Little-known China biotech firm lures top global fund

Dynamic Power buys 17.4 million HK-listed shares of 3SBio Inc

NEW YORK: 3SBio Inc, a Chinese biotech company that’s seen its revenue double in past two years, recently caught the eye of one of the world’s best performing global funds.

Dynamic Power Global Growth Class – the top performer among the 1,000 mutual funds investing globally in the past five years – bought 17.4 million Hong Kong-listed shares of 3SBio a few months ago, making it the only Chinese healthcare stock in its US$1.2bil portfolio.

“I’m always looking for companies where there is not only growth, but the ability to sustain that growth,” Noah Blackstein, the Canadian fund manager said in an interview last month when asked why Dynamic Power allocated about one third of its capital to Chinese stocks including 3SBio.

3SBio, the Shenyang-based company with a market value of US$5.7bil, sells biopharmaceutical therapies for diseases including cancer.

Thanks to government policy support and an influx of capital to the sector, the company has seen its free cashflow – a key gauge of a company’s ability to generate cash and profit – accelerate in eight out of the last 10 years. That’s the longest growth streak among Asia’s 10 largest biotech firms.

China has been ramping up spending on its healthcare sector amid a rapidly aging population.

Having lagged behind the US and other developed markets on drug innovation for decades, the Asian nation has been overhauling its drug approval and reimbursement policies, helping spur a rush of capital into medical innovation.

Spending on medicine in China topped US$122bil last year as the incidences of diseases such as diabetes and cancer have surged, according to a report from health-technology firm Iqvia.

A growing middle class is demanding access to more sophisticated healthcare and is willing to pay for more expensive therapies such as biologic drugs.

The Toronto-based fund has produced a 171% total return since 2013, according to data compiled by Bloomberg. Blackstein noted the Chinese companies his fund owns are domestically focused technology, healthcare and retail companies, which also includes social media platform Weibo Corp and Alibaba Group.

3SBio’s earnings will likely climb about 26% this year, while revenue will increase 36%, according to analysts estimates compiled by Bloomberg.

Shares of 3SBio were little changed at HK$17.68 as of 2:51pm in Hong Kong yesterday following a more than 4% jump on Wednesday.

Even after a 72% rally in its share price in the past year, which outperformed an almost 50% gain in the MSCI China Health Care index, 3SBio still appears relatively cheap. Its price-to-free-cash flow ratio is the second lowest among its Asian peers. — Bloomberg