BD Wave Propels Chinese Innovative Drugs Forward: Several Biotechs File IPO Prospectuses

Major Deals Driven by Pipeline BD Are Becoming a Key Funding Source for Biotech

According to statistics from the VCBeat database, in 2023, transaction revenue generated from business development (BD) accounted for approximately one-third of biotech companies’ external funding income. Amid the cooling of the primary market bubble for innovative drugs and tighter capital market issuance regulations, the surge in BD deals appears to have opened new avenues for biotechs burdened by heavy R&D pressures.

Behind this, the entire pharmaceutical industry faced significant financing pressure in 2023. However, a number of companies were fortunate enough to secure follow-on financing rounds with the support of Apricot Capital. Notably, amid the surge in business development (BD) activities among biopharmaceutical enterprises from the fourth quarter of last year to the present, portfolio companies of Apricot Capital have stood out, alleviating financial pressures while pioneering new pathways for the growth of domestic biotech firms.

In 2023, Apricot Capital assisted its portfolio companies in securing overseas partnerships with global top-10 multinational pharmaceutical companies, including Johnson & Johnson, AstraZeneca, BioNTech, Roche, and Novartis. More than 20 innovative drugs were out-licensed, with total transaction values exceeding USD 10 billion. At the beginning of 2024, three companies incubated by Apricot Capital—Angry Biotech (the youngest small-molecule biotech company to partner with an MNC), Elevation Biotech (the ADC company with the most out-licensing deals), and Bowang Pharma (the first Chinese company in the small nucleic acid field to collaborate with an MNC)—successfully completed key business development (BD) transactions.

Nowadays, an increasing number of biotech companies are elevating business development (BD) to a more strategic position, offering high salaries to recruit talent and expand their BD teams, with founders personally leading efforts to develop BD leads. Everyone is eager to seize BD as a lifeline. Will the fervor for BD deals continue? How will this type of asset transaction reshape the future landscape of innovative drug development in China? At the 2024 China Biopharmaceutical Innovation Forum, we interviewed executives from biotech firms that had recently completed major BD deals, as well as R&D heads from multinational corporations (MNCs), adopting a microscopic perspective to examine how BD is influencing the growth trajectory of domestic biotech companies.

Since the second half of 2023, business development (BD) transactions involving Chinese biotech companies have frequently made headlines, with the total transaction value continuing to rise. BD deals exceeding $1 billion appear to have become the new norm.

In early 2024, Shipwang Pharmaceuticals, a star siRNA enterprise founded less than three years prior, announced the signing of two exclusive licensing and collaboration agreements with global pharmaceutical giant Novartis. The deal grants Novartis overseas rights to one Phase 1/2a cardiovascular pipeline asset, global rights to one Phase 1 cardiovascular pipeline asset, and options for up to two additional cardiovascular targets. With a total potential value of $4.165 billion, this transaction marked the beginning of large-scale business development (BD) deals between Chinese oligonucleotide companies and multinational corporations (MNCs). However, the formation of this deal was no coincidence.

In the view of Liang Fang, Head of Business Development at Bowang Pharmaceuticals, cross-border licensing deals involving Chinese biotech firms are inevitably subject to a “China discount” by overseas partners. Consequently, domestic assets in the same therapeutic area and with comparable profiles tend to command relatively lower valuations, sometimes differing by an order of magnitude. As the R&D capabilities of Chinese pharmaceutical companies increasingly align with, and even surpass, global standards, China is contributing a growing number of best-in-class and first-in-class assets to the world. In the future, pricing for outbound BD deals from China will undoubtedly be driven by true value. While high-value, large-scale transactions may not occur in rapid succession, they are expected to sustain over the long term.

Multinational corporations (MNCs) are acquiring domestic innovative assets at significant costs, representing a unique monetization model for the sustained innovation investments made by Chinese biotech companies in the past. “The current surge in business development (BD) activities actually reflects the R&D achievements of China’s innovative drug ecosystem over many years. I believe that BD transactions between biotech firms and MNCs, as well as among more diverse entities, will continue to occur frequently in the near future,” further analyzed Xue Tongtong, Founder, Chairman, and CEO of Elicio Bioscience. Elicio Bioscience is currently one of the most active Chinese biotech companies in BD transactions. In 2023, Elicio Bioscience licensed out multiple ADC pipeline candidates to BioNTech. In 2024, it completed its first BD deal of the year by granting Roche Pharmaceuticals the global rights, excluding Greater China, for its HER3 ADC clinical candidate YL202, securing a deal worth nearly $1 billion.

Although it is not uncommon for several multinational corporations (MNCs) to compete for a single high-quality pipeline, the finalization of business development (BD) deals reflects a consensus between both parties on the future clinical value of the specific pipeline. It is the result of multiple factors, including competitive dynamics, unmet clinical needs in disease areas, the acquirer’s product strategy, and medical resources, rather than a unilateral subjective choice. “I am fully confident in China’s overall innovation vitality. If the key elements within China’s innovation ecosystem can maintain their current level of development and continue to improve in the future, the active trend in innovation asset transactions can be sustained.” Wang Wei, Head of Sanofi China R&D Center and Global Operations, remains optimistic about the future of frequent transactions between domestic biotech companies and MNCs.

Meanwhile, from an investment perspective, the value investing in innovative drugs from earlier years has been fully realized under the wave of business development (BD). At the 2024 China Biopharmaceutical Innovation Forum held on May 24, Apricot Capital released a set of interesting data: in January 2024, three biotech companies incubated by Apricot Capital—Anrui Biotechnology, Yilian Biotechnology, and Bowang Pharmaceutical—completed four BD transactions, accounting for one-third of the total number of market transactions, with the total transaction amount exceeding two-thirds of the market total. Over a longer BD cycle, companies proactively incubated by Apricot Capital have demonstrated significant activity, driving rapid expansion in the total value of overseas transactions by Chinese biotech firms over the past two years.

“Apricot Capital never chases hot trends.” Liu Wenyi, Founding Partner of Apricot Capital, stated, “Our investment principles are very clear: First, we invest based on the cycle of industrial development, not the cycle of the capital market; second, those who chase market hotspots will always be one step behind the market, so we dare to make forward-looking layouts; third, only by creating value can market capitalization be achieved. We do not engage in any arbitrage transactions and focus on genuine technological innovation.”

“Amid the steady rise in BD deals, the types of assets involved have gradually diversified. ‘Previously, BD assets were predominantly oncology drugs. This is partly because the large population of cancer patients has made oncology a key therapeutic area for pharmaceutical companies, leading to a relatively robust pipeline of high-quality novel oncology drugs developed by domestic biotech firms. Additionally, clinical trials for new oncology drugs in China have become quite mature in both design and execution, generating data that gains international recognition,’ said Ding Qiang, Founder and CEO of Anrui Biopharma.”

According to Ding Qiang, clinical data from domestic R&D pipelines for new drugs in multiple indications beyond oncology are increasingly gaining recognition from international peers. “I have learned that some biotech companies in China have moved their pipelines directly into Phase II clinical trials abroad after completing Phase I trials domestically, without requiring additional validation,” Ding Qiang pointed out. “At present, the quality of many domestic new drug pipelines is very high, a fact increasingly recognized by multinational corporations (MNCs). Beyond novel oncology drugs, transaction activity surrounding domestic new drug assets in areas such as neurological disorders and metabolic diseases is also steadily rising.”

Thus, for biotech companies seeking to generate cash flow through business development (BD), focusing on enhancing R&D capabilities is a more effective strategy than engaging in speed-based competition over hot pipeline assets, thereby preserving greater strategic optionality for the future.

For a long time, domestic biotech companies have been perceived as lacking in original innovation capabilities.

To date, China’s foundational research in diseases and pharmaceuticals still lags behind advanced global systems such as that of the United States, making it difficult to sustain the continuous stream of original innovations required for new drug development. However, the objective conditions and regulatory environment for clinical trials in China are relatively flexible, gradually fostering stronger capabilities in the development and optimization of drugs with well-understood mechanisms and targets. This advantage is absent in the overseas new drug R&D ecosystem and represents the core driver motivating multinational corporations (MNCs) to invest in Chinese innovative drug assets.

“China’s overall ecosystem in chemical synthesis is highly mature, spanning molecular design, laboratory synthesis, raw material supply, and CDMO services. Coupled with the presence of many outstanding Chinese scientists among leading overseas oligonucleotide companies, this has laid a solid foundation for the introduction, development, and breakthrough of the world’s most advanced oligonucleotide technologies in China,” said Liang Fang. At present, there is an abundance of well-established targets and indications for oligonucleotide drugs within the liver, suggesting that this technology will generate significant clinical value in the treatment of various diseases in the future. It is poised to disrupt current practices in chronic disease management and become a revolutionary therapeutic approach. Moreover, with continuous exploration and innovation in extrahepatic delivery technologies, these drugs are certain to achieve clinical applications in a broader range of disease areas, thereby creating substantial innovation opportunities for domestic oligonucleotide biotech companies.

Currently, domestic biotech companies are gradually carving out an irreplaceable niche for themselves within the global pharmaceutical ecosystem. “In fact, optimizing antibody-drug conjugates (ADCs) is no easy feat,” emphasized Le Meijie, Co-founder and General Manager of Synovent. “The underlying principle of ADCs is straightforward: identify the optimal combination of toxin, antibody, and linker. However, the actual process is fraught with challenges. In short, expanding the therapeutic window of ADC drugs requires extensive know-how,” Le pointed out.

“The enhancement of China’s biomedical engineering capabilities has yielded significant achievements in fields such as antibody-drug conjugates (ADCs), substantially shortening R&D cycles and improving product quality. Leveraging the high-quality pipelines and data of domestic biotech companies to more effectively compete in the innovative drug sector may create greater potential for future collaborations between multinational corporations (MNCs) and local enterprises,” pointed out Wang Wei. Furthermore, with the widespread application of AI technology in pharmaceutical R&D, investment in the development process has been further reduced, timelines shortened, and domestic biotech firms have been able to increase the success rate of drug development.

VCBeat has learned that, in the process of new drug project initiation, an increasing number of biotech companies are aligning their choices with the therapeutic areas of interest to multinational corporations (MNCs). “This approach is not solely driven by business development (BD) considerations; the focus areas of MNCs often represent where clinical needs are most concentrated. Developing drugs that address unmet clinical needs is the fundamental purpose of innovative drug development,” stated Xue Tongtong.

In most cases, BD as a win-win deal is difficult to achieve in itself.

In practice, BD deals that successfully reach signing are few and far between. Most business development attempts for drug pipelines stall at the outset due to mismatches between supply and demand, with very few advancing to the stage of commercial negotiations. Even after successfully entering the R&D systems of multinational corporations (MNCs), some new drug pipelines may still be abandoned during subsequent development stages for various reasons.

“From my observations, the primary reason for failed business development (BD) deals still lies in data. Factors such as poor data quality, insufficient data volume, or failure to achieve statistical significance when demonstrating drug efficacy during clinical stages can all lead to BD failures for biotech companies,” said Ding Qiang. Multinational corporations (MNCs) place great emphasis on clinical data and typically conduct validations based on the raw data provided by biotech firms. Whether these validation results meet expectations is a decisive factor in BD transactions.

“Maximizing data quality, conducting thorough due diligence, and hiring knowledgeable advisors can all improve the success rate of business development (BD) deals,” emphasized Ding Qiang. “However, the most critical factor is for company management to maintain a clear awareness: transactions should only be pursued when fully prepared.” Wang Wei also noted that for multinational corporations (MNCs), the quality of new drug pipelines is the primary consideration in external innovation. “Decisions regarding external innovation and mergers and acquisitions are influenced by factors such as internal corporate strategy, the status of existing platforms, and risk expectations. Furthermore, whether a specific drug modality will become mainstream within the next five to six years is also a factor influencing these decisions.”

On the other side of the coin, for biotech companies, selecting the right timing is crucial when leveraging business development (BD) to revitalize assets. From a data perspective, pipeline assets in late-stage clinical development hold greater advantage in BD transactions. However, drug pipelines still in early-stage development typically require fewer resources and entail lower risks for biotechs, making them more cost-effective as BD targets. Striking the right balance between these options tests the judgment of biotech firms.

“Of course, biotech companies need to consider their own resource capabilities, the potential value and risks of projects, competitive landscape, partners, and other factors when formulating business development (BD) strategies for different projects, including determining the appropriate timing for BD,” pointed out Le Meijie. For any company, BD is merely a tool; the ultimate goal is to develop new drugs with clinical value. “The choice of which assets to engage in BD and at what stage should always be fundamentally guided by the objective of new drug development,” emphasized Xue Tongtong.

For biotech companies, business development (BD) serves not only to revitalize assets but also, and more importantly, to maximize the value of promising drug candidates. In this context, the choice of transaction partner is critical. Currently, mature targets for small nucleic acid therapies are predominantly concentrated in chronic disease areas such as cardiovascular disorders, where clinical development and market promotion demand substantial financial resources and capabilities from enterprises. Bowang’s initial decision to collaborate with Novartis was driven by Novartis’ leading position in small nucleic acid therapeutics and the cardiovascular field, enabling Bowang’s products to reach tens of millions of patients worldwide.

However, the transaction process is also a game of negotiation between both parties. Even if both sides enter negotiations with sincere intentions for collaboration, “agreeing on divorce terms before marriage” remains a means to ensure that the value of high-potential assets is not left idle or constrained. The return of an already out-licensed product during later-stage development is not necessarily a negative outcome. “The key lies in how the transaction agreement is structured,” pointed out Liang Fang. She noted that biotech companies should pay attention to negotiating reasonable return clauses in business dealings. “Nevertheless, asset returns can disrupt the rhythm of new drug development. Therefore, it is essential to enhance joint project management capabilities to avoid returns due to non-drug-related reasons in later-stage collaborations.”

Furthermore, although business development (BD) has long been characterized as a buyer’s market, biotech companies should strive to maximize their bargaining power during BD negotiations and execution. “For instance, they can retain rights in China while securing greater international rights, thereby enhancing their influence and revenue share in the project.” In Xue Tongtong’s view, engaging in BD does not signify withdrawing from the development of a new drug; rather, it serves to advance the development process.

“In the short term, it is unlikely that domestic biotech companies will grow into big pharma.” In Ding Qiang’s view, in the past, domestic biotech firms primarily focused on developing products for the Chinese market, and their offerings often lacked the competitiveness to participate in the global arena. Within China, the unique payment structure and pricing system make it difficult for any single innovative drug to achieve the sales momentum of a blockbuster drug.

Against this backdrop, it is difficult for domestic biotech companies to grow into large pharmaceutical firms with sufficiently robust commercialization capabilities. The most critical task at present is to build the capacity to compete on a global scale. In this sense, by leveraging business development (BD) partnerships to integrate into the product portfolios of multinational corporations (MNCs), domestic biotech companies effectively secure a ticket to enter the global market.

Liang Fang also believes that the development of China’s pharmaceutical market will take time. Stakeholders are still exploring pathways suited to China’s unique characteristics across regulatory, reimbursement, and pricing systems, as well as in the capital markets. In the coming years, if the policy environment, international landscape, and healthcare system prove favorable—enabling patients to access high-quality medicines, companies to achieve premium pricing, and investors to secure exit channels—the market is poised for significant growth. “However, for a novel drug-focused biotech company to scale up, going global remains essential; leveraging the worldwide market through business development (BD) partnerships is one viable option,” Liang told VCBeat. “I am confident that China’s pharmaceutical market will continue to improve. Nevertheless, maintaining sustainable growth during the transitional period of external integration demands considerable comprehensive strength from innovative enterprises, including their indigenous technological capabilities, pipeline strategies, market acumen, and understanding of capital markets.”

“In fact, cross-border business development (BD) by domestic biotech companies is not a new phenomenon; it has been ongoing,” pointed out Le Meijie. Domestic biotech firms can be broadly categorized into two groups. Some have targeted the global market from their inception and project planning stages, seeking overseas partners for clinical trials and commercialization. The new drug development model of these biotechs aligns closely with the currently popular BD strategy. The other group focuses primarily on the domestic market, raising funds in the primary market to advance clinical development and pursue initial public offerings (IPOs). With the IPO window narrowing, companies are increasingly turning their attention to the BD model. “Currently, most domestic projects are still engaged in intense competition within China. To expand globally, it is essential to further enhance the international competitiveness of these projects,” stated Le Meijie.

At this stage, most biotech companies do not engage in business development (BD) for their core pipelines externally, or at least retain domestic rights. “If forced to choose between pursuing BD for core pipelines and facing the predicament of lacking funds for development, I believe BD is the preferable option,” emphasized Xue Tongtong. She noted that the core mission of biotech firms is drug innovation; however, they are unable to achieve endogenous profitability over an extended period. Amidst the capital winter, external financing has become challenging, yet early-stage investments in R&D pipelines must not be abandoned simply due to the absence of new capital injections.

“For multinational corporations (MNCs), allowing biotech companies to retain domestic rights is not a significant concession,” Ding Qiang told VCBeat. “Compared with mainstream markets in Europe and the United States, China’s pharmaceutical market differs substantially in terms of regulations and structure. Domestic biotech firms are more familiar with this market and can achieve greater efficiency in subsequent commercialization efforts.” Wang Wei pointed out that, from an R&D perspective, MNCs treat pipelines acquired through external innovation collaborations no differently than their internal R&D pipelines in terms of resource allocation strategies. “Companies will focus more on leveraging synergies and accelerating development, addressing unmet patient needs, and delivering more effective and safer innovative therapies to patients as soon as possible.”

In China, the biotech sector has emerged only recently, yet it has remained in a state of profound flux. For an industry that hinges on both luck and patience, any shift in the external environment can yield disruptive consequences. The surge in business development (BD) activities has brought a ray of hope to Chinese biotech firms. As echoed by the theme of Apricot Capital’s annual conference this year, there is hope that China’s innovative drug industry will continue to move toward the light within this new ecosystem.