UBS summarized in its China’s biotech report – “Oncology: A driving force for innovation in Chinese biotech”.
An article by Pharmacodia in 2017 said the top 3 therapeutic areas for biologics in China are cancer, rheumatoid arthritis (RA), hepatitis B virus (HBV)[1].
Another bluebook in 2017 outlined the five focus areas for China’s biotechnologies[2]: 1) vaccines, 2) mAb and protein drugs for cancer, cardiovascular, neurodegenerative, diabetes, autoimmune diseases, 3) diagnostics and screening for major diseases, 4) gene therapies, cell therapies, 5) regenerative medicine
China suffers from an unusually high incidence of cancer, which has been the country’s leading cause of death since 2010. Nearly all companies (five out of six) went onto HKSE in 2018 are investing in oncology (except for Hua Medicine focusing on diabetes).
Among all the cancers, lung cancer is the most targeted disease due to the high incidence rate in China.
Globally, oncology is also the No.1 focus for the overall industry, accounting for more than 1/3 of the total pipeline, according to a 2018 report[3].
To develop cancer treatments, biotech companies usually focus on developments in mAbs (monoclonal antibodies), immuno-oncology, CAR-T therapies, etc.
Other breakthrough researches & developments including Qinghaosu (or Artemisinin), discovered by the team led by Youyou Tu to fight malaria.
The (generic drug) industry began to consolidate during the 1960s and 1970s, and Teva emerged as the largest and most dynamic firm in the sector, thanks primarily to Eli Hurvitz, who served as CEO from 1976 to 2002 and as chairman from 2002 to 2010.
Opportunity knocked on Teva’s door when the U.S. Congress passed the Hatch-Waxman Act in 1984. The legislation created incentives for generic drug companies to challenge other firms’ patents, even before they expired, with the goal of reducing the cost of drugs in the U.S. Hurvitz positioned Teva to use Hatch-Waxman as its springboard to becoming a major player in the generics sector.
“Teva succeeded in its strategy,” says Steven Tepper, an Israeli analyst who has been following Teva for many years. “It not only worked really hard at getting its production costs down, it also developed considerable expertise in the legal aspects of the generic drugs business — how to be the first to file for generic versions of patented drugs [the law awarded a period of exclusivity to the first generic version, during which time profit margins would be higher], and how to manage the testing and licensing process. Later, Teva became adept at acquiring other companies and integrating them into the group.”
The strategy worked so well that today, Teva is the largest generic drug company in the world. Achieving this designation was a conscious decision on the part of Teva’s leadership: It was achieved via a series of large acquisitions over a five-year period, beginning with IVAX, an American rival bought for US$7.4 billion in January 2006; Barr (also in the U.S.) for US$7.46 billion in December 2008; German company Ratiopharm in March 2010 for US$5 billion, and Cephalon in May 2011 for US$6.8 billion.
“Levin was instrumental in bringing Michael Hayden to Teva as head of R&D, and together they formulated a corporate strategy for Teva that distinguished it from its competitors and also explains why Teva had to acquire either Mylan or Allergan,”
“Levin and Hayden sought to marry Teva’s proven capabilities in the efficient production of generic drugs with the company’s in-house R&D capabilities, themselves enhanced by a series of acquisitions. The goal is to turn generic drugs into specialty products, for instance by giving them a special formulation or method of application — something that doesn’t change the essence of the drug, but de-commoditizes it and allows for a higher price, higher margins and hence greater profitability.”
– Steven Tepper, pharma and biomed analyst at Migdal Capital Markets and regarded as a top Israeli analyst in this sector
The number of ‘ethical’ or proprietary drugs coming off patents in the next few years is going to be much smaller than has been the case over the past decade or so
The drug producers are facing a rapid process of concentration among their main buyers — especially in the critical U.S. market, where there are now three dominant companies. This, in turn, is forcing the manufacturers to consolidate their ranks, so as to better match the greater bargaining clout of their customers. The entire pharma industry is caught up in a whirlwind of enormous deals. Data from Thomson Reuters shows that as of July 23 — prior to Teva’s Allergan acquisition — M&A deals in the health care industry so far this year totaled almost $400 billion and were up some 80% over the equivalent period of 2014
With Copaxone’s patents going to expire, Teva needs to find supports to drive the growth or to make-up the hole – manage the “patent cliff” and the stock price
There were three acquisition targets: Sandoz (Novartis), Mylan and Actavis (Allergan).
April 8, 2015: Mylan offers to buy Perrigo for about $29 billion in cash and stock in a move that some analysts suggested was an effort to help fend off a $40 billion acquisition by larger rival Teva Pharmaceuticals Industries
April 24, 2015: Mylan goes hostile with a sweetened bid of $60 plus 2.2 Mylan shares, valuing Perrigo at $31 billion; Perrigo rejects offer
July 23, 2015: Dutch foundation linked to Mylan adopts poison pill in efforts to block takeover by Teva, citing potential job losses
July 27, 2015: Teva drops its hostile pursuit of Mylan, decides to buy Allergan Plc’s generic business in a deal worth $40.5 billion
Aug. 13, 2015: Mylan lowers the percentage of Perrigo shares it needs to control the company to just over 50 percent from its original plan of 80 percent
Sept. 14, 2015: Mylan launches a tender offer in a move to lure Perrigo investors to support its take-over efforts
Sept. 17, 2015: Perrigo recommends shareholders to reject Mylan’s tender offer, which was set to expire on Nov. 13, saying it substantially undervalued the company
Oct. 22, 2015: Perrigo announces its plans to lay off 6 percent of its global workforce and buy back shares worth $2 billion
Nov. 13, 2015: Mylan fails $26 billion bid in tender offer as it was unable to secure at least half of Perrigo’s shares
Teva said its offer should be more attractive to Mylan shareholders than the proposed purchase of Perrigo, representing a 48 percent premium to the company’s share price before speculation of a deal surfaced on March 10. When Teva made the proposal, Mylan shares were up 8.9 percent at $74.12 in afternoon Nasdaq trading, while Teva rose 2.0 percent to $64.55 on the New York Stock Exchange. Perrigo fell 2.2 percent to $193.79. (Reuters)
The number of shared bikes reached its largest in September 2017 (2.35 million; then new deployments were suspended). Other cities also set the cap (Shanghai 1.5 million, Guangzhou 0.9 million, Nanjing 0.45 million).
By and large, the financing activities paused (as described in part 2) in the bike-sharing space. And the $3 billion valuation for both mobike and ofo was not attractive. Capital markets were developing way ahead of the business.
What is more, the economic model was still in the “testing stage” (to put it nicely).
M&A?
The most obvious way to end the war and to make the industry profitable was a merger between ofo and mobike.
Similar talks must have been held for several times, especially in the summer of 2017. But before a merger, there would probably be a winner.
Investors from both sides probably have been talked about this privately for long. In June 2017, a discussion between Xiaohu Zhu (GSR Ventures), ofo’s backer from Series A, and Pony Ma (Tencent), mobike’s lead investors for Series D&E, was leaked and posted on the internet.
They were trying to claim ofo and mobike as the No.1 bike-sharing company respectively.
Discussion between GSR and Tencent leaders | Source: tech.sina.com.cn
At the end of 2017, ofo CEO had the last conversation with Xiaohu Zhu (GSR Ventures) about the merger. One month after the last attempt, Xiaohu Zhu sold his position to Ali, together with his veto power.
Alibaba got the power it wanted in ofo (to counter Didi/Tencent)
To some extent, mobike and ofo are offering an alternative to Didi’s ride-hailing services, especially short-distance rides; they also wanted to march into the broader ride-sharing space
When most bike-sharing startups are facing difficulties on the capital market, the ones who had more prestigious backers seemed fine, namely ofo and mobike.
Series D
mobike raised $215 million Series D led by Tencent in January, with Ctrip and Huazhu joining as new investors; Foxconn and Temasek also came onboard later, adding at least another $85 million (the round aka “friends of Sequoia China and Hillhouse”)
This was the first time Ali officially invested in this field. I guess they felt the valuation was too high. While Tencent had mobike and Didi had ofo, Ali needed to find its unique angle and set its footprint in the space. Sesame scores is one of Ant Financial’s unique offering in the market place; yet ofo might be the first time users felt the tangible benefits of high Sesame scores.
Tencent had its unique angle as well: Mini-programs 小程序 in WeChat. mobike launched its mini-program in February 2017.
(Besides, there are battles between payments, cloud computing, data and traffic)
Series E
The crazy financing has made ofo and mobike the clear winners at that time. I guess most investors believed that who had the most money would win the game.
ofo has Didi which is big, but mobike’s Tencent is one of the deepest pockets in China. When Ant Financial only provided a minority funding to ofo (as Didi was the biggest investor), some may felt that Ali was still not determined to join the race – then mobike would win.
At first, nearly all bike-sharing startups take deposits, usually ranging from ¥99 to ¥299.
The deposits are hard cash for startups; they are like life-time membership fees if the companies survive and users keep using the apps.
To put it another way, deposits are indefinite free borrowings.
Deposits and investors’ money are fundamentally different (in accounting), but both are actually (viewed as) cash sitting in the bank for startups.
Some may compare this model with gym memberships. When users pay upfront, gyms use the cash in expansion and operation.
Just invest (or borrow) and open one gym first, then one can use the membership fees collected to subsidize the opening of the second gym.. bike-sharing companies can use the deposits collected in one city to subsidize the expansion into the next city, to pay back any loans, to pay employees’ salaries…
Then comes the problems… for those startups that are not well-funded.
Started in Chongqing, Wukong Bicycle has another layer of to collect operation cash – “operation partners” who would pay Wukong Bicycle an upfront fee to claim profits for a certain number of shared bikes. To be honest, “operation partners” are not treated as partners as Wukong can profit from selling bikes to them and management fees. Its “alternative fund raising” was a little concerning.
In November of 2017, it was reported that most of the bike-sharing startups have problems with their deposits. [60多家共享单车停运用户押金之痛难解 – 证券日报]
The largest of them (in 2017) was bluegogo 小蓝单车, which had raised ¥400 million. It started as a supplier for bike-sharing companies but then decided to enter the race. It had achieved a No.3 position in the space but things (financing) went south in June 2017.
As mentioned previously, it was acquired by Didi at the beginning of 2018.
The battle between 70+ bike-share startups (or the battle between their colors) could be traced back to the summer of 2014, when ofo (wikipedia) was started by students at the Peking University in Beijing.
Source: play.google.com
ofo initially focused on bicycle tourism before deciding on bicycle sharing. At first, it was only doing campus bike sharing. In May 2015, the team appropriated the investment fund for purchasing new bicycles and enticing PKU students to partake in bicycle sharing. [PKU news] [¥9 million seed/angel]
Two major differences were separating ofo and its main competitor mobike at the beginning stage: 1) mobike focused on cities from day 1 while ofo was for universities at first 2) the locks
mobike | Source: wikipedia
The first generation of ofo bikes has an unchanged passcode sent to users while mobike’s are unlocked by wireless communications between the phone, servers and the bike. mobike also uses GPS from the beginning.
ofo 1st Gen. | Source: tianjimedia.commobike 1st Gen. | Source: eastday.com
Nowadays, shared bike companies are using similar product (lock) strategies for safety, management and data. [read more about smart lock technologies involved]
mobike raised its Series A of $3 million in October 2015 led by Joy Capital 愉悦资本, Series B of $10 million in August 2016 led by Panda Capital 熊猫资本, Series C of $100 million in September led by Warburg Pincus and Hillhouse Capital.
At that time, another startup Hellobike 哈罗单车 which would be threatening to the first-movers, was also just preparing to launch its bikes (started with 2nd/3rd tier cities) and just finished its Series A with GGV.
Source: crunchbase
The frequency of fund raising is probably the most remarkable part of the history (to me).
I actually wish that something similar won’t be happening again…
Businesses, investors, users/citizens and regulators all need some time to really think over.
For bike-sharing startups, they were going to feel something different in 2017…
Formed in 2004, Hupu provides marketing planning, sports events marketing and management, as well as events management. It also operates businesses such as offline eSports events, e-commerce and gaming co-operation. It owns Hupu.com, the sports site with the most page views in China, a retail site for trending sports gear, and the app for Shihuo.cn. More than 30 million users had registered on its websites and apps as of March. [yicaiglobal]
A History
Hupu has been active in the capital market for a while.
It was pursuing an IPO in 2016 on the Chinese stock market with a revenue of ¥200 million in 2015.
ads – precisely targeting a community with above-average purchasing power and distinguished tastes & shopping categories/habits
video – Hupu’s sports video capabilities/rights/viewers will have synergies with Toutiao’s video infrastructure and recommendations; plus, Hupu will be one of Toutiao’s efforts to march into sporting business
e-commerce: direct sale, and with the help from ads and video; Douyin’s video can lead to shopping on Hupu’s e-commerce platforms
OYO is grown from India with series B ($100mn), C ($90mn), D ($250mn), E ($1bn) led by SoftBank. Huazhu has participated between D and E; Grab, Didi, Airbnb has participated in Series E separately.
From my understanding, OYO is pursing a model that provides minimum standardization with the least cost while getting data and digitalizing management.
The most valuable thing OYO provides is the traffic (if any), which is where OTA’s profits come from and where hotel chains are good at.
The brand itself tho, doesn’t have much power. China’s overall hospitality standard is higher than India’s I think (with players like Jinjiang, Huazhu, etc.)
OYO’s rapid expansion in China might make it worse.
But it is really big – said to have 10k+ hotels and 450k+ rooms on its website.
It now has a three-tier branding: 轻享，智享，尊享
Branding-up and providing more values is really important. Hotel owners may end up with less profit in the long-run.
It’s like imperialism in the hotel sector.
The traditional hotel sector in China has reacted with their own exploration in “light franchise” (but might be late for this game).
The two words that characterize the second (current) model is “front warehouse” (前置仓).
By managing more distributed front warehouses (mostly in cities), the fresh produces e-commerce companies can usually deliver within 2 hours after an order is placed.
The model could be exemplified by the current focus of Hema (盒马鲜生) and MissFresh (每日优鲜). The difference – Hema’s warehouses are also consumer-facing stores; MissFresh’s warehouses are expanding much faster and many have no “experience store” functions.
Hema is financed within Alibaba (consolidated in earnings reports) and MissFresh has raised several hundred millions from Tencent.
Hema
Hou Yi (侯毅), the CEO and founder of Hema, worked for JD.com and in charge of JD logistics, prior to joining Alibaba. He has rotated to the O2O (online to offline department) and was the founder of the predecessor of JD Daojia (京东到家), JD’s delivery team. It has been rumored that firstly HOU proposed to Richard Liu, the CEO and founder of JD.com, about the idea of Hema; unfortunately, LIU did not approve that idea at that time. Later HOU approached ZHANG You (张勇), the CEO of Alibaba Group, and get offered to join Alibaba and try out his idea. [equalocean]
Its core competitiveness lies in its front warehouse network, inventory management system and local community operation. MissFresh has an average duration of inventory of 2.5 days.
MissFresh is targeting gross margin at ~20% in the long-term while maintaining an operating margin at 10-15%.
So we can see that attempts are made to locate “warehouses” closer to consumers and to shorten the waiting time to ~30min.
Alongside the 1st and the 2nd rounds, there is another attempt – not necessarily new but will take some time to stabilize, if possible) – to combine 1) mainline logistics, 2) city delivery networks, 3) front-warehouses + community stores, all facilitated by digitalized and AI-driven systems.
