AT A time when geopolitical tensions are hitting industries from semiconductors to electric vehicles, pharmaceutical dealmaking has become a rare bright spot for collaboration between China and the West. Industry watchers are holding their breath to see how the incoming Trump administration changes that.
So far this year, seven major pharma companies have licensed or acquired molecules for new drugs originating from China, spending a total of at least US$3.15 billion in upfront cash and equity, according to DealForma. Others are boosting their on-the-ground presence in the hope of finding diamonds in the rough.
Every major drugmaker’s head of R&D has been to China at least once in the last year, according to an October report from Stifel Financial’s investment banking unit. AbbVie and Bristol-Myers Squibb have hosted dedicated partnering days in Shanghai to meet with local companies, while companies such as Roche Holding, Bayer and Eli Lilly have opened or will open incubators to build relationships with early-stage startups. At a recent, widely watched trade expo, Pfizer announced it will invest US$1 billion in China over the next five years, in part to work with local companies.
Even as US and European pharma companies decouple other parts of their businesses – moving away from Chinese research and development providers and creating separate production facilities in China, for China – biotech deals are looking too attractive to pass up.
“I have never seen so many multinationals coming to China searching,” said Darren Ji, the former head of Roche’s partnering activities in Asia and emerging markets. He added that the Shanghai biotech he co-founded and leads, Elpiscience Biopharmaceuticals, has entertained several multinationals.
China has a long history as an outsourcing hub for foreign pharmaceutical companies and as a producer of “me too” drugs that mimic what’s already on the market. Now, it is becoming a key hunting ground for truly novel therapies, in part thanks to a government initiative that has thrown support behind several cutting-edge industries. China has tripled its contributions to global asset licensing activities over the last six years, growing to 12 per cent of overall deals in 2023-24, McKinsey & Co wrote in a recent report.
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China’s growing prominence as a place to look for first-in-class or best-in-class assets at a reasonable price is causing a fundamental shift in the global dealmaking landscape.
“What you start to see is real innovation,” said Susan Galbraith, who heads up oncology research at AstraZeneca and has been visiting China to hunt for new drugs for two decades. The pace of learning and adaptation in the country is greater than “honestly, I think almost anywhere in the whole world,” she said.
Innovation hotspot
Scooping up assets from smaller biotech companies is routine for large pharma players. Research units at drugmakers do create their own molecules, but they also turn to other people’s discoveries to fill their pipeline, sometimes buying out those companies altogether. Roche, Merck & Co and Johnson & Johnson are among the most prolific dealmakers.
The current need to replenish portfolios is particularly stark as Big Pharma stares down patent expirations to 2030 on treatments for cancer, inflammatory disease and other conditions. The so-called patent cliff could jeopardise between US$180 billion and US$360 billion in annual sales, analysts estimate. Executives at some major drugmakers have placed a bigger emphasis on blockbusters – medicines that could bring in at least US$1 billion in annual revenue.
The track record of China’s homegrown therapies on the global stage is limited so far. Only five drugs from China have been approved by the US Food and Drug Administration, three of them in 2023. Among the five, Brukinsa, a treatment for blood cancer, and Carvykti, a cell therapy used to treat multiple myeloma, have beaten competitors in clinical efficacy or sales.
Questions remain as to whether the promising early data seen in Chinese trials of newer drug candidates can be replicated in larger, global trials. And it could be years before these molecules reach the market, if at all.
Yet multinational drugmakers are willing to bet that it is only a matter of time before Chinese science proves its worth.
Roche, which paid US$850 million upfront to license a portfolio of potential cancer treatments from Regor Therapeutics Group, is “constantly” monitoring the space, chief executive officer Thomas Schinecker told reporters in October. “We see that in the future there will also be a lot of innovation coming out of China,” he added.
It’s a sea change in a relatively short period, said Tim Opler, a managing director at Stifel.
“Ten years ago, Chinese companies were developing generic knockoffs and there was concern they didn’t even have the right ingredients. You might buy Chinese aspirin and it might not be aspirin,” Opler said. “Fast-forward 10 years, they are developing really good molecules that are competitive with what the best US biotechs are doing.”
Serious commitment
Chinese biomedical research is on the cusp of a breakthrough just as the industry starts to face serious headwinds.
Announced in 2015, Beijing’s “Made in China 2025” initiative ushered in regulatory reforms encouraging indigenous drug research, accelerating approvals and realigning domestic rules with global standards. A flood of venture capital money helped spawn biotechs set up by “sea turtles”, a local nickname for Chinese scientists who return to the country after gaining experience overseas at top universities and companies.
But China’s economic slowdown, and the broader pullback of foreign investors, have hit the sector hard. As it has become clear just how low prices have to go to win a share in the Chinese market, drug developers have also had to recalibrate sales expectations and thus the valuation of their experimental assets. In combination, these factors have starved young firms of the funding and resources required for the arduous, years-long journey towards drug approval.
Many startups that might otherwise have raised money through venture financing or public share sale have been forced to rely on deals instead.
If success is measured in terms of blockbuster drugs discovered in China, “we are not quite there yet”, said AstraZeneca’s Galbraith. “But if your marker is the quality of the science and the innovation of a capability that can lead to a future approved medicine, I think we are already there.”
Geopolitical threats
Companies Bloomberg spoke to for this story said trade tensions have not changed their dealmaking plans. However, threats of decoupling that started brewing under President Joe Biden are unlikely to ease under president-elect Donald Trump.
“Anything that’s going towards more geopolitical tension is not good,” Roche’s Schinecker said, noting the potential for supply chain disruption. “And this is not a topic for the pharma industry, it’s a topic for the world as a whole.”
The Biosecure Act, which would block certain Chinese life sciences service providers from accessing federally-funded contracts, is the most aggressive step yet in America’s push to onshore drug manufacturing. It has already passed the House and was widely expected to become law even before the election.
As Trump and his government appointees double down on the hawkish rhetoric, cross-border dealmaking may face heightened scrutiny.
Meanwhile, the recent detention and investigation of AstraZeneca’s China president, while seemingly unrelated to geopolitics, serves as a reminder that foreign companies often face unexpected hurdles in China.
“The timing couldn’t be worse” for geopolitical pressure to weigh on the boom in cross-border deals, according to Alex Harding, an entrepreneur-in-residence at US-based Atlas Venture, which builds and funds early-stage biotech startups.
“The flow of Chinese assets into Western companies has only recently begun in earnest, yet it feels like the spigot could be turned off at any time,” Harding wrote recently in Timmerman Report, a biotech publication.
Still, drugmakers see licensing deals – where multinational companies get full control of the assets, complete with intellectual property – as carrying lower risk than doing other types of business with China.
At a biotech conference in Europe in October, one of the big topics of conversation was why companies on the continent were having a hard time licensing their molecules to larger drugmakers.
“There’s competition from great molecules from China,” said Stifel’s Opler. “It’s a big change for our industry.” BLOOMBERG
