At the Ninth China Biomed Innovation and Investment Conference, Dr. Kan Chen, Partner and Healthcare Co-Lead at Qiming Venture Partners, delivered an insightful keynote titled "Perspectives on China's Pharmaceutical Innovations and Investment Outlook in a Globalized Competitive Environment." Kan explored the remarkable progress of China's pharmaceutical innovations, the strategies driving its globalization, and the challenges and opportunities it has encountered along the way.
Accelerating Globalization of China's Pharmaceutical Innovations
Kan highlighted the transformative progress of China's pharmaceutical industry's innovations in recent years, particularly its integration into the global ecosystem. According to UBS data, between 2020 and 2023, licensing-out deals by Chinese biotech firms reached record highs, reflecting their growing recognition on the international stage.
Unlike earlier phases when cost advantages were a primary attraction, this new wave of globalization is driven by the clinical value of Chinese innovations. Global pharmaceutical companies are increasingly prioritizing the therapeutic efficacy of Chinese-developed drugs. This shift underscores Chinese biotech's growing strength and potential in research and development (R&D).
From a financing perspective, Kan pointed out that, for the first time, the total value of licensing-out deals surpassed the amount of financing raised by Chinese innovative drug companies last year. This milestone has alleviated financial pressures for biotech firms, enabling them to reinvest in subsequent R&D and foster a virtuous cycle of innovation. Additionally, new overseas expansion models have opened alternative financial return channels beyond IPOs, reducing reliance on single exit strategies while enhancing investment stability and diversity.
Kan cited landmark achievements that highlight the competitiveness of Chinese pharmaceuticals. For instance, BeiGene's drugs outperformed the gold standard drugs developed by Johnson & Johnson and AbbVie in head-to-head trials. Survival curve data clearly demonstrate significant efficacy advantages of new Chinese drugs. Similarly, Legend Biotech's Carvykti leads over competitor Bristol Myers Squibb's Abecma, and Akeso's PD-1/VEGF bispecific antibody excelled in comparison with domestic standard treatments. These successes signify the emergence of Chinese innovations as global frontrunners.
Two Key Dimensions of Chinese Pharmaceutical Competitiveness
Kan discussed the dual dimensions of competitiveness in Chinese pharmaceutical innovation: crowded markets and first-in-class breakthroughs.
In crowded markets, intense competition has fueled rapid innovation. For example, in the PD-1/PD-L1 space, approximately 130 products are either in development or already approved, while the GLP-1 market has over 700 projects under development as of mid-2023. Such fierce competition drives companies to optimize R&D strategies, refine molecule selection, and enhance clinical efforts. This dynamic has led to the development of highly effective therapies that stand out in the market.
On the other hand, Chinese biotech companies are achieving significant first-in-class breakthroughs. Biokin Pharmaceutical's HER3/EGFR bispecific ADC has established a collaborative development partnership with Bristol Myers Squibb; Akeso's PD-1/VEGF dual-antibody has demonstrated unique clinical advantages, leading to a collaboration with Summit; RemeGen developed a BAFF/April dual antagonist (with a similar product developed by US-based Alpine Immune, which was ultimately acquired by Vertex for $4.9 billion); and Chimagen's CD3/CD19/CD20 innovations were acquired by GSK. These achievements demonstrate that Chinese companies are increasingly shaping global innovation trends rather than merely following them.
The key advantages driving this progress are China's speed and cost-effectiveness in clinical trials. Centralized clinical resources, concentrated in leading hospitals, combined with an efficient patient recruitment system, enable faster trial completion. This model creates more clinical opportunities, resulting in higher success rates and reduced risks of failure. As the advantages of speed and cost-effectiveness continue to strengthen, Chinese biotech companies are poised to maintain a significant edge in the global market.
Diverse Models for Global Expansion
Kan outlined the diverse pathways Chinese biotech companies are employing to expand internationally.
The licensing-out model remains widely used, including upfront payments, milestone payments, and revenue-sharing arrangements. It is attractive to large pharmaceutical companies because it helps manage drug development risks and strategic adjustments. For instance, if a pharmaceutical giant changes its direction, it can halt subsequent payments according to the contract, controlling risks. However, payments are recorded as expenses, limiting their size. For biotech companies, this model generates quick cash and reduces equity dilution. However, European and American investors may be cautious, as transferring future revenue rights could influence investment decisions and complicate subsequent financing or IPOs.
The second model is the asset purchase, where large pharmaceutical companies purchase specific assets, either one-time or in stages, from biotech firms rather than entire equity stakes. In this model, payment amounts are typically higher and are treated as asset transactions rather than expenses, avoiding a direct impact on the pharmaceutical company's profits while offering the potential for asset appreciation. For biotech companies, while they can secure substantial one-time cash, they relinquish control over the assets, potentially limiting future development. From the perspective of biotech investors, they must consider potential changes in the company's future profit model and explore alternative exit strategies.
The co-development model is a partnership-based approach where global pharmaceutical giants and Chinese biotech firms collaborate to share both risks and rewards. However, multi-party collaboration introduces coordination challenges, requiring efficient communication and collaborative mechanisms. Biotech companies retain nearly half of the asset rights but must also bear substantial clinical expenditures, particularly when initial payments primarily fund clinical research. From an investment perspective, this model is relatively stable. As long as the biotech company is competitive on the global stage, investors are usually willing to invest, and the company has the opportunity to exit through an IPO, though the capital requirements are relatively large.
The NewCo model, increasingly adopted in recent years, encompasses three key functions. First, pipeline segregation. A biotech company's valuation is typically driven by its most advanced assets, leaving others undervalued. The NewCo model separates these undervalued assets into a new company, unlocking their potential. This strategy, mature in the US, has been gradually introduced to China. Second, valuation reset. When the parent company faces financing challenges due to inflated valuations, the NewCo establishes a more reasonable valuation, attracting new investments. By bringing in US executives, companies can leverage their expertise in capital markets and business development, enhancing operational management and market competitiveness, and creating favorable conditions for future exit opportunities.
Beyond that, there are overseas IPOs, and mergers and acquisitions (M&As). Given market trends, Kan suggests that future Chinese pharmaceutical sectors may see an increase in M&As. With China's growing pharmaceutical innovation capabilities, acquisitions in the $1-2 billion range are likely to rise, positioning Chinese companies more prominently in the global M&A market.
Strategic Outlook for the Future
While acknowledging the impressive achievements of China's pharmaceutical innovations, Kan emphasized the challenges that remain. Foundational technologies, such as gene editing and bispecific antibodies, still require further development. Although China is gradually transitioning from a category follower to a category leader, there remains a lack of first-in-class target discovery. Additionally, infrastructure and development in research hospitals lag behind. Translational scientific capabilities need strengthening, particularly in areas such as indication selection and clinical pharmacology modeling.
To address these challenges, Kan called for a globally integrated approach. By leveraging international clinical and regulatory resources, Chinese companies can enhance the adaptability and competitiveness of their products in global markets. Partnerships with international players can further improve R&D efficiency and lower costs.
Kan also highlighted the growing interest of the US pharmaceutical companies in conducting clinical research in China, underscoring the value of the country's clinical resources. He encouraged Chinese biotech firms to adopt global collaborative strategies, expand beyond local markets, and deliver innovative, high-quality medical solutions to patients worldwide, contributing to the advancement of global healthcare.
