The rise of China in the global biopharma ecosystem has led to fear and hysteria in some corners of our ecosystem. Apparently there have been too many deals with Chinese players by both venture investors and Big Pharma. US biotech is being gutted and undermined, or so the anxiety goes, leading to reactionary protectionist arguments about building walls, blocking technologies, and banning collaborations.
While I share the view that the rise of Chinese biopharma in the past decade has been meteoric, I’m firmly in the camp that their engagement in the global ecosystem is good for the sector – its more opportunity than threat, and is a healthy forcing function to raise the game for everyone. Moreover, to respond dramatically now with isolationist policies risks putting even more strain on the US biotech ecosystem, when some (many) would argue that we are already behind the competition.
Amongst the discourse today, here are few themes that resonate with me. Importantly, these are my own opinions, and not necessarily the formal views of Atlas Venture.
Putting patients first, we should access the best medicines in the world.
American patients deserve access to groundbreaking new drugs. The origins of drugs have never really mattered, nor should they. And where a drug comes from certainly doesn’t matter to a patient. Patients around the world suffer diseases and health conditions that know no borders.
Forty-plus years ago, imagine if the West banned Sankyo’s statin discoveries from percolating into the West, at the time Japan was a feared and rising economic competitor. Statins helped the entire field in a cross-border way and benefited millions. Did US patients (and global patients) win by having Merck take on a Dutch firm’s discovery of Keytruda, after a pair of serial acquisitions? Certainly. Cross border deals brought that cancer drug into Merck’s hands via serendipity. Did patients in the West with Acute Promyelocytic Leukemia benefit from access to arsenic trioxide (Trisenox), discovered in 1973 at Harbin Medical University in China? Did multiple myeloma patients in the US benefit from J&J’s deal to license Carvykti from Legend? Of course. And with the news from ASCO and the data from Akeso/Summit’s PD1/VEGF bispecific, it appears US patients will soon benefit from that compelling new medicine.
Putting America first, we should want the critical IP to be owned in the West.
Drug licensing deals allow the licensor to effectively control and own the intellectual property in specific jurisdictions (global or regional). Rather than having Chinese firms sell the assets to others, or keep the IP themselves, licensing allows the West to secure these property rights. If China is originating great new medicines that create value for patients, it’s in our best interest to own them for the US market. We can establish US or “friendly” manufacturing supply chains for these new drugs, removing any national security issues around China-based single-source reliance for drug access. To date, no Chinese firm has gotten a drug directly approved via the FDA – all have been through western partners. The one exception could be BeOne, who is now a Swiss-headquartered company. Western partners bringing good assets to market in the US should be encouraged, not banned, if we are aiming to maximize value to US patients and companies. Eventually, if Chinese firms become more globally-oriented, they are likely to bring medicines directly to patients in the US and the rest of the world, similar to other international Pharma companies – obviously if and only if they get through the high standard of the FDA (or EMEA) approval processes. But for the foreseeable future, it’s likely US or Western firms will own the patents in our geography for the best new medicines, even if originated in China.
US is the only market that incentivizes innovation.
US drug pricing rewards innovation, unlike anywhere else in the world, so drugs made by companies in every geography are really being made first and foremost for the US market, whether they come from China, Japan, or Europe. Typically, downstream development and commercialization partners secure the vast majority of the economics (net present value) of new drugs. Don’t we want value from these new medicines to accrue to Western biopharma companies? Ultimately these are likely positive NPV deals for the Western partners (or the deals will stop) – while putting these drugs on the market via their formulary channels and distribution networks.
Importantly, given the scale of the sector and the fragmentation of the market, no single player – US, EU, Japanese, or Chinese – has more than 5% share of the US market, or the global one for that matter. This is a highly fragmented market, especially for one with incredible long duration and high capital intensity R&D. No single player, or even set of big players, from China or anywhere (including Lilly) will dominate our new drug approvals for the foreseeable future. A huge diversity of players, collaborating over time, is what makes this industry so dynamic.
The biological sciences, by design, have functioned best by building the global biomedical commons.
Unlike rare earths, semiconductors, and other tech-heavy secretive industries with closed knowledge and physical systems, life sciences has built its foundation for a century on the open dissemination of knowledge. Publications and peer review by fellow scientists around the globe is a big part of it – as is sharing detailed Materials & Methods for new technologies. All this allows breakthroughs, new insights, and enabling technologies to become ubiquitous in life science labs quickly. Think about how fast PCR, RNAi, and CRSPR spread throughout the world’s labs. Some advocates for banning Chinese innovations claim things like “genetic engineering” should be a protected national technology; this is nonsensical, as the underlying technologies here were discovered and disseminated through open models of global collaboration over the past few decades. We need to ensure that knowledge flows in all directions (to and from West/China), but banning life science technologies and know-how from being shared runs against everything in our global commons ethos. Widely disseminated biomedical science and technology has largely been a force for good.
Despite its cutbacks and recent turmoil, the NIH continues to be the global leader in extramural life science research funding. China is a serious competitor for basic scientific discovery, but knowledge accrues to the commons for all to benefit in our sector. Chinese labs are prolific academic publishers, adding to the commons. Further, basic and applied research spend by industry, of which the vast majority is spent in the West, continues and will continue at levels that dwarf even NIH spending (e.g., over $200B+ on R&D in the sector). Interestingly, most major Pharma companies have globally distributed R&D facilities – and nearly every one of them has scientists as employees on the ground in China. It’s the nature of a world-class global R&D enterprise today.
It takes a global village to make a medicine.
In addition to the scientific commons for sharing knowledge, the operational system in our industry is global. Both the sponsor and CRO ecosystem is thriving and collaborative across borders: for example, we work with medicinal chemists in Ukraine, CROs in Eastern Europe, specialist preclinical labs across the US, south and East Asian discovery and development shops, Japanese contract partners, etc. Most clinical-stage assets are in global development programs, which have patients have multiple continents, even as early as Phase 1 or Phase 2. This should be celebrated, not ostracized. The majority of drugs have more than one sponsor during their long R&D journeys and all have many contract partners helping those teams drive them forward. Bans preventing this collaborative dynamic are in direct contrast to how our global ecosystem functions today.
Talent also flows across this open ecosystem.
Executives, entrepreneurs, and broader research scientists are constantly moving – between countries and between companies, big and small alike. This cross pollination and sharing of experiences and knowledge is healthy for our industry. Of note, most of the top Chinese biopharma companies have leadership that was educated and/or trained in the West by leading academic institutions and/or top biopharma companies. This dissemination of talent raises the bar for everyone, helps maintain and spread an appreciation of global GLP/GMP standards, norms for how to conduct studies, and data integrity. All this helps improve the quality and robustness of the global ecosystem – and democratizing access to basic R&D expertise improves the global quest for new medicines. Bans preventing sharing of technology and insight also run counter to how our ecosystem functions best.
Global biotech competition is a good thing
There is no doubt China is doing things faster and cheaper today. They made regulatory changes a decade ago that enabled fast-to-patient clinical work. They have a huge well-trained workforce (including many trained in the West). This creates real competitive pressure. Instead of sticking our heads in the sand, as others have said, or trying to ban competition, we should use this pressure as a forcing function for improvement.
This pressure should push us to be “faster, better, cheaper” in how we bring medicines into clinical development. We should be focusing on critical differentiators rather than commoditized functions, including owning the learning loops in discovery. We are and will continue to use advances in AI/ML, improved computation, massively parallel experimentation, lab automation – all supposed to make us better. We also need regulatory reform for FIH studies. Many of our FIH studies in Atlas’ portfolio over past 15 years haven’t started in the US; they’ve begun in places like Australia, Benelux, UK, and elsewhere. We’re increasing thinking about China, as are many firms in the west, to access quick-to-data capabilities. Much has been said already about the need to improve the FDA’s bureaucratic over-regulated process for starting clinical studies in the US.
There’s also huge clinical trial efficiency for doing early studies there: given the size of China’s population and structure of clinical care with tertiary centers, companies can get rapid and deep access to pools of patients. Trial enrollment rates are very fast in China. Since clinical trial enrollment is one of the most important levers for an emerging biotech company, why wouldn’t we allow them to access huge pools of patients for efficiently testing their hypotheses? Banning this just leaves US companies spending more money, wasting more time, and facing slower (and increasingly backed up) enrollment rates. Of course, every global development program will need more patients than just those from China; early proof of concept strengthens confidence a drug candidate may be compelling, which reduces risk and enables the capital formation required to take these assets into multi-geography global studies.
Undoubtedly, the intense 24/7 work ethic at some Chinese biotech companies is scary to some; a culture of 9 to 4 with unlimited PTO isn’t commonplace in Beijing. But perhaps instead of building walls we should see it as a call to action; we need to step up our game. We’ve perhaps gotten complacent in the West: post COVID remote work, while productive in some ways, has certainly diminished the intensity. In many cases, getting back into the lab/office full-time is important, and only a subset of companies have done this. Tech startups talk all the time about the unrelenting intensity of competition and committing 24/7… that rarely gets uttered in biotech, for whatever reason.
The reality is rank and file talent is less expensive in China. Why wouldn’t we want to augment our global workforces with some of these resources? Why would we want to be less efficient? I’m not suggesting all biotechs should do all their work in China, but creating an efficiently integrated global project team, with scientists from all over the world, is often the best approach. Most successful US-based biotech companies have important CRO team members around the world helping drive their work, and this includes homegrown companies like Nimbus and Kymera, for instance.
I’ve heard advocates for the bans claim it’s about protecting jobs in Kendall Square. To me, this is purely fear-mongering. If it’s really about jobs, we should also abandon lab automation – as that reduces the role for scientific staff. Wasting time pouring our own gels could increase jobs, at least temporarily. Kendall Square has grown massively over the past two decades, and right now several foreign-headquartered firms are the biggest employers: Takeda, Novartis, and Sanofi. Lots of biotechs are still getting funded and hiring people; there’s 100% more US venture capital spending today than in 2015. Even companies with Chinese-sourced assets have to hire people here in the US. The job market is dynamic and constantly evolving – it will continue to do so – but projections for life science jobs in Massachusetts and the nation are for positive growth over the next few years. Advocates for bans claiming “protect us from job losses” are just fear-mongering.
Global deal-making is good for everyone.
Deals are critical in our ecosystem and drives more efficient resource allocation. Deals aspire to bring good assets to patients around the world by connecting companies together to collaborate in that quest, injecting liquidity and capital into the system, while empowering talent to execute on that mission. Most drugs approved by the FDA are the beneficiary of external innovation and deal-making.
As noted above, licensing deals (and M&A) secure IP for US/Western companies, where most of the value accrues to them. Deal values, at least early in this recent cycle, greatly favored the acquiring company in the West; getting great deals means commercial and downstream value accrues to the Western Pharma company. But like all markets, value is equilibrating for assets in the West and China and we’ll continue to see dynamic price discovery here. These deals also help recycle capital to shareholders, including global investors, for reinvestment.
Further, integrating rising global corporations into the fabric of international business is a good thing. The history of Takeda is a good one here. In 1990 they were the leading Japanese pharma, at a time when fear of Japan’s rise was common in the West. Despite being a top 25 global pharma by size, they had never gotten a drug approved in the US on their own prior to 1999; everything was licensed out or partnered via joint ventures. Over time they became more Western and more global. They invested in the US and built facilities. They got drugs approved. They acquired US biotechs like Millenium. And now they are the largest single private-sector employer in Cambridge MA. It may sound crazy, but I’m excited about the possibility of Hengrui and other reputable firms building deeper presence in the West, investing capital in our economy, in a similar fashion to firms like Takeda (and Toyota) over the next few decades. Integrated economies with global companies reduce geopolitical tension, especially hot conflicts.
Policy changes could greatly help US biopharma compete.
While we should resist the temptation to push for crude protectionism and counterproductive policy choices, we should certainly reinvest in helping America compete more effectively. We need to reform our institutions, reinforce norms of behavior, keep politics out of the scientific commons, and return to being the world class competitor that created the biotechnology sector. The danger is we’ve lost our memory of how to compete.
In line with that, let me share a few policy concepts that even those that disagree with my themes above are likely to agree with – with an emphasis on creating market-oriented demand (carrots) rather than protectionism (sticks).
- Create more FDA regulatory efficiency, especially for FIH studies. The FDA process today is a much higher burden than elsewhere. Decentralized and less bureaucratic approval processes like in China or Australia should be adopted. Others have written on this extensively, and I’ve commented on this above.
- Use financial instruments to reward US-based innovation: R&D credits or tradable NOLs for R&D spend occurring in the US could help with capital formation strategies. This would also incentivize global players to invest in more physical R&D in the US.
- Create incentives favoring value created from patented inventions derived from US-based labs. Rather than banning or punishing discoveries from elsewhere, we could encourage invention commercialization from US labs, such as through altered tax regimes (e.g., capital gains, revenues, future cash flows), in a similar way to how QSBS incentivizes small business startup investing. Could also use vouchers like those that encourage Pediatric drug development.
- Incentivize the transfer of IP from abroad to US owners. Patent life is critical in our ecosystem, and orange book patent life extensions are a real tool; perhaps we could use them to encourage patents to be owned by US companies. This also could change how intracompany tax arbitrage happens (e.g., parking patents in low tax jurisdictions).
- Strengthen marketed supply chains by encouraging onshore/“friend-shoring” manufacturing of approved drugs. This is a common concern: our supply chains for drugs are exposed too much to single source Chinese/foreign manufacturers, especially for essential medicines. It’s easy to solve this by incentivizing US or friendly country manufacturing (and the Administration is already doing this).
- Reinforce our talent pipeline by both prioritizing US citizens in STEM for academic positions – and holding onto global talent. Our academic research institutions are important forces of gravity for attracting STEM talent around the world, so we should stop adding hurdles for US-educated immigrants to stay in this country and contribute. We should also be mindful of prioritizing or incentivizing hiring of STEM applicants who are US citizens, as many have been ignored in recent years. NIH funding should go primarily towards US labs and US-based teams, with exceptions for global collaborations. More STEM talent could also be supported by subsidizing industry post-doctoral positions as a career onramp into the sector via tax credits or other tools.
Bottom line: we shouldn’t let the fear of China’s rise as an important player in our sector destroy the incredibly collaborative global biopharma ecosystem. The sad irony of the protectionist push to include biotech under COINS is that the goal of the latter is to restrict access to technologies that might become weapons that could kill Americans… but by including biotech we’d be restricting access to life-saving drugs for Americans.
Biopharma is not a winner take all world: as science advances in an open global commons, breakthrough medicines get discovered. US and global firms win when this is done more efficiently and effectively. And, most importantly, around the world and in the US, patients win when better drugs get approved to address the myriad of unmet medical needs.
