Analysis-China’s biotech sector comes of age with big licensing deals, global ambitions By Reuters
By Farah Master
HONG KONG (Reuters) – If investors in China’s biotech industry needed one more sign that the sector is coming of age, then a major licensing deal RemeGen Co Ltd struck last month with Seattle-based Seagen Inc fits the bill.
It is the largest agreement between a Chinese biotech company and a Western corporation to develop treatments for cancer using RemeGen drug conjugates. The agreement provides for milestone payments of up to $2.4Billion, plus $200M upfront and royalties if it is approved.
The deal is also the fifth in-licensing contract potentially exceeding $1 billion that has been negotiated by a Chinese biotech. The fact that almost all of these deals were made in the last year is a sign of China’s increasing role in the development and distribution worldwide for innovative cancer medications.
Franck Le Duu, senior partner in McKinsey Hong Kong, stated that China is already an integral and important part of global biopharma.
China’s government made the treatment of cancer a key priority in its national policy. One study found that China, the most populous country in the world, was responsible for 30 percent of global cancer deaths and 24% new cases.
Over the last five years, support policies have been paying off and Western companies are now coming knocking on Chinese biotech doors.
Seagen’s RemeGen agreement will enable it to challenge the breast cancer treatments of Roche Holding (OTC) and AstraZeneca/Daiichi Sankyo. This antibody is also promising in treating stomach and bladder tumours.
Other notable deals include a Novartis AG agreement worth up to $2.2 billion for a BeiGene (NASDAQ:) Ltd drug. Both are developing an antibody to be similar in function to Opdivo from Bristol-Myers Squibb and Keytruda by Merck. This will aid the immune system fight many different kinds of cancer. The deals have brought in billions of dollars.
AbbVie (NYSE) also has partnered up with I-Mab for the co-development of a monoclonal antibody to treat several kinds of cancer. This deal could be worth as high as $1.9 billion.
FLOURISHING ON FUNDING
Chinese biotechs have proliferated in a relatively short amount of time – a key catalyst being the return of overseas-trained Chinese scientists, dubbed “sea turtles”, that began a decade ago and who have become increasingly attracted by domestic opportunities as the government pushes to develop the industry.
In recent years, China has aligned its regulatory standards with international norms in 2017, and 2018, accelerating the process of reviewing new drugs. This sector saw a significant increase in funding following the 2018 Hong Kong stock exchange rules change that allowed biotechs to be listed on its platform.
The West’s success is still in its infancy. Only three Chinese drugs, including BeiGene’s Brukinsa (a non-Hodgkin lymphoma), have been approved so far by the U.S. FDA.
Investors worry about the high valuations. It is also unclear how many companies will succeed because of the long process involved in drug discovery. However, it appears that there is enough capital to support the industry.
Simone Song (founder partner at ORI Capital, a healthcare venture capital fund) said that “we are approaching a turning point due to the capital supply” and the regulatory approval system.
19 Chinese biotechs were among the first to trade last year. Most of them originated in Hong Kong. They raised $5.2 billion and 13 more than $2 billion respectively, according to Refinitiv data. This year’s listing totals 20 and have raised nearly $4.6billion.
McKinsey’s Le Deu estimates that the market value for all Chinese biotechs, including those listed on Shanghai’s STAR Board and the Nasdaq, was $180 billion. This compares with just $1 billion in 2016.
The number of large out-licensing pacts for Chinese biotechs is only set to grow, industry experts say.
Jay Lee of Morningstar said that I-Mab and Innovent Biologics as well as Junshi Biosciences, Legend Biotech, and Junshi Biosciences are all likely to be eligible for licensing agreements with Western companies. He cited their pipeline assets and existing partnerships.
Legend indicated that I-Mab is interested in strategic partners for the development and commercialization of its products. Legend, however, stated it was open to cooperation. Junshi, Innovent and others did not reply to inquiries for comment.
In 2017, Legend was the first Chinese biotech to secure an out-licensing contract with a significant Western pharmaceutical company. Its CAR-T bone marrow cancer drug co-developed with Johnson & Johnson (NYSE:) is set to be reviewed by the FDA in November.
Although they may be few in numbers, established Chinese biotechs are able to achieve even greater ambitions.
BeiGene, which is 20.5% owned by Amgen Inc (NASDAQ:) and valued at $34 billion, out-licenses some products but built its own U.S. and European sales teams for Brukinsa. It has also announced it will build a new R&D and manufacturing centre in New Jersey.
“We’re trying to make ourselves a global company…we have some labs here in China,” stated Angus Grant.
Christian Hogg, chief executive of Hutchmed said that the Chinese company, which was the first to develop a cancer drug in China, has no plans to work with the United States.
According to Hogg, “We have $1.2billion in cash, and we’ve got all the resources financial, organisational, and technical resources we need to basically do anything we want outside of China.”