As pharma companies continue to license candidates developed in China, experts say a particular licensing model is allowing the country’s burgeoning biotechs to leverage vast global capital and R&D while profiting from international sales of their candidates.
In recent years, the number of deals in which Chinese biotechs have granted developmental and commercial rights to candidates outside of China has ballooned. Decades of investment into China’s biotech sector has given rise to preclinical and clinical assets that have attracted developers and investors around the globe.
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Some of these have followed an increasingly popular deal structure called NewCo. Under this model, instead of a direct agreement between an innovator and a big pharma buyer, rights are assigned to a new company or ‘NewCo’ in which companies and investors hold equity.
Last week, China-based Mabwell Bioscience outlicensed the global rights to its dual-target small interfering RNA (siRNA) candidate 2-MW7141 for lipid management in dyslipidaemia patients. The rights were acquired by the US venture capital company Aditum Bio through its NewCo Kalexo Bio in a deal worth up to $1bn. Mabwell holds an equity share in the NewCo, claiming a share of future sales.
By holding significant degrees of equity in the NewCo themselves, experts note many Chinese licensors can retain a substantial share of international sales from their drugs on top of upfront payments and royalties, all while avoiding the costs of late-stage development and marketing abroad.
China becomes the global drug candidate market
In the past five years, there has been a surge in outlicensing deals made between Chinese biotech developers and international buyers, according to GlobalData Healthcare Strategic Intelligence analyst Gaffar Aga.
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By GlobalDataChina has become a bustling market for big pharma to stock its pipelines. AstraZeneca is the biggest spender, says Aga, having signed nine licensing deals with Chinese companies over this period worth around $20bn altogether.
Far from its old reputation as a ‘copycat’ to the West, Aga says the Chinese biopharma sector is now truly innovative, advancing original assets across the most advanced modalities and most demanding therapy areas.
“A new generation of biotech companies in China has emerged in recent years,” says Yu Xia, CEO of Zhongshan city, China-based biotech Akeso Biopharma. These represent a pivot away from generics to focus instead on new, differentiated candidates, including complex antibody and cell therapies.
In 2022, Akeso outlicensed one such candidate, granting rights to its bispecific antibody ivonescimab for non-small cell lung cancer in the US, Canada, Europe, and Japan to Summit Therapeutics for $5bn. Ivonescimab is approved in China and now in a several Phase III studies. If successful, it is projected to earn global revenues of $7.5bn in 2031, including royalties, according to GlobalData Healthcare.
The rise in NewCo licensing
There are several factors driving licensing deals out of China. The specialisation and investment needed to develop advanced therapies has incentivised biotechs to build a surplus of specialised productive capacity, notes Huiya Wu, partner at UK-based law firm Goodwin Procter LLP.
China represents a large but ultimately finite domestic market, leading biotechs to seek cross-border collaboration to access foreign markets for their candidates, says fellow Goodwin Procter partner David Chen.
This underpins the rise in NewCo licensing deals, according to Chen. Far from a new concept, a NewCo deal differs from a traditional license agreement insofar as rights to an asset are not granted directly from a biotech to an established pharma developer. Instead, a NewCo is set up outside China where it receives rights to develop and commercialise the candidate. The investors buy equity in the NewCo and the licensor receives the usual upfront payment and royalties in return.
On 5 September, China-based developer Jiangsu Hengrui Pharmaceuticals announced that it had granted the ex-China rights to its cardiomyopathy drug HRS-1893 for $1.1bn to NewCo Braveheart Bio, a startup funded by Forbion and OrbiMed. Last year, Hengrui signed over the ex-China rights to its glucagon-like peptide-1 receptor agonist (GLP-1RA) HRS9531 to another NewCo, Kailera Therapeutics.
The path for the NewCo can vary, says Chen. It may act simply as a vehicle for the candidate to be sold to another pharmaceutical developer down the line, or it may act more like a pharmaceutical developer itself, advancing the candidate and even seeking an initial public offering (IPO).
Crucially, unlike in a standard deal, the Chinese licensor can retain a stake in the candidate even after selling rights outside of China by holding equity in the NewCo itself. In most cases this would not constitute a controlling share, but it nonetheless allows biotechs to profit from their candidates’ appreciation globally while the NewCo shoulders the costs of global development and marketing, explains Chen.
This particular type of deal, however, requires a particular kind of asset to drum up enough investor interest to be viable, says Chen. These tend to be unvalidated by mid-to-late-stage trials and seen as too risky by big pharma buyers but are acceptable to less risk-averse investors. “Success heavily relies on the candidate possessing clear global differentiation and compelling clinical advantages,” says Xia.
A challenge with the NewCo model over standard licensing is that “you actually need someone to run it,” says Insilico Medicine CEO Alex Zhavoronkov. He adds that experience and dedicated expertise are required, especially if there are plans for the NewCo to develop the acquired drug independently.
Global confidence in promising candidates underlies the proliferation in NewCo licensing deals. In general, as many biotechs are often accepting low upfront payments in return for high royalties, this reflects the confidence of Chinese developers in their candidates, says Aga.
NewCo deals rest on decades of development
The influx of potential drug development candidates did not happen overnight. China has invested heavily in biomedical infrastructure and training over the last two decades, says Zhavoronkov. Now decades of planning have paid off, as extensive high-speed trains and advanced mega-hospitals allow Chinese companies to conduct rapid early-stage trials, benefitting from a wealth of expert clinicians and state-of-the-art equipment.
Key to this change has been the close alignment of state and industry, says Peter Joyce, CEO of UK-based biotech Greywolf Therapeutics. He says this has cut the “red tape” involved in trials and enabled China to leverage its 1.4 billion population as a large pool of potential patients.
Aga lists a number of regulatory reforms that have raised the standards in research and development of drugs. The 2015 ‘Made in China 2025’ strategy included a focus on novel therapies such as antibodies. In 2016, the government implemented the Healthy China 2030 plan to accelerate regenerative medicine, including stem cell therapies.
At the same time, Wu says the country hasn’t abandoned the strong generics capability that laid the groundwork for its biotech boom. She added that China is now positioned as one of the most well-rounded pharmaceutical economies, able to compete with India on generics and with the US on innovation.
However, Xia notes China’s biopharma sector is still in its infancy in comparison to that in the US. Yet there is concern among western biotechs that their numbers may dwindle in a market saturated by many high-quality Chinese biotechs that are competing for funding and to out-license their drugs, says Joyce. For many biotechs already struggling to find investment, the pressure to differentiate their candidates has become even more crucial.
