The world is smaller today than it has ever been. With the COVID-19 pandemic, we have seen the advantages of a connected international pharma and biotech industry, which was able to rapidly mobilize to provide solutions for this global threat. The pandemic is not the only opportunity for cross-border collaborations, however. With an increasing focus on healthcare innovation, the rapid evolution of Chinese biotech is bringing benefits to companies and patients around the world.
By Amy LeBlanc
BioCentury is a 25-year-old company based in California, providing business intelligence to the global biotech community. The company, which organizes the yearly biotech investor event BioEquity, opened its first operations in China less than a decade ago. Since then, BioCentury has been organizing an annual China Healthcare Summit to foster connections between Chinese biotech leaders and the rest of the world. BioVox spoke to Josh Berlin (Head of Global Business Development and China/Asia Strategy at BioCentury) about the rapid changes to the Chinese biotech ecosystem, and why the world should take notice!
When and why did BioCentury start operating in China?
Over the past decade, BioCentury noticed that Chinese healthcare market was really starting to evolve, moving from generics and Traditional Chinese Medicine into innovation. We were one of the earlier Western movers into China, aiming to capture what was happening there and be part of the ecosystem, like we are in the US and Europe.
It’s easy to say in hindsight, but it was a very good decision. Now, in 2020, the Chinese biotech landscape is almost unrecognizable from what it was even just five years ago. We really see this as an exciting market with interesting companies that are rapidly moving into globally competitive innovation.
Our goal at BioCentury is to help our Western audience understand what’s happening in China and to connect our Chinese friends with the international biotech ecosystem, because we really see China as part of the global industry. There are a lot of win-win opportunities for companies, investors and (even more importantly) for patients.
What prompted the sudden boom in Chinese biotech?
When I first started travelling to China around 15 years ago, biotech activity was limited to just a few companies. If you look at it now, there’s a new company appearing almost every other week. In a very short amount of time, it has become a thriving ecosystem.
I believe this expansive growth has been fueled, in part, by returning Chinese expats. Many of the first-generation leaders of Chinese biotech and investment originally studied or worked in the US, at top academic institutions and companies. Upon returning to China, they often spent time in the Chinese branches of multinational pharmaceutical companies.
When I first started travelling to China around 15 years ago, biotech activity was limited to just a few companies. If you look at it now, there’s a new company appearing almost every other week. In a very short amount of time, it has become a thriving ecosystem.
After a while, much like you see in the US or in Europe, many of these Chinese repatriates left the larger companies to start their own biotechs or VC funds. There is a lot of money in China, which means you now have a combination of both experienced leadership and the necessary capital to fuel private and early-stage companies. This has led to a rapid increase in the number of Chinese biotechs.
Because biotech is a relationship-based business, the connections between Chinese repatriates and their networks of former classmates and colleagues has generated a lot of deal flow between China and the US. This has brought an influx of IP through licensing agreements, which has allowed Chinese biotechs to jumpstart their pipeline and boost this rapid expansion of the sector.
How has the Chinese biotech market evolved over the past decade?
A big part of the equation is that the Hong Kong stock exchange changed its rules a few years ago to better suit biotech companies. Previously, a company needed a track record of profit, which doesn’t fit the biotech company model. With the new rules, Chinese start-ups can now complete an IPO pre-revenue and attract funds early on. Coupled with the new stock market in Shanghai, these changes have helped to complete the ecosystem. With an IPO on one of the Chinese markets, investors can achieve a successful exit with a biotech, giving them the confidence to reinvest their profits into the next generation of companies.
In addition to the biotechs, pharmaceutical companies are also taking advantage of these new market changes. Most large Chinese pharmaceutical companies are focused on generics or Traditional Chinese Medicine, not innovation. They have a different investor base, with a lower appetite for risk. So, they are setting up biotech subsidiaries and spin-offs, launching them on one of the local stock exchanges.
Has there been much change on the legal front?
There has been a big push from the government on regulatory and reimbursement reform. They have been hard at work, transforming the China FDA (the National Medical Products Administration (NMPA)) into an agency capable of regulating innovative products. There have been almost revolutionary regulatory changes in the past few years.
There is still more work to be done to implement the regulatory reforms, and in other areas more reforms may be needed, but directionally these are huge changes that benefit innovators.
There has been a big push from the government on regulatory and reimbursement reform… There have been almost revolutionary regulatory changes in the past few years.
The IP space is also rapidly evolving. There’s a major new patent amendment that just got passed, which introduces patent linkage. That is going to have a big impact on biotech, both for Chinese companies and Western companies doing business in China.
Read this previous BioVox article for more strategies when partnering with China.
The market size has grown enormously too, thanks partly to changes in the healthcare system. Increased public health coverage means that you now have roughly 1.4 billion Chinese citizens on government insurance, with innovative treatments being reimbursed.
What about the academic institutions: have they evolved in step with the rest of the ecosystem?
They are getting there, but I think translational research is taking a bit longer to accelerate than some of the other initiatives in the Chinese biotech scene. Some of that has to do with differences in the Chinese academic system; they simply don’t have a long history of professors launching biotech spin-offs. There is good science happening at the universities though, with an explosion of papers and IP. We’re starting to see the first few biotechs being founded by Chinese professors, so I think it is an evolving story. Over time, I fully expect academic institutions become a greater part of the Chinese biotech ecosystem.
What are the main opportunities in China for European biotechs?
Firstly, partnering with Chinese companies can be a good way for innovative European biotechs to monetize their pipeline in a non-dilutive manner. We’re seeing cross-border licensing deals where Chinese biotechs are paying USD 40 million up front, just for the China rights.
China is the second largest healthcare market in the world. Reaching that market could be very lucrative and obviously also helpful for a huge number of Chinese patients.
Given the regulatory reforms that have happened, Chinese clinical trials have also become a potential way to accelerate clinical development. China has a very quick patient recruitment process, because there are so many patients. This is especially true for certain indications that are more prevalent in Asia.
There are also investment opportunities, which can be a combination of both financing and strategic partnerships. A Belgian example is the eTheRNA deal signed this summer, which included both Chinese investors in the syndicate but also a potential deal for licensing and manufacturing.
Read this previous BioVox article for more on the eTheRNA and other Belgian biotech deals with China.
Then of course there’s the commercial opportunity: China is the second largest healthcare market in the world. Reaching that market could be very lucrative and obviously also helpful for a huge number of Chinese patients. I don’t want to paint a totally rosy picture though: China is a challenging market, with differences in language and culture. If you’re looking to go it alone, it is going to be very challenging. You’ll need a trusted partner to help you navigate the system.
Are there many opportunities the other way around: for investors or companies interested in Chinese innovation?
We think so, yes. Chinese biotechs are starting to reach the stage where they have their own innovative pipelines. Many of them are looking to out-license their products for ex-China rights to European or US partners. AbbVie, for example, signed a deal earlier this year for the licensing rights to an oncology compound developed by Chinese biotech I-Mab, with a USD 180 million upfront payment and lot of milestones. This is definitely a new trend, but we think this will be a big opportunity for European companies in the future. Savvy biopharma executives who are quick off the bat will be the ones who reap the rewards from these partnering opportunities.
Read this previous BioVox article for a Belgian fund’s perspective on Chinese investors.
So, we should keep a keen eye on how things are evolving in China?
Absolutely. The Chinese drive to become leaders in the global biopharma ecosystem is not going away. There are a lot of very sharp biotech leaders who are all looking to build globally competitive companies. Almost every Chinese biotech CEO I know wants their company to be the next Amgen or Genentech. Are all of them going to get there? No. This is a difficult, risky business. There will be failures in Chinese biotech as there are failures in European and US biotech. But I believe Chinese biotech will become an important pillar of the global biotech ecosystem and I would bet on it happening a lot sooner than people expect.
And to me, that’s great! Because it’s good for patients. When SARS hit, there was almost no Chinese biotech industry. But with COVID-19, China’s emerging ecosystem has helped contribute to the world’s efforts to develop therapeutics, vaccines and diagnostics for the virus. At the end of the day, if myself or one of my loved ones has a disease and there is a potential therapy, I don’t really care where it comes from; I care that it’s safe, effective and high quality. And I think the generation of biotech leaders in China have that same attitude and that same drive. So, I find Chinese biotech very exciting. I think it presents a great opportunity for European biotechs to collaborate with their peers in China, to the mutual benefit of both companies and patients.
This article was sponsored by Agio Capital & Business Solutions.
