Lessons from China’s market turmoil, plus Distillery on tap: a BioCentury podcast

Deals in Focus: Aristea-Arena, Kumquat-Lilly

By Jeff Cranmer, Executive Editor

August 3, 2021 1:10 AM UTC

A week of turmoil in China’s markets spotlighted how sensitive investors are to missives from Beijing and Washington, but it also showed the resilience of a biotech sector that has grown through slow and steady reforms aimed at building an innovative life sciences ecosystem. On the latest BioCentury This Week podcast, BioCentury’s editors discuss lessons learned by biotechs and investors after a week of stress-testing China’s publicly traded companies, as well as the latest highlights in translational research news and this week’s Deals in Focus.

Concerns that biopharma could be the next industry to be scrutinized by Beijing sent shares falling in Hong Kong and the U.S. beginning July 23, after a government directive related to the education sector decreed that the companies in China’s burgeoning after-school tutoring industry could no longer be publicly traded, among other reforms.

The week underscored why U.S.-listed China companies need to prepare to provide greater transparency about their financials and put contingency plans in place such as a dual-listing, while China biotechs seeking a listing abroad should steel themselves for an increase in data privacy reviews, Executive Editor Jeff Cranmer says.

While reforms for the education sector were expected, investors were surprised by the speed with which the government moved, Cranmer says, especially coming as it did on the heels of a crackdown on ride-hailing service provider DiDi Global Inc. (NYSE:DIDI) following its New York stock market debut and the scuttled IPO by Jack Ma’s fin-tech company Ant Group.

Josh Berlin, BioCentury’s head of business development, says the Chinese government has signaled to investors for years that it is aiming to build an innovative life sciences sector.

“If you take a step back and look at the narrative over a longer time frame and what China has been trying to do over the last 10 years or so is I think more reassuring,” Berlin says.

Berlin also previews the themes of the upcoming eighth annual China Healthcare Summit, a hybrid digital and in person conference organized by BioCentury, BayHelix and McKinsey & Co taking place Nov. 16-19. Among the many planned sessions, Jones Day’s Tony Chen, who was last week’s special guest on the podcast, will lead a discussion on China’s recently enacted “Hatch-Waxman Act.”

In our monthly translational science segment featuring what’s on tap in BioCentury’s Distillery, Senior Editor Karen Tkach Tuzman covers research from a Dutch and Belgian team developing nanobodies against the viral GPCR US28 to clear out CMV reservoirs and treat CMV-associated brain cancer, as well as a paper from Children’s Hospital of Philadelphia on in utero base editing of the IDUA gene to treat a lethal lysosomal storage disease.

Turning to our Deals in Focus, Associate Editor Paul Bonanos discusses deals between Aristea Therapeutics Inc. and Arena Pharmaceuticals Inc. (NASDAQ:ARNA) and Eli Lilly and Co. (NYSE:LLY) and Kumquat Biosciences Inc.

Aristea Therapeutics Inc. did two deals at the same time, Bonanos explains: a traditional series B round that raised $63 million and a partnership with Arena, which committed $60 million up front, plus a $10 million contribution to that series B round, to help fund Phase IIb development of Aristea’s lead program to treat a rare blistering disorder called palmoplantar pustulosis. In exchange, Arena received an option to buy Aristea outright.

The sector has seen fairly little M&A lately, Bonanos says, noting that with the IPO window still wide open, a lot of companies are taking that route, and buyout deals have been few and far between. But the way Aristea’s CEO, James Mackay, told it, the deal made sense to the biotech as it feels its way through its options going forward.

San Diego-based Kumquat’s platform for developing small molecules to treat cancer attracted a deal with Lilly worth $70 million up front to the biotech, adding to the nine-figure sum it has quietly raised from venture investors over roughly two years.

Lilly gained options to an undisclosed number of molecules that stimulate tumor-specific immune responses, which the partners will discover and develop using Kumquat’s platform. CEO Yi Liu declined to give details about the platform, Bonanos says, but adds that the partners will seek to develop therapies that would “target specific tumor antigens in complex with the immune machinery.” The biotech is eligible for more than $2 billion in milestones, plus royalties.

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Arena Pharmaceuticals Inc.

Aristea Therapeutics Inc.

Eli Lilly and Co.

Kumquat Biosciences Inc.