Four Major BD Deals Kick Off the Year: A Conversation with Dr. Kan Chen of Qiming Venture Partners on the Future of China's Innovative Drugs

In 2023, BD transactions suddenly heated up. This unexpected force pushed the domestic new drug research and development ecosystem into a new stage. During this process, the underlying logic of survival for domestic biotech companies also quietly changed.

Qiming Venture Partners is one of the most seasoned professional investment firms specializing in healthcare and medical services in China. According to statistics from the VCBeat Orange Database, Qiming Venture Partners executed 47 investments in the healthcare sector in 2023. Meanwhile, from 2022 to present, its portfolio companies have completed a total of 19 business development (BD) transactions with international pharmaceutical companies or overseas biotechnology firms, with disclosed aggregate transaction value exceeding USD 8.5 billion.

Qiming Venture Partners has cultivated deep expertise in facilitating the global expansion of innovative drugs, with its investment reach even extending to specialized cross-border service providers. In early 2024, four major cross-border business development (BD) deals completed within just four days set a promising tone for the new year among Chinese biotech companies. Behind these transactions, Qiming Venture Partners’ presence was also evident.

So, what does going global truly mean for domestic biotech companies facing challenges? How can small yet specialized biotechs benefit from the opportunities of international expansion? At the start of the new year, we spoke with Dr. Chen Kan, Partner at Qiming Venture Partners, who shared his unique insights on the global expansion of innovative drugs.

Dr. Chen Kan, Partner at Qiming Venture Partners. Image source: Provided by the interviewee

Question:What impact do you believe the surge in BD transactions has had on China's biotech industry?

Chen Kan:I believe that the sustained BD fever has indeed altered part of the underlying logic of China’s biotech industry.

First, external perceptions of domestically developed innovative drugs are changing. Previously, there was a prevailing view that new drugs developed in China lacked international competitiveness and could only compete within the domestic market. The growing warmth in business development (BD) transactions has gradually shifted this perspective. At the level of investment logic, stakeholders are now placing significantly greater emphasis on the international competitiveness of these products.

Second, business development (BD) transactions may provide a new exit channel for investments in biotechnology companies. In other words, biotech firms now have more diversified sources of funding. Of course, not all biotech investments can be exited through BD transactions. Depending on how biotech companies position their target assets, BD transactions are further divided into two major categories. In the first category, biotech companies out-license non-core assets, which is equivalent to exchanging R&D capabilities for cash support to fund the development of their primary products; this naturally cannot be regarded as an exit. In the second category, biotech companies out-license their core assets, including global rights, which then involves issues related to shareholder exits. However, using BD transactions to achieve investment exits is still in an exploratory stage.

Third, and perhaps more importantly, through collaborations with global pharmaceutical giants, domestic biotech firms have been able to learn from these industry leaders, thereby enhancing their most critical capabilities in new drug development, such as indication selection and clinical trial design. Relatively speaking, this impact is long-term and has the potential to bring about profound changes to China’s innovative drug ecosystem.

Question:Will the BD Frenzy Accelerate the Monetization of Commercial Value for Domestic Biotechs?

Chen Kan:Objectively speaking, it may still take some time for the sales of innovative drugs in China to materialize.

Specifically, at the current stage, Chinese biotech companies can be divided into two categories. One category has already developed the capability to expand directly into overseas markets, such as BeiGene, Legend Biotech, and Hutchmed. These companies have established their own sales networks abroad or partnered with overseas enterprises for distribution, achieving considerable sales volumes. However, as production capacity is still being ramped up, it will take some time for product sales to reach their peak. The other category focuses primarily on the domestic market, with examples including Allist’s third-generation EGFR inhibitor and SinoCellTech’s recombinant Factor VIII. These products have demonstrated strong sales growth momentum. Overall, while the commercial value of innovative drugs in China has not yet been fully realized, the general trend remains positive.

Question:Is Going Global Now an Inevitable Path for the Growth of Domestic Biotech Companies?

Chen Kan:In a sense, it can be said that global expansion is somewhat necessary for the vast majority of domestic biotech companies.

The logic is straightforward: we can analyze it from an economic perspective. If confined to the domestic market, biotech companies must develop drugs for diseases with large patient populations, such as major new therapies for lung cancer and breast cancer, to achieve an ideal return on investment (ROI). For drugs and indications with smaller patient populations, the ROI is often unsatisfactory from a commercialization standpoint. However, by taking a global view, where drug pricing overseas is relatively higher, even new drugs with niche indications can yield a higher ROI in international markets compared to the domestic market.

Question:BD Deals and Subsequent Asset Returns: A Taboo Topic—How Do You View the Return of Biotech Assets?

Chen Kan:In fact, the return of licensed new drug assets is not a unique phenomenon specific to Chinese biotech companies expanding overseas. If we analyze the rate of returned deals in collaborations between biotech firms and international pharmaceutical companies on the Nasdaq, I believe it would be similar to the data on returns involving Chinese biotech companies. The underlying reason is that new drug development is inherently a high-risk industry, where failures are unavoidable, and the return of innovative assets is a normal occurrence.

As for how to avoid license termination, I believe that the further a novel drug asset advances in development, the lower the likelihood of termination. Therefore, for core pipeline assets, it is advisable to advance them further along the development pathway. Out-licensing after obtaining more clinical data can reduce the risk of termination. Of course, for non-core pipeline assets, even if termination occurs, the upfront payments received can still support the R&D of core pipeline assets.

Question:Are there any new trends in the overseas business development (BD) of innovative drugs at this stage?

Chen Kan:A noticeable trend is that business development (BD) collaboration models are becoming increasingly diverse. In the earlier stages, cross-border licensing of innovative drugs primarily focused on securing upfront payments; at present, equity mergers and acquisitions have begun to emerge. Furthermore, there is a growing number of cases where domestic biotech companies engage in co-development with international pharmaceutical giants. The prior licensing deal between Legend Biotech and Johnson & Johnson, as well as the later licensing agreement between Baili Tianheng and Bristol Myers Squibb (BMS), both fall under the category of co-development. I believe that new transaction models for the global expansion of innovative drugs will continue to emerge in the future.

Another trend that cannot be overlooked is that the industry’s requirements for clinical data in new drug development are no longer limited to patient data from the United States; data generated from clinical trials conducted in China also carry significant weight. For instance, the licensing deal between Baili Tianheng and BMS was based on clinical data obtained in China.

Question:Many regions are currently experiencing a surge in interest. While companies previously flocked primarily to Europe and the United States, Southeast Asia, Belt and Road Initiative countries, and even some African nations have increasingly become destinations for overseas expansion. What is your perspective on this trend?

Chen Kan:Undeniably, regions such as Southeast Asia and the Middle East have a substantial demand for advanced pharmaceuticals, making them key overseas expansion markets outside the United States. However, current data do not yet provide evidence that market entry into these regions significantly boosts product sales, as these markets are still in the process of development.

When commercializing new drugs, companies typically prioritize the U.S. market. On one hand, the U.S. accounts for 40%–50% of the global pharmaceutical market; on the other, innovation trends and regulatory frameworks in other regions, such as Southeast Asia, often follow the U.S. lead. For instance, approval by the U.S. Food and Drug Administration (FDA) can facilitate automatic marketing authorization in regions including Southeast Asia, Singapore, and Hong Kong. This means that securing FDA approval essentially opens the door to international expansion.

Of course, markets such as Southeast Asia and the Middle East will gradually mature. While it is advisable to establish an early presence for long-term strategic considerations, one should not expect explosive commercial returns in the short term.

Question:Will Chinese biotech companies accelerate their global expansion in 2024?

Chen Kan:I believe that the market will improve in 2024, with an increasing number of domestic biotech companies securing cash through overseas expansion to reinvest in drug R&D, thereby driving further corporate development. Of course, it will not be possible to return to the boom levels seen in 2020–2021 in the short term, and companies will have to endure a period of hardship for some time to come.

Entering 2024, I believe that licensing deals will continue to remain robust, with substantial transaction values, and there is even the possibility of a small number of new M&A transactions. Recently, I have observed that some U.S. life sciences funds are seeking to introduce Chinese assets into incubated companies in the United States, aiming to demonstrate clinical value before partnering with large pharmaceutical companies. I am confident that the future trend remains positive, with oncology, metabolism, and autoimmune diseases continuing to yield many high-quality innovative projects.

Question:Will global expansion shift focus toward early-stage projects?

Chen Kan:I believe it is essential to differentiate between business development (BD) strategies based on asset positioning—namely, core asset BD versus non-core asset BD—as their trends diverge. In non-core asset BD, we are observing a growing tendency toward early-stage projects. Conversely, core asset BD follows the opposite trajectory: as financial pressures ease slightly, biotech companies will be more inclined to advance their drug candidates into later clinical stages to maximize value before engaging in collaborations with major international pharmaceutical companies.

Question:Will Your Decision-Making Criteria for Reinvesting in Innovative Drugs Change in 2024?

Chen Kan:Qiming Venture Partners’ investment logic for innovative drugs has always been clear: to identify innovative products that can definitively address clinical unmet needs. It now appears that this perspective is gradually becoming a consensus within the industry.

In recent conversations with peers, the topic of “product-centricity” has come up frequently. This approach shifts the focus away from platforms and teams, placing primary emphasis on the product itself. I believe this is the right strategy, particularly in an environment where external capital is relatively scarce. After all, whether from an industrial or investment perspective, true value should stem from the potential of a drug product to benefit patients, which may represent the most significant commercial value. In the vast majority of cases, we insist on evaluating whether a product can address clinical unmet needs, and then assess the commercial value of innovative projects based on the magnitude of those clinical needs. This remains the most critical aspect of our investment process.