Pharmaceutical groups entered into partnerships with Chinese biotechnology start-ups in record time last year, despite geopolitical tensions and concerns over intellectual property rights and data security in the country.
China has opened up its healthcare sector over the past five years, leading US and European companies to negotiate deals with local companies to gain access to the world’s second-largest drug market.
According to data from consultancy ChinaBio, a record 271 cross-border licensing partnerships were concluded in 2020 between multinational groups, including Roche, Bayer, AbbVie and Pfizer, and Chinese pharmaceutical companies. The collaborations include clinical trials, development and commercialization, and data sharing, and are up nearly 50 percent from 2019 and more than 300 percent since 2015.
Deals are being struck despite concerns over intellectual property protection and the security of US health data in China, with analysts saying the market is too big and fast-growing to ignore.
China’s healthcare system overtook Japan to become the world’s second-largest in 2016 and is expected to surpass the US within three years. According to data provider IQVIA, pharmaceutical spending in China was $ 137 billion in 2018 and will reach $ 140 to $ 170 billion by 2023.
“There has been an increase in both deals where Chinese companies will develop and commercialize innovative drug candidates discovered by Western companies and where multinational companies will do the same with state-of-the-art pharmaceutical products invented in China outside of China,” said Sam Thong, chairman of Goldman. Sachs’ healthcare group in the Asian investment banking division.
$ 170 billion
Potential magnitude of China’s pharmaceutical spending by 2023
Under the Made in China 2025 strategy, a program designed to advance the country’s technology and manufacturing goals, Beijing has set targets for domestic pharmaceutical companies to advance in innovation and has passed the approval process for pharmaceuticals streamlined.
China’s state health insurance has also added more branded, non-generic drugs to a list of drugs eligible for patient reimbursement, including products from foreign companies such as Novartis, in a move that could boost demand.
Western groups have already reported the financial benefits of their Chinese strategies.
Eli Lilly, the US pharmaceutical company, signed a $ 255 million deal with Shanghai-listed biotechnology company Junshi Biosciences last May to partner on a treatment with Covid-19 antibodies and reported a 41 percent increase in quarterly profit in January . Eli Lilly’s chief scientist praised the “exciting” Phase 3 trial results for Junshi treatment, which showed that the antibodies reduced the risk of hospitalization and death by 70 percent.
Junshi said the record series of partnerships proved that the Chinese medicines were of “international quality.”
Pfizer reached a $ 480 million deal with CStone Pharmaceuticals in September, giving the US group a 9.9 percent stake in the Hong Kong-listed immuno-oncology drug company, as well as an exclusive license to purchase the cancer drug from CStone to market in China. .
For Chinese start-ups, the partnerships can be used as a launch pad for their global ambitions, allowing companies to run trials and gain commercial approval for their products in the West.
Eli Lilly signed a licensing agreement worth more than $ 1 billion with Suzhou-based oncology group Innovent in August for the exclusive rights to its lung cancer therapy outside of China.
AbbVie, another US pharmaceutical group, agreed to pay the mainland biotech I-Mab up to $ 2 billion in September for access to its experimental cancer drug.
“This is an important step for Chinese companies as it validates their capabilities – their R&D is reaching a global standard,” said Cathy Zhang, Morgan Stanley’s chief of healthcare for the global capital markets in Asia.
But China remains under pressure to better protect intellectual property, a long-standing complaint for foreign companies.
The patent law changes in 2020 gave foreign groups more confidence that they would be protected, but “enforcement is still a major problem in practice,” said Rocky Wu, a Shanghai-based partner of KPMG, the professional services provider. “The detailed guidelines for the implementation of patent links have not been officially published.”
US national security experts are also concerned that Beijing will be gaining access to US health data, particularly genomic information, both for privacy reasons and for the possibility of using such data to develop biological weapons.
The US-China Economic and Security Review Commission, which assesses the national security risks associated with doing business with China, said last year that Beijing had made the collection of foreign health data a priority and was trying to access US information through means “.
Chinese entities have done this through investments, partnerships and sales of equipment and services, the committee said in its 2020 report to Congress.
The committee added that “Beijing has imposed increasingly strict restrictions on the ability of foreign companies to access and share health-related data collected in China,” despite the fact that foreign participation was officially encouraged.
Additional reporting by Wang Xueqiao in Shanghai, Thomas Hale in Hong Kong, and Hannah Kuchler in New York