Soon after starting a new biotechnology company, David Li realized he needed to rethink his strategy.
Li had conducted the competitive research that biotechnology entrepreneurs typically undertake before seeking investment. He compiled a list of drug targets that his startup, Meliora Therapeutics, could pursue and compared them to potential competition.
Li quickly discovered that biotech in China was already working on many of the targets he had on his list. Curious, he traveled to Shanghai and Suzhou and witnessed a bustling scene of startups frantically getting to work.
“They don’t really think about the United States. They are just trying to create more value and stay alive to differentiate themselves from the next Chinese player,” he said. “They are moving quickly. There are a lot of them and they are just quite competitive.
Li’s experience illustrates a trend that could put pressure on biotech companies in the United States and change their drug development strategies. More and more major pharmaceutical companies are licensing experimental drugs from China. Venture capital firms are testing similar tactics by launching new U.S. startups around compounds from Chinese labs. This change has been sudden, with licensing deals multiplying rapidly over the past two years. And this is happening even as the shadow of competition between the United States and China in biotechnology grows longer.
Executives and investors interviewed by BioPharma Dive at the JP Morgan Healthcare conference this week share Li’s outlook. They expect such deals to accelerate and, in doing so, force U.S. biotechs to redouble their efforts. efforts to stand out.
“We’ve been warning people for some time we’re losing our edge,” said Paul Hastings, CEO of cell therapy maker Nkarta and former president of the U.S. lobbying group Biotechnology Innovation Organization. “Innovation is now upon us. »
There is perhaps no clearer example than ivonescimab, a drug developed by the Chinese company Akeso Therapeutics and licensed by the American company Summit Therapeutics. Recent results from a lung cancer study in China showed that ivonescimab outperformed Keytruda, Merck’s dominant immunotherapy and currently the pharmaceutical industry’s most lucrative product.
This discovery “puts emphasis on what is happening in China,” said Boris Zaïtra, head of business development at Roche, which sells a Keytruda competitor.
Rapidly evolving research
Today’s deal boom has its roots in the Chinese government’s efforts to improve the country’s biotechnology capabilities by increasing investment in technological innovation. In the life sciences, the initiative has provided funding, discounted or even free lab space, and grants to support what Li described as a “robust ecosystem” of biotechnology.
The results are clear. Places like Shanghai and Suzhou are home to a skilled workforce of scientists and hundreds of local companies that employ them. Science parks similar to the American biotechnology hubs of Cambridge, Massachusetts and San Francisco have emerged.
Chinese companies can generally move more quickly and more cheaply than their American counterparts. Startups can go from launch to clinical trials in 18 months or less, compared to a few years in the United States, Li estimated. Recruitment for clinical trials is rapid, while staffing and supply chain costs are lower , which helps companies move medicines more cost-effectively.
“If you’re a domestic company in China running a trial, just because of the networks you work within, you pay a fraction of what we pay, and there’s enough access to patients that you can move very quickly.” , said Andy Plump, head of research at Takeda Pharmaceutical. “All of these are catalysts. »
And what they have enabled is a large and growing stockpile of potential drugs, many of which are designed as “me too better” versions of existing drugs, analysts at investment bank Jefferies wrote in a report of December. Initially focused on oncology, China-based companies now produce high-quality compounds in several therapeutic areas, including autoimmune diseases and obesity.
“There was a huge investment boom in China, the cost of capital was very low and all these companies blew up huge pipelines,” said Alexis Borisy, a biotech investor and founder of the venture capital firm Curie.Bio. “Anything that anyone was doing in the biotech and pharmaceutical industry, you could probably find 10 to 50 versions of it in the Chinese ecosystem.”
I’m getting better too
For years now, Western biopharmaceutical executives have explored Chinese biotech lab pipelines – an exploration that has resulted in a handful of licensing deals and research collaborations. Borisy was one of them, creating a company in 2020 called EQRx that sought to import Chinese versions of already approved drugs into the United States and sell them at a lower cost. EQRx’s plan backfired amid the U.S. Food and Drug Administration’s scrutiny of drugs tested only on people in a single country.
But today, the pace of transactions is accelerating rapidly. There are several reasons for this. One of them, according to Plump, is improving the quality of the drug compounds being developed. “Me too”s become “better me”s that could outperform available therapies and generate significant revenue for companies – like BeiGene’s blood cancer drug Brukinsa, which in new prescriptions for the treatment of leukemia, surpassed two established drugs of the same type last. year.
Another reason, according to Plump, is that China-based companies are becoming more innovative, studying drug targets that may not yet have resulted in marketed drugs, or for which the most advanced competition is in first tests. Li notes how Chinese companies are tackling more difficult “engineering problems,” such as manufacturing complex, multifunctional antibody drugs or antibody-drug conjugates.
“There are so many (companies) that new assets will continue to come in,” Li said.
Just like in the United States, China-based biotech companies are also scrambling for funding, pushing them to consider licensing deals with multinational pharmaceutical companies. At the same time, these pharmaceutical companies are looking for cheap drugs that they can put into their pipelines, in anticipation of impending patent breaks. The two trends “collide,” said Kristina Burow, managing director of Arch Venture Partners. “I don’t see an end to this.”
The statistics support Burow’s point of view. According to Jefferies, the number and average value of transactions involving drugs developed in China reached record levels last year. Another report, by Stifel’s Tim Opler, showed that pharmaceutical companies now source about a third of their licensed molecules from China, an increase of about 10% to 12% between 2020 and 2022.
“I see huge opportunities for us to partner and work with Chinese companies,” said Takeda’s Plump.
Several venture-backed startups have also been created around Chinese-origin medicines, including Kailera Therapeutics, Verdiva Bio, Candid Therapeutics and Ouro Medicines, all of which launched with nine-figure funding rounds.
“A lot of very good quality molecules and data have emerged in China over the last couple of years,” said Robert Plenge, director of research at Bristol Myers Squibb. “It is no longer a matter of simply repeating what has been done with exactly the same type of molecule. »
Geopolitical risks
These agreements are taking place in an uncertain context. The U.S. Congress has spent the last year considering versions of the Biosecure Act, a bill that would block U.S. biotech companies from working with certain China-based pharmaceutical contract manufacturers. A House of Representatives committee is calling for new limits on clinical trials involving Chinese military hospitals. And the new Trump administration has threatened to impose tariffs that could impact all industrial sectors.
“We don’t know what this new administration will do,” said Jon Norris, chief executive of HSBC Innovation Banking.
The biosecurity law “continues to go sideways,” added Hastings, who believes any impact from the legislation, if passed, would be minimal. Instead, Hastings wonders if future tariffs could be more problematic. “There will be tariffs on other products from China. Does this include raw materials and innovation? It’s hard to imagine that won’t be the case,” he said.
But executives and investors expect deals to continue, meaning U.S. biotech companies will have to do more to compete.
“American companies will have to figure out what they can bring that others can’t,” Arch’s Burow said.
Borisy said startups working on novel drugs need to be more secretive than ever. “Don’t post. Don’t show up to a scientific meeting. Do not post a poster. Try to make your initial patent filing as obtuse as possible,” he cautioned.
“The second an article appears, or a poster at a scientific meeting, or a conference, or a patent, suppose it has launched a thousand ships.”
Those who are more advanced should assume that Chinese companies will be quick to move into potentially superior drugs. “The days where you could take out a bad molecule and open up a field are over,” he said.
Greater competition is not necessarily a bad thing, according to Neil Kumar, CEO of BridgeBio Pharma. Drug development could become more efficient as pharmaceutical companies buy drugs from a “cheaper” starting point and advance them more quickly.
Venture capital investments could be spent on new ideas, rather than creating a multitude of similar companies. “If all of a sudden it makes us less lemming,” Kumar said, “I have no problem with that. »
Li also argues that in the future, American companies must focus on “newness and innovation.” In his own company, Li now works on things “that we thought other people didn’t have access to.”
“The game has always been the same. Bring something very differentiated to the market,” he said. But “the bar is high”.
Gwendolyn Wu and Jacob Bell contributed reporting.
