China’s healthcare sector is at an inflection point, as the market develops. The COVID-19 pandemic has caused an unprecedented demand for medical innovation, research and development (R&D), albeit the ageing population is still the catalyst for the sector’s long-term growth. While the potential impact of the generic-quality consistency evaluation and new drug procurement reforms are likely to exert pressure on pricing, there is also a shift towards development due to innovation and R&D capabilities. A growing amount of private capital is being raised through private equity and venture capital, which underwrites most R&D in China and has accelerated after the COVID outbreak. The surge in private funding coincides with the ongoing development of public markets and IPO exits.
Business parks (BP) such as Shanghai Zhangjiang, which offers environmental-permissive R&D facilities, have largely benefited from policy revamp and capital injection in the healthcare sector. Our research discovered three forces propelling healthcare R&D capability and accelerating healthcare companies’ presence and strategic planning in business parks.
Figure 1: Number of biotech patents (in thousands)
Source: World Intellectual Property Organizaton, JLL Research
Figure 2: Market cap of Chinese healthcare companies
Source: Wind-Economic Database
Force #1: Healthcare companies seeking top R&D talents for innovation.
Healthcare companies are scrambling for talents as the market continues to expand. With competition intensifying across the industry demanding new capabilities, identifying, recruiting and retaining top talents will be crucial for R&D’s success. Additionally, one of the key catalysts in talent growth is the return of overseas-trained Chinese scientists who are increasingly attracted to domestic opportunities as the government pushes to develop the industry. Zhangjiang accounts for nearly one-fourth of total healthcare professionals in Shanghai and continues to attract high-level research talents as the innovation atmosphere elevates.
Figure 3: Distribution of Biomedical Researchers and Practitioners in Shanghai
Force #2: Higher R&D efficiency and lower expenditures through cooperation.
The number of new healthcare companies has risen steadily over the decade, rising dramatically in the past few years. As the number grows, companies are also agglomerating for increasing R&D efficiency and accessing talent resources. In Shanghai, Zhangjiang is one of the most clustered locations for healthcare companies. The biopharma R&D success rate is on average 7% once entering the clinical trial stage. Companies believe R&D collaboration and outsourcing are the most efficient ways to minimise research expenditures while improving R&D success rates. And this is one of the key drivers for healthcare industrial agglomeration.
Figure 4: Distribution of Shanghai Major Healthcare Companies
Force #3: Capital injection elevates healthcare R&D.
Shanghai’s healthcare industry leads the country in private capital funding, ahead of other major tier-1 cities. Moreover, the introduction of the Shanghai STAR board encourages healthcare companies to raise capital through the public market and provides investors with additional exit options. Once capital is raised, healthcare companies reinvest it back into R&D. This circulation drives healthcare innovation and elevates BP development. Ultimately, healthcare companies are also keen on expanding into BPs.
Among other BPs, those with environmental-permissive R&D buildings, and more importantly, with the aforementioned three key driving forces, i.e. talent attraction, industrial agglomeration and capitals, can step forward as the healthcare sector expansion continues.
