Soon after starting a new biotechnology company, David Li realized he needed to rethink his strategy.
Li had been conducting the competitive research biotech entrepreneurs typically undertake before soliciting investment. He drew up a list of drug targets that his startup, Meliora Therapeutics, could pursue and checked them against the potential competition.
Li quickly found that biotechs in China were already working on many of the targets he had on his list. Curious, he visited Shanghai and Suzhou and witnessed a buzzing scene of startups set frenetically to task.
“They’re not really thinking about the U.S. at all. They’re just trying to create more value and stay alive to differentiate themselves from the next guy in China,” he said. “They’re moving quick. There are a lot of them and they’re just quite competitive.”
Li’s experience is illustrative of a trend that could pressure biotech companies in the U.S. and alter their drug development strategies. More and more, large pharmaceutical companies are licensing experimental drugs from China. Venture companies are testing similar tactics by launching new U.S. startups around compounds sourced from China’s laboratories. This shift has been sudden, with licensing deals ramping rapidly over the past two years. And it is occurring even as the shadow of U.S.-China competition within biotech grows longer.
Executives and investors interviewed by BioPharma Dive at the J.P. Morgan Healthcare Conference this week share Li’s outlook. They expect such deals will accelerate and, in the process, force U.S. biotechs to work harder to stand out.
“We’ve been warning people for a while, we’re losing our edge,” said Paul Hastings, CEO of cell therapy maker Nkarta and former chair of the U.S. lobbying group the Biotechnology Innovation Organization. “Innovation is now showing up on our doorstep.”
There’s perhaps no clearer example of this than ivonescimab, a drug developed by China-based Akeso Therapeutics and licensed by U.S.-based Summit Therapeutics. Recent results from a lung cancer study run in China showed ivonescimab outperformed Keytruda, Merck’s dominant immunotherapy and currently the pharmaceutical industry’s most lucrative single product.
The finding “put a huge focus on what’s happening in China,” said Boris Zaïtra, head of business development at Roche, which sells a rival to Keytruda.
Fast-moving research
Today’s deal boom has roots in efforts by the Chinese government to upgrade the country’s biotech capabilities by upping investment in technological innovation. In the life sciences, the initiative provided funding, discounted or even free laboratory space and grants to support what Li described as a “robust ecosystem” of biotechs.
The results are clear. Places like Shanghai and Suzhou are home to a skilled workforce of scientists and hundreds of homegrown companies that employ them. Science parks akin to the U.S. biotech hubs of Cambridge, Massachusetts and San Francisco have sprouted up.
Chinese companies generally can move faster, and at a lower cost, than their U.S. counterparts. Startups can go from launch to clinical trials in 18 months or less, compared to a few years in the U.S., Li estimated. Clinical trial enrollment is speedy, while staffing and supply chain costs are lower, helping companies move drugs along more cost effectively.
“If you’re a national company within China running a trial, just by virtue of the networks that you work within, you pay a fraction of what we pay, and the access to patients is enough that you can go really fast,” said Andy Plump, head of research at Takeda Pharmaceutical. “All of those are enablers.”
And what they’ve enabled is a large and growing stockpile of drug prospects, many of which are designed as “me too better” versions of existing medicines, analysts at the investment bank Jefferies wrote in a December report. Initially focused in oncology, China-based companies are now churning out high-quality compounds across multiple therapeutic areas, including autoimmune conditions and obesity.
“There was a huge boom of investment in China, cost of capital was very low, and all these companies blew out huge pipelines,” said Alexis Borisy, a biotech investor and founder of venture capital firm Curie.Bio. ”Anything that anybody was doing in the biotech and pharmaceutical industry, you could probably find 10 to 50 versions of it across the China ecosystem.”
Me-toos become me-betters
For years now, Western biopharma executives have scouted the pipelines of China’s biotech laboratories — exploration that yielded a smattering of licensing deals and research collaborations. Borisy was among them, starting in 2020 a company called EQRx that sought to bring Chinese versions of already-approved drugs to the U.S. and sell them for less. EQRx’s plan backfired amid scrutiny by the U.S. Food and Drug Administration of medicines tested only in people from a single country.
Now, however, the pace of deals has accelerated rapidly. There are a few reasons for this. According to Plump, one is the improving quality of the drug compounds being developed. The “me toos” are becoming “me betters” that could surpass available therapies and earn significant revenue for companies — like BeiGene’s blood cancer drug Brukinsa, which, in new prescriptions for the treatment of leukemia, overtook two established medicines of the same type last year.
Another reason, Plump said, is that China-based companies are becoming more innovative, studying drug targets that might not have yet yielded marketed medicines, or for which the most advanced competition is in early testing. Li notes how Chinese companies are going after harder “engineering problems,” like making complex, multifunctional antibody drugs, or antibody-drug conjugates.
“There are so many [companies] that the new assets are going to keep coming,” Li said.
Much as in the U.S., China-based biotechs are also fighting for funding, pushing them to consider licensing deals with multinational pharma companies. At the same time, these pharmas are hunting for cheap medicines they can plug into their pipelines ahead of looming patent cliffs. The two trends are “colliding,” said Kristina Burow, a managing director with Arch Venture Partners. “I don’t see an end to that.”
The statistics bear Burow’s view out. According to Jefferies, the number and average value of deals for China-developed drugs reached record levels last year. Another report, from Stifel’s Tim Opler, showed that pharma companies now source about one-third of their in-licensed molecules from China, up from around 10% to 12% between 2020 and 2022.
“I see huge opportunities for us to partner and work together with Chinese companies,” said Plump, of Takeda.
Several venture-backed startups have been built around China-originated drugs, too, among them Kailera Therapeutics, Verdiva Bio, Candid Therapeutics and Ouro Medicines, all of which launched with nine-figure funding rounds.
“There’s been a lot of really good, high quality molecules and data that have emerged from China over the last couple of years,” said Robert Plenge, the head of research at Bristol Myers Squibb. “It’s also no longer just simply repeating what’s been done with the exact same type of molecule.”
Geopolitical risks
These deals are happening against an uncertain backdrop. The U.S. Congress has spent the last year or so kicking around iterations of the Biosecure Act, a bill that would restrict U.S. biotechs from working with certain China-based drug contractors. A committee in the House of Representatives is calling for new limits on clinical trials that involve Chinese military hospitals. And the incoming Trump administration has threatened tariffs that could ripple across industrial sectors.
“We don’t know what this new administration is going to do,” said Jon Norris, a managing director at HSBC Innovation Banking.
The Biosecure Act “keeps going sideways,” added Hastings, who believes that any impact from the legislation, if passed, would be minimal. Instead, Hastings wonders if future tariffs may be more problematic. “There will be tariffs on other goods coming from China. Does that include raw materials and innovation? It’s hard to imagine that it won’t,” he said.
But executives and investors expect deals to continue, meaning U.S. biotechs will have to do more to compete.
“U.S. companies will need to figure out what it is they’re able to bring to the table that others can’t,” said Burow, of Arch.
Borisy said startups working on first-of-their-kind drugs need to be more secretive than ever. “Do not publish. Do not present at a scientific meeting. Do not put out a poster. Try to make your initial patent filing as obtuse as possible,” he cautioned.
“The second that paper comes out, or poster at any scientific meeting, or talk or patent, assume it has launched a thousand ships.”
Those that are further along should assume companies in China will be quick on their heels with potentially superior drugs. “The day when you could come out with a bad molecule and open up a field is over,” he said.
Greater competition isn’t necessarily a bad thing, according to Neil Kumar, CEO of BridgeBio Pharma. Drug development could become more efficient as pharmas acquire medicines from a “cheaper” starting point and advance them more quickly.
Venture dollars could be directed towards newer ideas, rather than standing up a host of similar companies.“If all of a sudden this makes us less ‘lemming-like,’” Kumar said, “I have no problem with that.”
Li similarly argues that, going forward, U.S. companies need to focus on “novelty and innovation.” At his own company, Li is now working on things “we felt others were not able to access.”
“The game has always been the same. Bring something super differentiated to market,” he said. But “the bar has risen.”
https://www.biopharmadive.com/news/biotech-us-china-competition-drug-deals/737543/
