least since late 2021. It recovered and reached almost 145 bp earlier this week and is back around 140 bp now. Spain's premium has a similar broad pattern. It premium over Germany peaked last October near 115 bp. It slipped below 80 bp in the middle of March, the least in two years. It widened a little into the end of the quarter but is narrowing again and is near 84 bp. Within the eurozone this year, only Cypriot 10-year bonds have outperformed Italy's BTPs (-7 bp vs. +10 bp). Next week's highlight is the ECB's meeting. The most that can be reasonably hoped for is more guidance from President Lagarde for a cut soon (June meeting next). The swaps market has nearly completely priced out a cut at next week's meeting. It has been last fully discounted at the end of July and has not been more than half priced in since mid-February. 

The UK's manufacturing and services PMI have entered expansion territory above 50 and the construction PMI, released earlier today joined them with a 50.2 reading for the first time since last August. It has risen for four consecutive months. Still, the swaps market has boosted the chances of a June cut to about 80%, among the highest in two months. The highlight next week is February's monthly GDP print. In February, the Bank of England projected 0.1% growth in Q1 24, but this looks a bit conservative. Given the 0.2% expansion in January, it would seem to imply weakness in February and March. 

A little before the last US jobs report, the euro was near $1.0980. The three-day rally through yesterday saw the euro recover from $1.0725 to almost $1.0880. The (61.8%) retracement of the euro's loss since the March high is slightly higher near $1.0885. The euro surrendered its gains and returned to the $1.0830 area. It is consolidating in about a fifth-of-a-cent range below $1.0845. A disappointing US employment report could see the euro test the $1.0920-30 area, while a solid report could perhaps see the $1.0780. There are options for about 1.5 bln euros at $1.08 that expire today. Sterling rose to a two-week high near $1.2685 and met the (38.2%) retracement target ($1.2675) of the decline since the last US jobs report, before reversing lower, falling to about $1.2635. Today, it is in about a third-of-a-cent range below $1.2650. It had bottomed Monday and Tuesday near $1.2540. Sterling had set the Q1 24 high slightly before the last US employment report in early March near $1.29. The next retracement target (50%) is near $1.2715 and disappointing US data could spur a run toward it. Favorable US data could see sterling push below $1.2580. 

America  

The US dollar's setback in recent days is reminiscent of what happened last month. The Dollar Index sold off by about 1.5% in the couple of days leading up to the February jobs report. It set a six-week low (~102.35) shortly before the jobs report before launching a rally that carried it to a new high for the year (~105.10) earlier this week. Since the high, the Dollar Index has pulled back by about 1.2%. Dollar bullish short-term momentum players and trend-followers have likely moved to the sidelines. Like last month, a solid jobs report can see the dollar recover. Some observers talk about a seasonally weak job growth in March, but in the past 20 years, it has been a 50/50 split between times when March nonfarm payroll growth was stronger than February and weaker.

The pandemic may have changed the pattern, and the data are seasonally adjusted. In the last two years, March job growth was weaker than February's by an average of about 255k. The median forecast in Bloomberg's survey looks for US businesses to have added around 62k fewer jobs last month than February (213k vs. 275k). Average hourly earnings are expected to rise by 0.3%, and that would bring the Q1 increase at an annualized rate to 3.6% after a 4.0% pace in Q4 23 and a 4.4% increase in Q1 23. However, the relationship between nominal wage growth and CPI/PCE deflator is tenuous. Productivity matters, of course, and most economists still seem to be working on assumptions of competitive capitalism instead of what exists today, oligopolies and monopsonies. Moreover, next week's March CPI will likely see the year-over-year headline rate accelerate and the core rate stable or slightly lower. The net effect, we suspect, between the employment and CPI, will do little for the Fed's confidence.

Canada reports its March jobs data as well, but it tends to be overwhelmed by the US report. Canada created an average of about 39k jobs a month in January and February, which is on par with the recent pace (34k in 2022 and 37k in 2023). Of the jobs created this year, about 30k on average were full-time posts, slightly better than the 28k average last year and somewhat softer than the 37k average in 2022. Still, Canada's challenge is that the labor force growth is faster than job creation, resulting in rising unemployment. The unemployment rate was at 5.0% from December 2022 through April 2023. It has risen steadily since then and has been at 5.8% for three of the four months through February. The median forecast in Bloomberg's survey is for it to have ticked up to 5.9% in March.

The US dollar initially extended its recent losses and slipped slightly below CAD1.3480 to record a two-week low. There are options for about $1.25 bln between CAD1.3500 and CAD1.3510 that expire today. However, in the North American afternoon, the greenback staged a broad recovery and set new session highs against slightly above CAD1.3560, leaving a potentially bullish hammer candlestick pattern in its wake. Follow-through gains today has seen the US dollar rise to CAD1.3580. A solid US jobs report could see the recent highs near CAD1.3615. There are options for about $635 mln at CAD1.36 that expire today. The greenback traded below MXN16.50 yesterday for the first time since the end of 2015 but reversed higher to a new session high near MXN16.6150. It has traded between MXN16.55 and MXN16.61 today. This week's high is closer to MXN16.67. The 20-day moving average is around MXN16.68 and the dollar has not above it since the end of February. The dollar had set a new high for the year against the Brazilian real on Wednesday a little above BRL5.09. It reversed lower and settled on the lows. Follow-through selling took the greenback to about BRL5.0050 yesterday before the broad recovery, which lifted the dollar to new session highs above BRL5.05. 

Disclaimer 

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Bird flu is back in the news after a Texas dairy worker tested positive for the virus in the first documented case of bird-cow-human transmission.

So of course, a cacophony of 'experts' are now warning that a bird flu pandemic could be '100 times worse' than COVID.'

"This virus [has been] on the top of the pandemic list for many, many years and probably decades," said Pittsburgh bird-flu researcher Dr. Suresh Kuchipudi, during a recent panel cited by the Daily Mail.

"And now we’re getting dangerously close to this virus potentially causing a pandemic," he continued. "So therefore, in my view, I think this is a virus that has the greatest pandemic threat [that is] playing out in plain sight and globally present."

The Mail also cites pharmaceutical vaccine consultant and BioNiagra founder John Fulton, who said during the same meeting: "This appears to be 100 times worse than COVID — or it could be if it mutates and maintains its high case fatality rate."

"Once it’s mutated to infect humans, we can only hope that the [fatality rate] drops," he added.

Meanwhile there's this Feigl-Ding, who rose to e-prominence during the pandemic as an extreme fear monger:

⚠️WAIT HOLD UP—Pasteurization of milk actually may **not** neutralize all viruses sufficiently to stop infectivity—“many viruses cannot”. It seems that fat globules in whole milk and 2% fat milk can protect viruses from high temperature pasteurization (dairy research shows for… pic.twitter.com/17B6HVULBu

— Eric Feigl-Ding (@DrEricDing) April 4, 2024

Approximately 52% of those who have contracted H5N1 since 2003 have died, according to the WHO. 

That said, according to CDC Director Mandy Cohen, "the whole  U.S. government is taking this situation very seriously," but the virus does not pose much of a risk to the general public. That said, they did just warn not to drink raw milk.

Another voice calling for calm is David Swayne, who has worked on bird flu cases in animals for decades.

"Right now, for the cattle cases — there is no knowledge, so that's easy for the alarm to be raised," he told the Mail. "There is a huge lack of knowledge that we need to fill."

"Let's look at the facts and look at them with reason, we don't really know that much today because of the knowledge gaps that we need to fill."

Others such as UK-based epidemiologist Dr Francois Balloux posted to X: "'People not professionally involved in pandemic prevention/mitigation being worried/feeling miserable now won't make any material difference to what may hit us, except that their life would suck, far more than it should."

The situation might change for the worse, eventually, but people not professionally involved in pandemic prevention/mitigation being worried/feeling miserable now won't make any material difference to what may hit us, except that their life would suck, far more than it should.
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— Prof Francois Balloux (@BallouxFrancois) April 2, 2024

Perhaps that will change in time for the 2024 election if the 'gain-of-function' guys have their way with it.

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