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Observations on Chinese Pharmaceutical Companies Going Abroad

This is an English translation of the original article featuring Chris Lee's observations of Chinese companies going abroad, published by 21st Century Business Herald. Read the original version here.


Chinese going abroad

Exclusive Interview with Chris Lee, Founder and CEO of VentureBlick: The R&D track is crowded, and “going abroad” requires careful planning


Reported by Ji Yuanyuan and Han Liming from 21st Century Business Herald, Shanghai.


“As Chinese capital becomes more discerning and selective, it will drive the search for high-quality investment opportunities within China and abroad, fostering broader international collaborations.”

 As the global pharmaceutical market enters a new phase of development, this year both multinational pharmaceutical giants (MNCs) and emerging biopharmaceutical companies are facing market challenges. According to statistics from BioSpace, in the first nine months of this year, the biopharmaceutical industry has seen over 14,000 layoffs, a significant increase from 10,000 in the same period last year.

 

China’s innovative pharmaceutical industry is also in the midst of this adjustment cycle. The tightening of the IPO market has led to a "capital winter" in the primary market, severely impacting the cash flow of R&D-focused biopharmaceutical companies. To cope with financial pressures, many companies are choosing to partner with large pharmaceutical companies (Big Pharma), using licensing agreements and asset sales to bolster their cash reserves. At the same time, large pharmaceutical companies with stronger financial backing are actively pursuing acquisitions and mergers to expand their pipelines with new products.

 

Will this trend of mergers and acquisitions continue? Can China’s numerous innovative pharmaceutical companies stand out and become attractive investment targets? After ensuring their survival, how will Chinese innovators catch up to the global advanced level?

 

In an interview with 21st Century Business Herald, Chris Lee, the founder and CEO of VentureBlick, pointed out that Chinese healthcare companies are facing unprecedented challenges in financing and going public. For a long time, China has attracted significant capital to the biopharmaceutical sector, fuelled by strong investment enthusiasm but potentially lacking sufficient rationality, leading to limited investment returns. Now, both the government and some fund managers are recognising this and are becoming more cautious with investments in the biopharmaceutical field, tightening IPO and financing conditions to reduce market bubbles.


"However, this is not necessarily a bad thing. From a global perspective, both the U.S. and South Korea have gone through similar phases. It’s an inevitable part of industry development and also an opportunity to identify truly promising companies. Although the Chinese market is vast, it only accounts for 6.7% of the global biotech industry. As Chinese capital becomes more rational and selective, it will push them to seek high-quality investment opportunities both domestically and abroad, leading to broader international cooperation," Lee said. He believes that while the "winter" of the pharmaceutical market has lasted for some time, the arrival of spring is not far off. Some companies may be eliminated in this process, but those with real strength will survive.

 

Breaking Through the Investment and Financing Slowdown

With changes in the global economic landscape, investment and financing activities in the biopharmaceutical industry, as well as the number of IPOs, have declined. The era of high valuations for global biotech companies is over.

 

Data from consulting firms shows that in the first half of 2024, there were 121 investment and financing events in China's new drug sector, with total funding reaching 18.073 billion yuan. Although the effects of the "capital winter" persist, investor enthusiasm for the biopharmaceutical field has not entirely dissipated. In recent years, investors poured money almost blindly into life sciences and biopharmaceuticals, hoping for high returns, often without careful consideration.

 

However, as awareness grows about the limited chances of success, investors are becoming more cautious. The government has also intervened, raising the bar for listing companies with potential. Nevertheless, the appeal of innovative drugs remains strong, with fields such as nucleic acid drugs, gene therapy, conjugate therapies, and peptides still attracting substantial funding.

 

A recent feature article in Nature Biotechnology analysed that while the number of Biotech IPOs remains low this year, the total amount raised has surpassed that of 2022 and 2023. Moreover, despite fewer rounds of financing, the average amount per round has increased, with investors preferring later-stage projects that have clear evidence of clinical differentiation. Funding is flowing into clinical-stage companies in hot areas like obesity, autoimmune diseases, and neuropsychiatric conditions.

 

The article also emphasised that as China’s biopharmaceutical industry transitions from generics to innovation, the quality of local innovative drug assets is improving. Compared to similar assets in the U.S., Chinese assets are still undervalued, making them highly attractive to Western investors seeking investment opportunities.

 

Chris Lee highlighted that from a historical perspective, economies like the U.S. and South Korea went through a process of imitation, copying, and eventually surpassing their predecessors. China’s biopharmaceutical industry is also in this catch-up phase and has accumulated a wealth of experience and advantages, with rapid growth. Additionally, China has a large domestic market, where technologies and ideas can quickly gain commercial feedback. From this standpoint, China’s healthcare industry is not far from catching up with the world.

 

Currently, Chinese products dominate in many industries. In hospitals, especially large ones, most products used to be imported, with Chinese products rarely regarded as advanced. But now, domestic products share half the market with imports. "The only area that needs improvement is how to better support innovative companies, particularly in healthcare, through policies and the broader environment. Policy support is essential for the high-quality development of the pharmaceutical industry," Lee said. He believes that at this stage, "innovation," "high quality," and "going global" have become key themes for China’s biopharmaceutical industry. While the government has introduced favorable policies, there are still limited practical measures in place. More concrete actions are needed to benefit a larger number of companies.

 

Targeting the U.S. Market?

"Going global" has become a key strategy for many domestic pharmaceutical companies to expand their market share, helping them achieve direct economic benefits.

 

For example, BeiGene, a leading domestic pharmaceutical company in "going global," recently announced that its product, tislelizumab (brand name: Baizean), has officially been commercialised in the U.S. for the treatment of adults with esophageal squamous cell carcinoma (ESCC) who cannot be surgically removed or have metastatic ESCC after prior systemic chemotherapy (excluding PD-1/L1 inhibitors).

 

According to BeiGene, the pricing of tislelizumab is 10% lower than other approved PD-1 therapies for this indication, with an average wholesale acquisition cost of $15,075 per month (approximately 106,300 yuan).

 

Publicly available data shows that other PD-1 therapies approved for this indication include Merck’s Keytruda (pembrolizumab, known as "K drug") and Bristol Myers Squibb’s Opdivo (nivolumab, known as "O drug"). Keytruda’s price in the U.S. is $4,800 (approximately 33,000 yuan) for a 100mg/4ml specification, while Opdivo is priced around $6,500 (approximately 46,000 yuan) for a 240mg specification.

 

In comparison, the U.S. price of tislelizumab for the same specification is about $4,320 (approximately 30,500 yuan). By contrast, tislelizumab was priced at 10,688 yuan per 100mg upon its initial launch in China, and after negotiations for inclusion in the national medical insurance, the current price has been adjusted to 1,253.53 yuan per dose, with patients only paying about 376 yuan per dose after insurance coverage. This means that the price of tislelizumab in the U.S. is about 20 times higher than in China.

 

This situation has prompted many domestic pharmaceutical companies to prioritize the U.S. market when selecting "going global" destinations. However, Lee pointed out that although Chinese pharmaceutical and medical device companies are more inclined to enter the U.S. market, geopolitical factors and fierce market competition present undeniable challenges. While Southeast Asia and Africa have limited potential and varying market access regulations, there are also many mid-level developed countries that offer large market sizes and pricing advantages.

 

At the same time, domestic pharmaceutical companies face many challenges in the process of "going global." In Lee’s view, the first issue to address is patient data sharing. There are significant restrictions on sharing domestic patient data in international multi-centre clinical trials. Second, local companies still have gaps in understanding the process of "going global." While some domestic medical device technologies are already on par with international standards, many companies remain focused on the domestic market, lacking the confidence to go global. Additionally, for those attempting to expand internationally, there is often a lack of systematic planning. Medical products require more than market entry; they also need to focus on pricing, implementation, and long-term service, which cannot be achieved solely through distributors.

 

"For Chinese companies looking to enter the U.S. market, a significant amount of resources is required, and not all companies can bear such costs. Moreover, once they enter, it is very difficult to exit if they fail. Especially for companies with little international experience, it may be more practical to start with mid-income countries, accumulate experience, and then expand to developed markets," Lee said. He predicted that in the near future, large Chinese companies will acquire well-known multinational pharmaceutical companies. Before that happens, Chinese firms need to adopt a more systematic approach to globalization.

 

How Difficult Is Steady International Expansion?

Observing the current market, it is clear that many domestic innovative pharmaceutical companies are actively expanding into international markets, each choosing different development paths.

 

In terms of international strategies, since 2023, the license-out model has become one of the main pathways for the globalisation of China’s pharmaceutical industry. This trend has been driven by the increasing recognition of the value of Chinese innovative drug assets by international pharmaceutical companies such as GSK, Novartis, BMS, Roche, and Merck. The overseas rights acquired by these multinational companies span various fields, including chemical drugs, antibody-drug conjugates (ADC), and CAR-T therapies.

 

It is worth noting that recent license-out deals are no longer limited to biotechnology giants like BeiGene and Innovent Biologics. This year, the "NewCo" model has emerged as another innovative pathway for the globalization of biopharmaceutical companies. According to incomplete statistics from 21st Century Business Herald, at least four domestic companies have.

 

A pharmaceutical industry analyst noted that the NewCo model essentially involves treating technology as an investment and collaborating with foreign investors, who are often large private equity (PE) firms. Together, they establish a new company overseas, with the technology as its core asset, while the investors provide funding. Although the initial payment may be lower than in traditional licensing agreements, investors receive equity in the company. In this model, external investors also bring management expertise and technical talent to help operate the business.

 

Typically, in practice, domestic companies grant a small amount of funding to the new entity, which is co-owned by both the company and external investors. During product development, the company may also collaborate with other strategic projects. This model can have a significant impact on the original company. Some of the cash flow returns can support other business areas, and the company retains a say in the technological improvements. Moreover, this approach offers the possibility of participating in future potential returns.

 

While the initial returns from the NewCo model may appear more promising compared to traditional licensing, the overall revenue for the company providing the technology may be lower. Additionally, if companies become overly reliant on licensing, they could face setbacks if a major multinational company adjusts its strategy and stops investing in that field. As a result, this business model may prove more efficient than traditional licensing.

 

However, "going global" is not a one-size-fits-all solution. Chris Lee believes that regardless of the approach taken, success requires patience. He frequently observes companies eager to sell their products and rapidly expand overseas, hoping for quick sales. Yet, any successful venture requires time for thorough groundwork and preparation.

 

“Recognition from others is more important than just feeling good about yourself. Perception should not be self-limiting; it should be validated by others. We often see Chinese clients struggle with this. They have numerous products and market options, but they often lack thorough research. Regardless of how they choose to 'go global,' significant investment and detailed preparation are necessary. Unfortunately, most companies are unwilling to do this preparation. They prefer to test the waters first and retreat if things don’t work out. This reluctance to gradually build up is the biggest challenge we currently face,” said Lee.

 

Maintaining Innovation Momentum

As many domestic pharmaceutical companies aggressively pursue international market expansion, the proposed U.S. BIOSECURE Act has stirred up significant controversy since the end of 2023, casting a shadow over Chinese biotech firms. There are concerns in the industry that if this bill becomes law, it could severely impact China’s entire biopharmaceutical industry, particularly those companies already on the path to "going global."

 

Amid these multiple challenges, some companies are beginning to contemplate a graceful exit. Since the start of 2024, Chinese innovative pharmaceutical companies have also been swept up in a wave of acquisitions. On January 5, Novartis announced its acquisition of Chinook Therapeutics; in March, U.S.-listed Nuvation Bio acquired AnHeart Theraputicsin an all-stock transaction; and on September 30, Roche’s Genentech reached a deal with RegorPharmaceuticals to acquire its next-generation CDK inhibitor portfolio for $850 million upfront and potential milestone payments. This deal set a new record for an upfront payment in the out-licensing of a Chinese-developed molecule, surpassing the previous $800 million deal between BMS and Biokin Pharmaceutical’s ADC BL-B01D1.

 

Chinese biotech firms are also seeing major M&A deals. On October 7, Genor Biopharma announced an agreement to merge with Edding Pharmaceuticals, with the new company named Edding Genor Group Holdings Ltd.

 

Industry experts report that in the first half of 2024, multinational pharmaceutical companies continued to increase their acquisition of Chinese innovative drug companies, with a series of major deals. Many multinational firms are seeking high-quality Chinese assets to enhance market competitiveness through resource integration. Public data shows that in the first half of 2024, Chinese drug companies signed 31 different types of licensing deals related to innovative drugs. Of these, 33% were for pre-clinical stage drugs, 39% were for drugs in phase 2 or 3 clinical trials, and four drugs were already approved for marketing.

 

Acquiring new technologies and products through mergers and partnerships has become a key strategy for multinational pharmaceutical companies to enhance their market position. In the past, such strategies were used primarily to eliminate competitors through acquisition, through overpaid deals to end the competitors. Now, companies adopt this approach to seek real innovation from sources of technology all over the world, including China, Korea, Israel, and Ireland. In Chris Lee’s view, Chinese companies are making significant investments and should seek innovation globally, not just within China.

 

Which projects will attract attention from global giants in the future? Lee believes that, on one hand, the domestic drug development pipeline is overcrowded, with most funding directed toward hot fields like oncology. Yet, China has a vast population suffering from chronic conditions like diabetes and hypertension, representing a large and lucrative market that pharmaceutical companies should not overlook. On the other hand, as multinational pharmaceutical companies grow, acquisitions and technology collaborations are a natural part of their expansion. However, domestic pharmaceutical companies are relatively inexperienced in this area. Chinese firms should open up to international investment and clinical case studies early on to encourage greater technological integration, rather than simply aiming to sell the company later.

 

“Any innovation that is cost-effective is a good deal. But for multinational companies, they tend to seek out specific innovations that can complement their existing technologies, mechanisms, or action plans. They look for these specific elements rather than a breakthrough in an entirely new field. They are more inclined to retain the research results they have already invested heavily in, rather than abandoning their previous efforts to chart a completely new course. Therefore, during the development process, they are looking for technologies or products that can help them strengthen their existing advantages,” said Lee.


This is an English translation of the original article published by 21st Century Business Herald. Read the original version here.


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