New Investment Opportunities Driven by Chinese Innovative Drug Companies Going Global: Insights from VB Think Tank

In recent years, overseas licensing deals have concentrated in specific drug development stages. What signals does this trend convey? What new investment opportunities has the global expansion of innovative drugs spawned? And what practical, data-driven recommendations can facilitate this internationalization? As an observer of the healthcare industry, VCBeat New Medicine has been closely monitoring these developments.

On June 30, VBInsight, in collaboration with BCG, invited Du Tao, Chairman of Egret Pharma; Qi Fei, Executive Director of Legend Capital; and Wang Haotian, Investment Vice President of Legend Capital, to host the second online panel discussion titled “Going Global with Data.” Industry insidersFirst review the report, then engage in discussion, adopting a “report presentation + frontline investigation” approach, enabling “going global” to be guided by data and making overseas expansion strategies more data-driven.

Front row (top), from left to right: Hu Qicong, Managing Director and Global Partner at BCG & Core Leader of BCG’s Healthcare Practice in China; Wang Haotian, Vice President of Investment at Legend Capital

Second row (bottom), from left to right: Du Tao, Chairman of Egreen Pharma; Wu Chao, General Manager of VCBeat New Medicine; Qi Fei, Executive Director of Legend Capital

Here is a summary of the key insights from our distinguished speakers:

There are four drivers behind the global expansion of innovative drugs.

Hu Qicong, Managing Director and Global Partner at BCG & Core Leader of BCG’s Healthcare Practice in ChinaAnalysis: “First, the supply of innovative drug achievements in China has been gradually strengthening in recent years.In 2021, the number of innovative drugs approved for domestic pharmaceutical companies in China reached 46, while the U.S. FDA approves only around 60 innovative drugs for market launch each year.

“Second, the overseas market for innovative drugs holds significant potential.In 2021, the global market size for innovative drugs was approximately $830 billion, with the United States accounting for about 55% of the market share, while China accounted for only about 3%.Third, Chinese innovative drugs face significant pressure for price reductions domestically, resulting in limited profit margins.Fourth, China’s current R&D projects, talent pool, and regulatory frameworks are increasingly aligning with international standards, creating favorable conditions for the global expansion of innovative drugs."Led by R&D, the number of international multi-center clinical trials conducted overseas by China has increased year by year, covering more than 50 countries."

The current status of innovative drugs going global shows a phased development.

“Phase 1.0 is primarily driven by product licensing, under which pharmaceutical companies earn upfront fees and sales royalties, with a focus on licensing out overseas clinical development and commercialization rights. Phase 2.0 involves pharmaceutical companies conducting international multi-center clinical trials to independently secure overseas regulatory approvals for their products. Phase 3.0 entails establishing an international marketing network, either through self-built infrastructure or partnerships, to achieve independent commercialization. Currently, the globalization model for innovative drugs in China is predominantly a combination of ‘1.0 + 2.0,’ while ‘2.0 + 3.0’ represents the key direction for future development,” said Hu Qicong.

As the trend of “going global” continues to rise, new investment opportunities are constantly being generated.

Qi Fei, Executive Director at Legend CapitalAnalysis: The global expansion of Chinese pharmaceutical companies is an emerging industry trend brimming with opportunities. First, regarding innovative drugs, which have drawn the most attention, when evaluating their potential for international markets, we assess their advantages and distinctive features in global competition, particularly whether they can achieve genuine global novelty. There was previously a concept known as “in China for global” for Chinese innovative drugs; however, we now believe that “in global for global” is a more appropriate framing. Key criteria will include whether companies truly possess global innovation competitiveness, and whether they have the capability to out-license their products to multinational corporations (MNCs) and establish extensive collaborations with overseas platforms.

“Secondly, beyond innovative drugs, we have also observed substantial demand for high-end formulated products in overseas markets, including the United States. It is crucial to enhance product competitiveness and achieve scaled sales in these international markets. For instance, Nantong Lianya, a company in which we have invested, has generated hundreds of millions of dollars in sales in the U.S. market alone through the export of high-end formulated products.”

“Third, expanding pharmaceutical products into overseas markets requires a thorough understanding of clinical and market access regulations in various countries, necessitating support from CROs with international capabilities. Many of the CROs we have invested in, such as Xihua, Kinlinger, and Dymed, are enhancing their global capabilities through mergers, acquisitions, and integration to support Chinese pharmaceutical companies’ international expansion.”

“Finally, in addition to the traditional European and American markets, we have paid special attention in recent years to emerging markets under the Belt and Road Initiative, represented by Southeast Asia. We believe this is likely to be a key direction for most Chinese pharmaceutical companies to actively expand into in the future. Recently, you may have noticed that Etana Biologics, jointly invested in by Legend Capital and Innovent in Southeast Asia, has brought China’s first monoclonal antibody product to the Southeast Asian market. This market differs from Europe and the United States; it resembles China 15 to 20 years ago and may represent the future trend of Chinese pharmaceutical companies going global.”

A product must conduct clinical trials overseas and obtain corresponding positive data before it can be recognized by markets in developed countries. In this regard,Du Tao, Chairman of Aeglea Pharmastated: “All five of our core team members are former FDA review officers who subsequently held positions at multinational pharmaceutical companies. In terms of global strategy, Aegle Therapeutics has required since its inception that all innovative drug candidates under development must possess potential for internationalization, such as eligibility for multi-country patent licensing and alignment with global clinical needs.”

Du TaoIt is believed that: "The global pharmaceutical industry is currently facing severe challenges, including steadily rising R&D costs and increasingly long development cycles. Many innovative drugs encounter the 'patent cliff' shortly after years of R&D and successful market launch, making it impossible to recoup R&D investments. In this context, the only solution is to introduce revolutionary new technologies. Over the past two years since its establishment, Eglin Pharma has leveraged AI and quantum technologies to drive the layout of multiple drug indications, reduce animal pharmacology and toxicology studies, shorten R&D cycles, and lower R&D costs. Currently, all of the top ten global pharmaceutical companies have established their own artificial intelligence departments dedicated to drug R&D. However, the application of AI in drug discovery in China remains in its early stages."

“On the other hand, whether developing innovative drugs or generics, the most critical factor is whether there is an urgent clinical need for the drug. It is meaningful to define a drug as First-in-Class (FIC) at the time of its market approval. However, labeling one’s own candidate drug as FIC during the pre-market R&D phase holds no practical commercial value. In China, more than 100 PD-1/PD-L1 drugs were simultaneously developed and claimed to be FIC, yet failed to gain marketing approval. Isn’t this a valuable lesson for us?” reminded Du Tao.

How to Evaluate the Global Expansion Capabilities of High-End Drug Formulations? Wang Haotian, Vice President of Investment at Legend Capital“It is believed that we should not limit ourselves to China’s current development status but instead conduct comprehensive assessments at an international level. The journey from aspiring to go global to successfully doing so requires local enterprises to translate their scientific research achievements in accordance with international standards. On one hand, we need a solid foundation in scientific research; on the other hand, our GMP manufacturing and CMC processes must simultaneously meet the pharmacopoeial requirements of various countries and regions. Furthermore, close collaboration between pharmaceutical companies and CROs is crucial, as local pharmaceutical firms can accelerate product market entry overseas through strategic partnerships. Overall, every step—from the technological source to GMP, GLP, and GCP compliance—is critical for successful global expansion. On this basis, leveraging available resources to build a collaborative ecosystem can help local enterprises rapidly expand into international markets.”

Du TaoHe felt deeply resonant with this perspective: “Since 2005, I have served as a long-term consultant for several Japanese pharmaceutical companies. Now that I have embarked on my own entrepreneurial journey, I have realized that the path Japan initially took to expand overseas mirrors the first steps Chinese pharmaceutical companies are taking today. In the 1990s, after Japan joined the ICH, Japanese pharmaceutical companies conducted Phase I/II clinical trials in the United States for drugs already approved in Japan, and then licensed them to U.S. pharmaceutical companies for late-stage clinical development and commercialization. Japanese pharmaceutical companies generated revenue through milestone payments and sales royalties. Today, many Japanese pharmaceutical companies have evolved to directly establish manufacturing facilities, conduct clinical development, and handle drug sales in the United States. Currently, Chinese pharmaceutical companies are using license-out deals as their initial step in global expansion. In the future, they will gradually transition toward overseas R&D and direct drug commercialization.”

What secrets to accelerated growth can Chinese pharmaceutical companies uncover for their global expansion by drawing on the experiences of others, such as Japan? Hu Qicong believes that an examination of the overseas development trajectory of Japanese pharmaceutical firms reveals the following:

“Japanese pharmaceutical companies skillfully leverage external resources. During their development, they appropriately transfer overseas development rights and commercialization capabilities of their products to large pharmaceutical firms to accelerate their own growth. Once they reach a certain scale, Japanese pharmaceutical companies engage in comprehensive acquisitions of products, technology platforms, and commercialization teams to strengthen their capabilities. In their global expansion, Japanese pharmaceutical companies adhere to the principle of ‘quality over quantity’ when selecting long-term strategic partners.”

Qi Fei on the Future of Chinese Innovative Drugs Going GlobalSummaryHe stated, “Frankly speaking, compared with the global expansion of the internet industry, Chinese pharmaceutical companies’ exploration of globalization is just beginning. There is still much room for improvement, requiring concerted efforts across the entire pharmaceutical ecosystem. This includes exploration by enterprises, service providers, and investors, as well as proactive guidance at the national level. In the long run, I believe China’s pharmaceutical industry will seize the opportunities presented by global competition and establish its own advantages in certain specific fields. For instance, WuXi AppTec, as a representative example, has already secured a competitive position in the global CRO/CDMO industry. Over time, I am confident that more Chinese pharmaceutical companies with international competitiveness will emerge.”

“Companies with different strategic positioning may emerge in this landscape. For mature markets in Europe and the United States, it is essential to adhere to the rules governing innovative drugs and develop products with global innovative competitiveness. In contrast, for emerging markets, the focus should be on identifying suitable partners to deliver high-quality, affordable products with localized competitiveness. We believe that opportunities will arise in both areas, enabling companies to build their own competitive advantages based on their respective product pipeline strategies, thereby bringing Chinese pharmaceutical products to more regions worldwide and treating more patients in need.”

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