China's Biotech Industry

The world’s largest buyer of biopharmaceutical royalties has set up its first Asia-Pacific base in Hong Kong, joining a string of multinational corporations in the pharmaceutical sector establishing offices in the city as out-licensing deals by mainland Chinese biotechnology firms hit record highs.

Royalty financing gives drug developers an alternative way to raise capital even as US investment restrictions loom, according to an expert.

“Chinese biotech firms would need royalty financing as an alternative,” said Kenneth Sun, who spent more than a decade at Wall Street bank Morgan Stanley before joining US-headquartered Royalty Pharma as senior vice-president and head of Asia.

Founded in 1996 and headquartered in New York City, Royalty Pharma provides financing to drug developers and research institutions in exchange for royalties – a share of a drug’s future sales. It opened its Hong Kong office at IFC in Central in May.

Click to expand...

The total number of Chinese biotech business development deals, including out-licensing, rose 30 per cent year on year through May 31, while total deal value surged 87 per cent over the same period, according to an HSBC report on June 23.

Click to expand...

Sun’s remarks come amid geopolitical uncertainties and a liquidity shift towards artificial intelligence stocks that have taken a toll on traditional fundraising channels, leaving the cash-hungry sector exposed to volatility in Hong Kong’s initial public offering market.

Click to expand...

Chinese biotechnology firms were increasingly entering

Please, Log in or Register to view URLs content!

arrangements in cross-border deals rather than one-off licensing transactions, according to Sun. “This presents a growing pool of business opportunities.”

Click to expand...

The company is scouting the Asia-Pacific region for innovative biotechnology start-ups with late-stage pharmaceutical pipelines.

Sun expected the volume of China biotech firms’ cross-border transactions to accelerate in the coming year, rather than triggering a wave of buyouts by foreign firms despite currently attractive valuations.

“In China, the easier deal to negotiate is an asset-by-asset, pipeline-by-pipeline structure,” Sun said. “Chinese assets are reasonably priced and good, and buyers from the international market will always come.”

Click to expand...

Despite US lawmakers introducing the Biotech Investment National Security Act (Binsa) on June 2 to tighten outbound investment screening on pharmaceuticals and biotechnology, ING forecast the total value of out-licensing deals between Chinese biotechnology firms and Western drug makers would surge to around US$240 billion this year, up from US$136 billion in 2025.

On June 25, CStone Pharmaceuticals, based in Suzhou, China’s eastern province of Jiangsu, signed an exclusive commercialisation deal with Arrotex Pharmaceuticals, a unit of Australia’s largest diversified healthcare group DBG Health.

Click to expand...

It granted Arrotex the rights to commercialise its phase three data-backed cancer immunotherapy sugemalimab in Australia and New Zealand, according to a Hong Kong stock exchange filing. Financial terms were not disclosed.

Click to expand...

Two days earlier, Shanghai-based Abbisko Therapeutics signed a research collaboration and licence agreement with US pharmaceutical giant Eli Lilly to discover and develop novel oncology drug candidates.

Abbisko is eligible to receive upfront and milestone payments totalling up to about US$1.9 billion, plus tiered royalties.

Click to expand...

Binsa’s “final legislation hasn’t been enacted yet, so there is still a lot of uncertainty. If it passes in its current form, the speed and scale at which deals get done could potentially be affected,” Sun said.

Click to expand...

“Among Chinese biotechs that have come to market, there is full spread of innovation, from small nucleic acids and radiopharmaceuticals to ADCs, bispecifics, multispecifics and CAR‑T,” said Sun. “China’s drug innovation is booming.”

By 2040, about 35 per cent of new drugs approved by the US Food and Drug Administration would have originated from Chinese companies, up from only 5 per cent last year, according to a Morgan Stanley report.

The current portfolio of Nasdaq-listed Royalty Pharma includes royalty interests from global pharmaceutical and regional biopharmaceutical companies such as global oncology developer BeOne Medicines and British drug maker GSK.

Click to expand...

Sun said he aimed to hire about five to 10 people in Hong Kong over the next three to five years.

“The Asia-Pacific region, including [mainland] China, South Korea and Japan, is set to become a major source of global drug innovation in the near future,” Sun said. “Hong Kong, as an international fundraising centre, is a gateway to the mainland Chinese drug market.”

The Hang Seng Innovative Drug Index is down about 20 per cent year to date.

Click to expand...

“Investors have switched to AI supply chain names that offer near-term visible earnings rather than innovative drugs which have a three- to five-year commercialisation horizon,” said Linda Shu, head of China healthcare research at HSBC, in a note on June 23.

Click to expand...

GulfLander said:

Cancer patients going to China for treatment

Click to expand...

dingyibvs said:

Not sure why the commentators keep calling it "niche". There's really nothing niche about cancer treatment and heart surgery. Heart disease and cancer are literally the top 2 killers of adults in the US. Also, an 8 day turnaround for CAR-T cell therapy is wildly impressive. It takes like 7 days just to expand the cell line, and that's a hard biological limit, so you literally can't do it any faster than that.

Click to expand...