Chinese Biotech Strategies: The Pros & Cons of In-Licensing

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Since the Chinese biopharma boom started in the late-2000s, Chinese biotechs have seen in-licensing as a shortcut to establishing their own portfolios and developing clinical development capabilities, kickstarting their growth. With most of the founding teams having returned from extensive careers in the US and the unparalleled innovation potential of the US market, their sights were naturally mostly set on US biotech assets.

 

As the Chinese pharma market surpassed Japan to become the second-largest in the world and the regulatory regime started to open up in the mid-2010s, the US biotech and VC sector started to reciprocate their attentions. In the past few years, cross-border deal activity and value have simply skyrocketed, and even the global pandemic has not seemed to put a damper on things, with over 20 business development or licensing deals announced in the first half of this year alone. However, opinion is split regarding the value of such in-licensing deals between Western and Chinese companies.

 

It is not a good idea [for Chinese biotechs] to go out and buy assets for the sake of buying assets

Kerry Blanchard, Everest Medicines

 

Everest Medicines CEO Dr Kerry Blanchard has had a rather comprehensive view of the industry. After a career as a scientist-clinician, he joined Eli Lilly and assumed various roles, most notably  SVP of Lilly China Drug Development and External Innovation, where he built and executed the company’s extremely successful external partnership drug development portfolio model in China. Upon his retirement from Lilly, he was invited to join Innovent as CSO, where he oversaw the NDA preparation and submission of the company’s first commercial asset, sintilimab. He took over as CEO of Everest Medicines in February 2020.

 

Based on his experience in the Chinese industry over the past decade, he observes, “many Chinese biotechs in-license assets from the US or Europe to bolster their portfolio and add credibility to the company.” While he acknowledges that “having late-stage assets allows you to build a clinical team and accelerate your development timelines”, he warns that companies “have to assess the quality of the assets carefully.” He reveals the harsh truth: “it is not a good idea to go out and buy assets for the sake of buying assets.”

 

Speaking as someone who sat at both sides of the negotiation table, he remarks candidly, “particularly during the early-2010s, the assets that MNCs allowed access to were the programs they had shelved. We can talk about the technical or strategic reasons MNCs have for shelving assets but most of the time, the main reason is that the MNC did not believe in that asset.” Ultimately, he assesses, “for many biotechs that in-licensed assets during that time, many did not turn out to be successful.”

 

The deal-making landscape has changed somewhat over the past decade, however, and companies, including Everest Medicines, are increasingly becoming more savvy when it comes to in-licensing the right kind of assets. In addition, over the past few years, sophisticated VCs have started to build their own biotechs, furnishing them with locally-sourced industry veterans and globally-sourced novel assets. Everest Medicines itself was established by CBC Group in 2017. Sinovant Sciences is another prime example, backed by US healthcare company Roivant Sciences and CITICPE, a leading Chinese asset management firm. President Dr Rae Yuan unabashedly calls the company “a ‘transformer’ organization”, explaining “we pick the right molecule to develop in the right way so that it can become a drug for the right patients at the right dose,” emphasizing, “we combine our understanding of patient needs with our strong business development machinery in the USA, to scout and find cutting-edge science.”

 

We combine our understanding of patient needs with our strong business development machinery in the USA, to scout and find cutting-edge science

Rae Yuan, Sinovant Sciences

 

In-licensing is useful for Yuan because she believes that “for a company to be successful, it needs to have a portfolio strategy. We deliberately made the choice to develop a portfolio to balance the risks, opportunity and the chances of success.” Their portfolio of 13 investigational products spans eight therapeutic areas, including oncology, urology, infectious diseases and dermatology.

 

With such a surge in demand for US clinical assets, particularly late-stage ones, despite the Chinese biotech sector generally being flush with cash from eager investors, as the industry matures, CEOs are becoming more discriminatory when it comes to cross-border deals – and more value-conscious. Yuan reflects, “there are companies in China with a similar business model to ours and sometimes, we run to the same in-licensing opportunity, which can jack up the price.”

 

InxMed Chairman and CEO Dr Zaiqi Wang agrees that US biotech assets might have become overpriced “to some extent” but he takes a more sanguine view: “I think most biotech companies understand that upfront payments in these in-licensing deals are small figures compared to the value these assets could reach, if successful, at the commercialization stage. Even though some assets may be slightly overpriced at their current stage, they are likely to receive the right valuation down the road.”

 

This is why, he emphasizes, it is important that InxMed “not only help partners realize the value of their assets but also bring additional value to their assets through efficient translational research and tapping into the patient population and clinical knowhows in China”.

 

Most biotech companies understand that upfront payments in these in-licensing deals are small figures compared to the value these assets could reach, if successful, at the commercialization stage

Zaiqi Wang, InxMed

 

On the other hand, Chinese biopharma darling Innovent Biologics, founding chairman and CEO Dr Michael Yu believes that the in-licensing model should only be an initial accelerator for the company, not its main growth driver. He opines, “I have nothing against in-licensing and Innovent has in-licensed some products as well. [But] no biotech company – in China or globally – will be sustainable if it is based only on in-licensing,” analogizing “ in-licensing can help to start the engine but if you want to have your own car, you need to invest time, effort and resources into building it. For long-term growth and development, biotech companies need to have their own internal drug development capabilities.”

 

For this reason, Innovent has built a large R&D team that consistently produces around 5 to 6 INDs each year. Yu adds, “the majority of our efforts and investment are devoted to developing our in-house, internal organic capabilities. These are the ingredients for our continued development and growth, and keeps our company going!”

 

Ultimately, however, each biotech company has to weigh up the pros and cons of pursuing an in-licensing strategy based on its own corporate strategy and mission, though many biotech leaders could counsel that, whether or not a company begins with an in-licensing model, it needs to eventually outline an inhouse R&D strategy to play the long game.

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