Chinese Biotechs Defy Funding Slump, Set Sights on Global Markets

Despite an adverse funding panorama and looming geopolitical tensions, Chinese biotech is still thriving. Companies originating in China are advancing promising pipelines, going public, looking beyond China’s borders with a record 63 cross-region out-licensing deals in 2023, and attracting the attention of global pharma. Recent PharmaBoardroom interviewees weigh in on the local ecosystem, national reimbursement and opportunities further afield.

Truly Innovative Chinese Biotech

The country is shaking off its image as a producer of me-too drugs and demonstrating its scientific prowess through a biotech scene that is booming despite less than favourable conditions. “Innovation in biotech is real and significant in China,” confirms Li Chen, founder, executive director and CEO of diabetes-focused Hua Medicine.

“China has become a vibrant hub for innovation, yielding numerous first-in-class molecules,” maintains Xueming Qian, CEO & co-founder of the Hong Kong Stock Exchange listed Transcenta, a company that is advancing its first-line gastric cancer treatment into phase III trials.

Xu Ting, founder, chairman and CEO of Alphamab Oncology, a company that has developed and marketed the world’s first subcutaneously injectable PD-L1 inhibitor, has a perhaps more sobering view. “Before the pandemic, the biotech industry in China had been experiencing a bubble-like scenario with unrealistic valuations and euphoric venture capital activities.” Despite the COVID-19 pandemic drawing attention to the importance of innovation, the hard reality has not changed and “the real challenge lies in generating returns,” says Ting.

A worsening investment climate and the flight of foreign capital compounded by geopolitical tensions between the US and China, and the new US Biosecure Act have not helped. “There’s now a sense of questioning whether innovation in China, and its value both domestically and globally, represents a future opportunity,” laments Chen. “The liquidity of the Hong Kong Stock Exchange 18A [add-on to the Hong Kong Exchanges and Clearing Limited’s (HKEX) rules, allowing biotech companies with no revenue or profits to be listed] is running out, and US funds have offloaded all their Chinese investments,” Ting regrets.

A Challenging Domestic Market

Chinese biotechs are also facing the difficulties of the domestic market after a government pricing reform forced drugmakers to lower prices of innovative drugs in order to qualify for the national medical insurance scheme. “The national reimbursement system is a major player, and the bulk purchasing system is not sustainable for innovation,” says Ting.

However, for certain homegrown biotech entrepreneurs, especially those who have found alternative revenue streams such as biosimilars, the Chinese market is not without its appeal. “The Chinese market remains highly attractive, boasting a population of 1.4 billion and sustained GDP growth,” asserts Jiang Hua, CEO of Boan Biotech, a company acquired by Luye Pharma that has three biosimilars on the Chinese market.

While China’s reimbursement system is evolving, Hua expresses that “there is room for improvement, with lessons to be learned from Germany where pharmaceutical companies can initially set their own prices for new drugs, with government review and adjustment occurring later based on input from various stakeholders.”

“Creating a conducive investment and funding environment, along with supportive government reimbursement mechanisms, is crucial,” Transcenta’s Qian confers.

“Affordability is a crucial consideration, particularly in the Chinese market. The government’s involvement in pricing negotiations through the National Reimbursement Drug List (NRDL) significantly impacts our pricing strategy,” says Jasmine Cui, founder and CEO of Innocare, a biotech whose BTK inhibitor for haematological cancers has been approved for marketing in China.

Opportunities Beyond China

To sidestep the issues posed by the local market, biotechs are looking for growth abroad and in 2023 a record 63 cross-region out-licensing deals that surpassed USD 2.2 billion. “While we have already received approval for three products in China, our revenue aspirations extend beyond domestic markets,” says Boan’s Hua.

Most Chinese biotechs are ready to meet their objectives through combinations of independent development, partnerships with Big Pharma, or even acquisition. Jacobio, for example, reached a [now defunct] USD one billion licensing deal with AbbVie that would see the American pharma assume global development and commercialization for its SHP2 inhibitor, “marking a pivotal moment for Chinese biotech firms as it was the first major licensing deal for small molecule drugs in the country,” says chairman and CEO, Wang Yinxiang.

But partnerships are not solely for international markets and can be win-win for the domestic market as well. With the difficulties of predicting demand and pricing in the Chinese market, Hua Medicine looked to Bayer, signing an agreement that gave the German conglomerate exclusive rights to market its diabetes drug in China. “While multinational companies like Bayer bring extensive experience, it is not necessarily about better negotiation,” Hua’s Chen was quick to clarify. “In fact, Bayer greatly benefited from our negotiations with regulators and the National Reimbursement Drug List (NRDL), securing a favourable deal for our drug.”

Now that Hua has a product on the Chinese market, the company has ambitious goals not only for extending indications, but for reaching other regions. “We want to expand our market presence from China to the world, entering ten additional markets through partnerships or other means.”

“We are exploring licensing opportunities for markets like US, Europe and Japan,” Innocare’s Jasmine Cui also asserts. “In smaller markets, we may opt for self-launching or collaborate with local sales organizations. Additionally, we’re progressing towards FDA approval in the US, where licensing options are also under consideration.”

And the interest is not one-sided. Thanks to China’s thriving ecosystem and a need to expand portfolios as drugs lose exclusivity, Big Pharma has maintained its interest in China through M&A, licensing deals and partnerships. A couple of recent examples are AstraZeneca’s acquisition of the Chinese cell therapy biotech Gracell and Merck’s purchase last year of the Chinese rights and the option to go overseas with the Abbisko Therapeutics drug for benign joint tumours.

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