China’s labs pull ahead as global drugmakers invest in biotech pioneers
Faster trials and lower costs are drawing western multinationals as they seek new treatments
Investors in western biotechs face the prospect of lower valuations as Chinese start-ups attract growing investment from global drugmakers looking to replenish their pipelines.
China has emerged in recent years as a hub for drug development, particularly early-stage candidates, with faster timelines allowing companies to reach proof of concept ahead of western rivals.
Because the country’s biotechs can run clinical trials more quickly and cheaply, rivals from elsewhere risk being “undercut in licensing or partnering discussions”, said Oliver Kenyon, senior director at London-listed life sciences investor RTW.
This is particularly the case for “fairly crowded therapeutic areas”, he added, noting the trend “might compress long-term returns” for investors.
“Chinese biotech clearly represents a structural shift in global drug development,” Kenyon said. “We don’t think it’s a cyclical phenomenon . . . they’re here to stay.”
Historically, China was known for its ability to quickly replicate new drugs developed elsewhere.
While that is still the case, Chinese groups are now also developing new therapies. They are taking the lead, for example, on antibody-drug conjugates, which use antibodies to deliver chemotherapy in a much more targeted way.
Chinese companies account for more than half of new ADC drugs in early clinical trials, according to consultancy McKinsey. They are also making strides in developing next-generation Car-T treatments for autoimmune diseases, and small interfering RNA (siRNA) therapies. These can temporarily turn off harmful genes.
According to Zavain Dar, founder of New York-based life sciences fund Dimension, the west is losing its tradition of being “inventors and cowboys”.
“Until we in the west regain comfort and confidence again charting the frontiers of biology, chemistry and science, then we’ll be chasing the same commoditised known biology against cheaper and faster competitors.”
Meanwhile, multinationals are moving to reap the advantages of China’s distinct operating environment. In the past year, more than $85bn of licensing deals involving Chinese companies have been signed across more than 100 transactions. Most relate to early-stage drugs where foreign companies take on the rights for further trials and commercialisation outside the country.
Some of the biggest deals include GSK’s up to $12bn partnership with Jiangsu Hengrui on a potential treatment for chronic obstructive pulmonary disease and 11 other new medicines. Novartis in September announced a $5.2bn licensing deal with Chinese biotech Argo in part to have access to its siRNA technology.
Daniel Lyons, healthcare and biotech portfolio manager at Janus Henderson, said one way for western companies to compete was to “develop their products across multiple indications, and enter clinical trials with the best possible version of their product”.
“The goal,” he said, “is to avoid going into trials with something that could easily be improved upon later.” Otherwise, he added, it risks giving Chinese competitors an opportunity to build on their work.
Michael Patten, chief strategy officer of Harbour BioMed, a global biotech firm with Chinese roots that has a partnership with AstraZeneca, said no one is surprised by the rise of Chinese biotechs because the “improvement and quality in the China landscape is immense”.
Patten, who joined Harbour last year, said he did not consider the competition between Chinese biotechs and their western peers as “zero sum”.
“If you’re a patient looking for novel therapies, you don’t care where the drug comes from,” he said. “But if you’re an investor with a vested interest, perhaps you can see threats. It’s a healthy debate that needs to be had about the changing dynamics of the biotech industry.”
Chinese biotechs have gained an edge from shorter clinical trial timelines as well as regulatory changes that have made processes quicker.
Steve Ruston, chief executive of Persica, a UK biotech developing treatments for chronic lower back pain, said his company’s experience working with hospitals and recruiting patients in Europe for clinical trials had been a “nightmare”, with contracts taking many months to finalise.
“If you want to bring new medicines through, the whole contracting and decision-making process has to be looked at,” he said, adding that this applied to hospitals in the UK, France and Spain. “If China can do clinical trials faster, that has to be of interest.”
Several Chinese biotech investors said they have been approached by US and UK companies about running clinical trials in China, seeking to compete with rival Chinese biotechs by tapping into its rapid drug development system.
Kenyon struck a note of caution on China’s rise in pharmaceuticals, noting that while it is quickly gaining ground in early-stage assets, the US “remains the only game in town” for late-stage drugs that reach the market. The west’s venture ecosystem, deep capital markets, regulatory expertise and commercialisation pathways, he said, are still best in class.
US companies could also benefit from what the Trump administration calls its “America First” policies, including in drug research and development. The head of the country’s Food and Drug Administration Marty Makary has previously said he did not trust the results of large-scale Phase 3 trials done in China.
But Lyons at Janus Henderson warned that the west would be wrong to shut out Chinese innovation, arguing instead for reform.
“I believe the US and Europe should focus on accelerating development pathways and streamlining regulatory processes . . . to help promising therapies reach patients faster.”