A little-known biotech company stunned the biopharmaceutical industry last spring when it declared an “unprecedented” achievement: its experimental cancer drug looked more effective than Merck‘s Keytruda in a clinical trial. The company, Summit Therapeutics, licensed the drug from Chinese company Akeso Inc.
In October, a group of life science investors announced they were putting $400 million into creating a company called Kailera Therapeutics that would develop experimental obesity drugs it bought from Chinese company Jiangsu Hengrui Pharmaceuticals.
Then in a matter of days in December, Merck disclosed it would license a potential competitor to Summit’s drug and a separate experimental obesity pill – both from Chinese companies.
Suddenly, U.S. companies are racing to find medicines in China. Almost 30% of Big Pharma deals with at least $50 million up front involved Chinese companies last year, up from 20% the year before and none only five years before, according to data from DealForma.
“That’s stunning to me,” said Chen Yu, founder and managing partner at crossover fund TCGX. “That’s stunning.”
Yu said 20 years ago, few biopharma companies were interested in China because they considered it a small market. His former firm, Vivo Capital, pioneered the concept of bringing U.S. medicines to the Chinese market.
Today, the movement is going in the opposite direction. He never imagined the proliferation that’s taking place now.
Investors and industry insiders offer a few reasons for the trend: Chinese companies are creating better molecules than ever before – and more of them. They can start testing those compounds in humans sooner and at a lower price than in the U.S. Buyers have figured out a business model to essentially import the drugs through licensing deals. Venture funding in China has also dried up, forcing biotech companies to do deals.
One thing all of those people in the industry agree on? This trend isn’t going away.
What’s less clear is what the development means for the U.S. biotech sector.
Some people contend it’s terrible for American startups if large pharmaceutical companies can find a promising drug in China for a fraction of the price. Others argue competition makes everyone better, and American companies will ultimately reap the rewards of bringing medicines to the market. Either way, the influx could reshape the landscape of the U.S. biopharma industry.
“It’s kind of a watershed moment where the pharma industry is like, ‘We don’t really need to buy U.S. biotechs necessarily,'” said Tim Opler, a managing director in Stifel’s global health-care group. “We will if it makes sense, but we can buy perfectly good biotech assets through licensing deals with Chinese companies.”
Bain Capital Life Sciences started making China a priority around 2018, said Adam Koppel, a partner at the fund. The private equity firm saw the Chinese government and the life sciences industry making a deliberate effort to evolve from its historical focus on copycat and fast-follower drugs that mimicked leading drugs to creating new chemical matter that China could export to the rest of the world.
Since then, Bain has struck six biopharma deals in China. It bought an experimental asthma drug from Hengrui in 2023 and co-launched a company called Aiolos with a $245 million series A funding round. GSK acquired the company three months later for up to $1.4 billion.
Koppel sees more large pharmaceutical companies growing comfortable with drugs coming out of China as they work with more of them and see their outcomes, he said. Buyers had held back in part because they worried data from China wasn’t representative of a global population and U.S. regulators wouldn’t accept it.
“As they’re seeing assets then come out, they’re seeing things that are having success, and eventually, as things get approved and used on the market, I think that that concern will become lessened,” he said.
Piotr Swat | Lightrocket | Getty Images
That narrative was on display when Summit Therapeutics last year said its experimental cancer drug beat Merck’s mega-blockbuster Keytruda in a head-to-head study, a feat no other drug has accomplished. Summit’s trial was conducted exclusively in China, making people question if the results would hold up elsewhere.
When Summit’s leaders were shopping for a drug they could develop, they made it a point to look in China because co-CEO Bob Duggan had read more new medicines were coming from the country. But it was late 2022, and the U.S. Food and Drug Administration had just rejected a few applications for drugs that were studied only in China, including one from Eli Lilly.
When Summit announced it was licensing the cancer drug ivonescimab from Akeso, people questioned how Summit could do the deal knowing that the FDA would never accept it, said Summit’s co-CEO and president, Maky Zanganeh.
“And suddenly after us, a lot of people opened their eyes,” she said.
Ivonescimab had already undergone early studies and was in late-stage trials in China when Summit struck the licensing deal. Summit is now running three global phase 3 trials to satisfy the FDA’s desire for drugs to be studied in diverse groups of people.
Summit’s strategy could become more common. Investors and other industry insiders said one of the draws about doing deals with Chinese biotech companies is they can find molecules that have already undergone early studies at a lower price than in the U.S. So the U.S. businesses know what they’re getting, and they can probably get it for less.
Gilead spends a lot of time in China looking for assets like it does in the U.S. and Europe, the company’s chief financial officer, Andrew Dickinson, told CNBC. Gilead has seen a “substantial shift” in the quality and quantity of assets being developed in China and being offered to U.S. biopharma companies.
“The transformation over the last five years is real and impressive,” Dickinson said.
It helps that more Chinese companies need to do deals now. The amount of venture funds raised by the Chinese biotech industry cratered to just $1 billion last year from a peak of $6.3 billion in 2021, according to data provided by TCGX’s Yu.
“Why would we do any early-stage development in the U.S. anymore?” Yu said. “Why wouldn’t we just get clinical proof of concept in China and then bring it over to the U.S. for the expensive clinical development when we actually know the drug works? And I think that could be a very revolutionary new way for our industry to become more efficient.”
That’s an opportunity – or risk – for the U.S. biopharma industry, depending on who you ask. Some, like Yu, see it as a way to bring down the price of prescription drugs. Others worry it could hobble U.S. companies if Merck and other large pharmaceutical companies pass on acquiring American startups in favor of licensing assets from China.
A worker is working on a drug production line at the production workshop of a pharmaceutical company in Meishan, China, on January 30, 2024.
Nurphoto | Nurphoto | Getty Images
The day in December that Merck announced it was licensing an experimental obesity pill from China’s Hansoh for up to $2 billion, shares of U.S. company Viking Therapeutics plunged 18%. Viking is seen as an acquisition target since it’s developing drugs in the red-hot obesity space, and suddenly it looked like one possible suitor had chosen to spend its money elsewhere.
People see parallels to what happened in the artificial intelligence space when China’s DeepSeek declared it had created a model that was just as good as U.S. models for much less than American companies are spending.
President Donald Trump or U.S. policymakers could see the similar trend in biotech as a threat and intervene to stop these deals, what Yu calls the “stroke of a pen” risk. Lawmakers last year floated the Biosecure Act that would have restricted U.S. companies from working with Chinese contract manufacturers.
Washington has already embraced protectionist policies in other competitive areas like artificial intelligence and semiconductors. It’s possible that could extend to life sciences.
“The deeper message from DeepSeek is that we have competition in the high sciences in general, and moreover that China is making major investments to develop scientific assets,” said Stifel’s Opler.
Put another way: the race in biopharma is on.
