A Clever Exit Move: Turning 180 Million in Three Years

By | Qian Ren

An unusual capital exit has emerged in China's biopharma sector. An Yong (Waves) has learned exclusively that CBC Group's R-Bridge Credit Fund recently achieved a successful exit from biopharmaceutical company Paratek through a royalty financing deal. The investment began in December 2020, when R-Bridge provided $60 million to Paratek — at a time when its drug had not yet launched in China. The two parties agreed that repayment would come from a percentage of net sales revenue from Paratek's core product Nuzyra® in the US, plus all royalty payments from Greater China under Paratek's licensing agreement with its regional partner Zai Lab. This exit resulted from Paratek's early repayment within the agreed timeframe, bringing CBC a total of $85 million in repayment and revenue share. This means CBC recouped its principal in under three years without diluting the company's equity, while securing $25 million in returns. For CBC Group, this represents an active, innovative move by a healthcare PE firm previously known for its dexterity in the primary market. For the industry at present, it may be a more astute solution.

Royalty financing is an application of private credit in pharmaceuticals, characterized by long tenors, flexible structures, and customizable repayment schedules. The approach is well-established in the US but remains uncommon in China. Unlike traditional primary market investing, where capital is exchanged for equity, royalty financing essentially targets companies at the commercialization stage — those with products already on or nearing the market but with limited cash on hand — focusing on cash-flow assets independent of capital market fluctuations, with returns coming from a share of the company's revenue. In biopharma, an industry requiring long cycles and still relying primarily on IPOs and M&A for exits, royalty financing offers an alternative path.

What Kind of "Miracle" Money-Making Method?

At the end of 2019, when CBC Group CEO Fu Wei was fundraising in the Middle East, the head of a sovereign fund there asked: Could you establish a fund specifically targeting cash-generating assets? The underlying message was to create a class of investments not directly correlated with capital market and geopolitical risks, without being constrained by form.

At the time, royalty financing — already mature in the US — was virtually unknown in Asia. The primary market was in full sprint, with equity capital passing the baton to inflate valuations, and few recognized the challenges ahead.

But Fu moved quickly. He tailored a product for what would become the sole LP of R-Bridge Credit Fund I, a Middle Eastern sovereign wealth fund, recruited a credit investment team, and deployed the $300 million raised across six deals. R-Bridge Fund I is projected to deliver double-digit net returns to investors.

Fu walked An Yong (Waves) through the math: a patented drug typically has a 10-15 year patent life; once it reaches the market, if each royalty investment can generate returns above 10% during this period, the final investment multiple would be roughly 2.5-3x.

Pharmaceuticals is a classic technology- and capital-intensive industry with long development cycles and substantial funding needs. Royalty-based financing does not invest directly in the pharmaceutical company but rather in the rights to a specific drug — typically purchasing royalties on approved or soon-to-be-approved drugs from the patent holder.

The leader among foreign royalty financing institutions is Royalty Pharma. Its 2022 financial report showed the firm held royalty interests on 35 commercialized products, generating $2.1 billion in revenue for the year from these products alone.

Another set of figures is even more compelling: from 2012 to 2022, Royalty Pharma spent $8.3 billion acquiring royalties, milestone payments, and related assets on development-stage candidates. As of January 31, 2023, $6.4 billion worth of these acquisitions had received approval — a success rate of 77%.

The first publicly disclosed royalty investment in China's biopharma industry came in March 2022, when R-Bridge Credit Fund invested $40 million in YishengBio. The company focuses on developing and commercializing innovative biologics for infectious diseases and oncology; its core product YSJA (Yisheng Jun'an) is the first aluminum-adjuvant-free lyophilized rabies vaccine developed in China, with over 100 million doses administered domestically.

For companies, unlocking future drug value to meet near-term needs without diluting equity is itself a shrewd solution.

Paratek focuses on antibiotic resistance research and was at the commercialization stage when it was acquired by Novo Holdings and Gurnet Point for $462 million in September this year. While antibiotics hold significant potential in China, few US investors would factor the company's future value in the Chinese market into their valuation models. Fu sees this as an opportunity for Asia-focused investment institutions.

In retrospect, this investment provided Paratek with ample funding for future pipeline development and helped replace its then-high-cost debt. On the day the financing was announced, Paratek's stock price jumped 30%.

"When it comes to Asian healthcare companies or global companies with Asian partners, private credit and royalty models can be welcome capital solutions," said Dr. Michael Keyoung, Senior Managing Director at CBC Group and Head of Credit Funds. He believes the successful exit of the Paratek project reflects the preference of Asian and global healthcare companies for private credit financing amid today's challenging capital markets.

An Option

As China's healthcare expenditure and market size continue to grow, companies reaching a certain scale inevitably develop appetite for credit to expand operations, conduct M&A, and execute capital maneuvers. Yet traditional financial institutions lack the capability to assess credit opportunities in healthcare, leaving such companies underserved.

This has created opportunities for private credit investments. Fu told An Yong (Waves) that as a strategy already extensively validated in developed markets and scalable, US healthcare private credit stands at roughly $40 billion; "I expect the China market to exceed 100 billion RMB." To capture this opportunity, Fu assembled a team with both healthcare credit transaction and project development capabilities. The head, Michael Keyoung, is an MD who had founded two healthcare companies before joining in 2017 and previously served as head of pan-Asia for a US venture capital firm. Managing Director Ling Cheng previously worked at CDH Investments and Deutsche Bank, with extensive experience in private credit, investment banking, and insurance. Managing Director Cheng Tao held positions at J.P. Morgan and Deutsche Bank; Managing Director Lin Yu worked at Oppenheimer, BTIG's healthcare investment banking division, and KKR's healthcare private equity team. The senior executives each bring over 20 years of relevant industry experience.

Founded in 2014, CBC Group has built its reputation on an "investment plus heavy operational involvement" strategy, with AUM exceeding 50 billion RMB, making it arguably the fastest-growing healthcare fund in Asia-Pacific. Over the past three years, this PE firm has evolved from pure equity investing into an asset management platform — even a life sciences industrial facilities platform. Evidence of this extension across product categories includes controlling acquisitions, fixed-income funds, and real estate funds, covering PE (incubation, buyout), R-Bridge Credit Fund, CBC Healthcare Properties Platform, and Jianqiao Growth Fund.

Particularly notable is the CBC Healthcare Properties Platform, established in 2020, which raised $500 million in its first round from APG, the Netherlands' largest pension asset manager, and CBC Group itself. It recently held its second close, bringing total fundraising to $875 million, with Mubadala, a prominent Abu Dhabi sovereign fund, joining as a new LP.

An Yong (Waves) understands that the CBC Healthcare Properties Platform team comprises 55 members who have delivered industrial facility services to over 70 leading Chinese and global life sciences companies, completing more than 100 complex life sciences industrial facility projects with total planning and design exceeding 10 million square meters of life sciences industrial facilities.

At the end of 2021, CBC Group, Hefei Industry Investment Group, and Feidong County jointly established Hyacinth Bio, focused on chronic diseases and age-related conditions. Last year, Hyacinth acquired part of Takeda's prescription drug business in mainland China; after formally taking over Takeda's pipeline, Hyacinth's sales grew 47% in Q2-Q4 2022, with scale approaching 2 billion RMB.

This April, Hyacinth announced a $315 million new funding round, co-led by CBC Group and Mubadala Investment Company — to some degree validating CBC's capability to partner with industry-focused local governments.

And now, Fu is offering LPs seeking exits and current yield more choices, helping them find long-term, steadily growing cash flows. "This is precisely what domestic LPs have been craving."

Image source | IC photo

Layout | Xuemei Guo