Chen Kan of Qiming Venture Partners: Outlook on Chinese Pharmaceutical Innovation and Investment in a Global Competitive Landscape

Recently, the 9th China Pharmaceutical Innovation and Investment Conference was held in Guangzhou, bringing together top experts and investors from the global pharmaceutical industry. At the conference, Chen Kan, Partner and Co-Head of Healthcare at Qiming Venture Partners, delivered a keynote speech titled “Outlook on Chinese Pharmaceutical Innovation and Investment in a Globally Competitive Environment.” Chen provided an in-depth analysis of the profound transformations in Chinese pharmaceutical innovation amid globalization, various models for the global expansion of innovative drugs, challenges faced by innovative pharmaceutical companies during their global journeys, and how to seize opportunities in global development.

Chen Kan, Partner and Co-Head of Healthcare at Qiming Venture Partners

Amid the surging wave of pharmaceutical innovation, China’s innovative drugs have reached a historic breakthrough, with the scale and influence of their global expansion attaining unprecedented heights. According to UBS data, from 2020 to 2023, the value of outbound licensing deals by Chinese biotech companies hit a record high.

Chen Kan believes that this phenomenon signifies a seismic shift in China’s pharmaceutical innovation compared to two or three years ago, with the sector accelerating its globalization. First, Chinese biotechnology companies are becoming increasingly competitive on the global stage. When major global pharmaceutical companies are willing to pay substantial sums to acquire research outcomes from Chinese biotech firms, their core consideration lies in the clinical value of the research rather than price alone, fully demonstrating the strength and potential of China’s biopharmaceutical R&D. Second, from a financing perspective, the total value of out-licensing deals for innovative drugs in China surpassed domestic fundraising amounts for the first time last year. This has alleviated financing pressures on domestic biotech companies to some extent, enabling them to reinvest part of the proceeds into subsequent R&D and create a virtuous cycle. Furthermore, diverse overseas expansion models have opened up financial return pathways for investors beyond IPOs, reducing reliance on a single exit channel and enhancing investment stability and diversification.

He believes that Chinese biotechnology companies have achieved remarkable results in the field of new drug development, demonstrating significant potential. For instance, BeiGene’s drug defeated the gold-standard therapies developed by Johnson & Johnson and AbbVie in head-to-head trials. Survival curve data from cancer patients clearly show that Chinese new drugs exhibit a significant advantage in efficacy. Additionally, Legend Biotech’s Carvykti is far ahead of its competitor BMS’s Abecma, and Akeso’s PD-1/VEGF bispecific antibody has also stood out in head-to-head comparisons against domestic standard-of-care treatments. These achievements fully demonstrate that Chinese new drugs are no longer reliant on the past model of “patent breaking and price competition,” but are instead gaining prominence in the global market through superior efficacy. In the future, more products developed by Chinese biotechnology companies are expected to join the ranks of global leaders, benefiting patients worldwide.

Chen Kan believes that Chinese innovative drugs have demonstrated strong competitiveness in the global market, with the driving factors behind this trend primarily reflected in two dimensions: “intense competition” and “non-competitive areas.”

In terms of market saturation, competition in China’s pharmaceutical innovation sector is exceptionally fierce. According to data from PharmCube, there are approximately 130 products targeting PD-1 and PD-L1 that are either under development or already on the market. Other popular targets are similarly subject to intense rivalry among numerous companies. Between 2017 and 2022, drugs targeting the top 5% of hot targets accounted for 44% of all new drug applications accepted, indicating an increase in target concentration. However, this highly competitive environment has also spurred positive innovative effects. Under competitive pressure, many companies have continuously optimized their R&D strategies and increased R&D investment to identify the most promising molecules. This has driven industry-wide advancements in molecular screening and optimization technologies, ensuring that leading molecules emerging from such intense competition often possess greater innovativeness and superior therapeutic efficacy.

In the GLP-1 field, as of July 2023, industry databases indicate that there are currently 722 GLP-1R projects under regulatory review in China, with market competition becoming increasingly intense. Although some companies believe the market is large enough to accommodate numerous participants, the continuous increase in the number of competitors means that the future market landscape still faces significant uncertainties and challenges.

Counterbalancing the “fierce competition” is the “non-competitive” aspect of China’s innovative drug sector, characterized by a substantial number of First-in-class innovations. For instance, Baili Tianheng’s HER3/EGFR bispecific antibody-drug conjugate (ADC) has entered into a co-development agreement with Bristol Myers Squibb (BMS); Akeso’s PD-1/VEGF bispecific antibody has demonstrated unique advantages in clinical applications and led to a collaboration with Summit Therapeutics; RemeGen has developed a BAFF/APRIL dual antagonist (a similar product was developed by Alpine Immune Sciences in the United States, which was ultimately acquired by Vertex Pharmaceuticals for $4.9 billion); and Enmabio’s CD3/CD19/CD20 innovative asset was acquired by GSK. These cases indicate that China’s innovative pharmaceutical industry has gained the capability to lead global innovation trends in specific fields, moving beyond follower-style innovation.

Chen Kan emphasized that the key to Chinese innovative drugs achieving a state of being both “hyper-competitive” and “non-competitive” lies in their unique core advantage: “Fast and Cheap.” In terms of clinical trial initiation speed, China far outpaced the United States during the 2023–2024 period. This is primarily attributable to China’s relatively lower clinical costs and highly efficient patient enrollment mechanisms. In China, major clinical resources are concentrated in Grade A tertiary hospitals located in provincial capital cities. Patients from surrounding regions tend to seek medical care at these institutions, resulting in a relatively concentrated patient population and significantly accelerated enrollment rates. For innovative drug development, greater access to clinical trials translates into higher probabilities of success and lower costs associated with trial and error. Over time, China’s advantages in both the “Fast” and “Cheap” dimensions have continued to strengthen. An increasing number of Chinese companies are emerging on the global stage for innovative pharmaceuticals, demonstrating robust innovative vitality and development potential, and driving the comprehensive integration of Chinese innovative drugs into the global pharmaceutical innovation ecosystem.

Chen Kan stated that the global expansion of China’s pharmaceutical innovations exhibits diverse models, each with its unique characteristics, advantages, and challenges, thereby providing multinational pathways for different types of enterprises to expand in the global market.

First, the license-out model is a relatively common approach for going global. Its transaction structure typically includes an upfront payment, development milestone payments, sales milestone payments, and sales royalties. This model is highly attractive to large pharmaceutical companies because it fully accounts for risk factors during drug development and allows for potential strategic adjustments by the company. For instance, if a large pharmaceutical company decides to shift its strategic direction during subsequent development stages, it can cease further payments in accordance with the contractual terms, thereby effectively controlling risks. However, this model also has certain limitations. Since all payments made by large pharmaceutical companies are recorded as expenses, which may impact their net profit, the amounts paid are generally not excessive. For biotechnology companies, this model enables rapid access to cash needed for corporate development while mitigating equity dilution to some extent. Nevertheless, from the perspective of European and American investors, the early transfer of partial future revenue rights may influence their investment decisions, potentially posing challenges for the company in subsequent financing rounds or initial public offerings (IPOs).

Second, the Asset Purchase model involves large pharmaceutical companies acquiring specific assets of biotechnology firms in a one-time or phased manner, rather than purchasing the entire company’s equity. Under this model, the payment amount is typically relatively high. Since the payments are capitalized as assets rather than expensed, they do not directly impact the large pharmaceutical company’s profits. Consequently, while assuming risk, these companies also stand to gain greater returns from asset appreciation. For biotechnology firms, although they can secure a significant cash infusion upfront, they completely relinquish control over the relevant assets, which may constrain their future development. From the perspective of biotech investors, the sale of assets alters the company’s future profitability model, posing the challenge of identifying alternative pathways for IPO exits.

Third, the co-development model embodies the philosophy of risk-sharing and mutually beneficial cooperation between large pharmaceutical companies and biotechnology firms. Under this model, both parties jointly participate in the clinical development process, sharing both outcomes and risks. However, as multiple stakeholders are involved, coordination during clinical development becomes a significant challenge, necessitating the establishment of efficient communication and collaboration mechanisms. For biotechnology firms, although they can retain nearly half of the asset rights, they must also bear substantial clinical expenses. This is particularly true when the upfront payments from large pharmaceutical companies are primarily allocated to clinical studies, leaving these firms under considerable financial pressure. From an investment perspective, this model is relatively robust. Provided that the biotechnology firm possesses globally competitive attributes, European and American investors are generally willing to invest, and the firm has the opportunity to achieve exit through an IPO; however, the capital requirements are relatively high.

Fourth, as an emerging model for global expansion in recent years, the NewCo model plays a unique role in the field of pharmaceutical innovation. Its primary functions encompass three aspects: First, pipeline spin-offs. The valuation of a biotechnology company often depends mainly on its most advanced and fastest-progressing pipeline assets, while the value of other pipeline assets may be underestimated. Through the NewCo model, these undervalued pipeline assets can be spun off into new companies, thereby fully unlocking their potential value. This pipeline spin-off strategy is relatively mature in the U.S. biotechnology market and has been gradually introduced to the Chinese market in recent years. Second, valuation reset. When a parent company faces financing difficulties due to historically inflated valuations, a NewCo can establish a more reasonable valuation to attract new investment. Furthermore, by appointing U.S.-based executives and leveraging their expertise in engaging with capital markets and business development (BD) transactions, companies can enhance overall operational management standards and market competitiveness, creating favorable conditions for future exit strategies.

In addition, there are the overseas IPO model and the M&A model. Chen Kan believes that, judging by market trends, the Chinese pharmaceutical sector is poised to see a rise in merger and acquisition (M&A) transactions in the future. Some M&A cases that have already occurred have provided valuable references and lessons for industry development. As China’s pharmaceutical innovation capabilities continue to strengthen, M&A deals in the $1 billion–$2 billion range are expected to gradually increase, positioning Chinese enterprises to play a more significant role in the global M&A market.

Looking ahead, while China’s pharmaceutical innovation has achieved remarkable success, it still faces a series of challenges and opportunities.

Currently, pharmaceutical innovation in China remains, to a certain extent, in the stage of follow-on innovation. This is particularly evident in foundational technologies such as gene editing and bispecific antibodies, where breakthroughs are often pioneered in the United States, with Chinese enterprises following suit. Although Chinese companies have demonstrated rapid speed and strong execution capabilities during this follow-on process—gradually transitioning from “Category Follower” to “Category Leader”—they still face significant challenges. These include insufficient discovery of first-in-class targets and inadequate translational science capabilities for converting clinical insights back into R&D. In particular, the development of research-oriented hospitals lags behind, resulting in deficiencies in clinical translation and development competencies, such as indication selection and clinical pharmacology modeling.

To seize the opportunities presented by global pharmaceutical innovation, Chen Kan emphasized that Chinese biotechnology companies should actively advance a globally coordinated clinical development strategy. By fully leveraging the distinct clinical and regulatory resource advantages available worldwide, global collaborative development can not only enhance R&D efficiency and reduce costs but also improve product adaptability and competitiveness in global markets. It is worth noting that global development opportunities are not exclusive to Chinese biotech firms; an increasing number of U.S. biotechnology companies are also entering the Chinese market to conduct clinical research, capitalizing on China’s abundant clinical resources. Therefore, for Chinese biotechnology enterprises, only by proactively implementing a globally coordinated development strategy can they achieve the transition from “innovation in China” to “global innovation,” thereby providing high-quality, efficient pharmaceutical innovations and services to patients worldwide and driving the robust growth of the global healthcare industry.