Chinese Biopharmas Continues to Make Partnering Deals

It’s been three years since the end of the great 2015-2021 China biopharma boom. Stock prices declined quickly from the top and have stayed lower. Unfortunately, most metrics of economic activity in the sector remain depressed. The Hong Kong Biotech Index is sitting at a long-term low, down 75% from the 2021 mid-year peak. Chinese biopharma IPOs have nearly disappeared, venture capital investments are scarce and company takeovers are rare, although some deals have been announced. Partnering deals, however, continue to formed at nearly the activity levels of three years ago.

For smaller, younger biopharmas, the problem is capital. Venture capitalists have raised new funds, but they are reluctant to disperse those funds when exits are visible only in some faraway time in the indefinite future. The same is true for IPOs. Takeovers seem unlikely. It’s very possible a substantial number of underfunded biopharmas could disappear in the next few years.

Partnering

Partnerships are a bright spot in this gloomy landscape. China biopharmas have been busy with out-licensings and in-licensings, raising capital for companies that are shut out from other sources. Most of the deals have been from China companies out-licensing their clinical-stage assets to foreign biopharmas. The deals offer large amounts of money from upfront payments to milestones and royalties, even though the major part of the payoffs occur later, when the drug is approved and generating income.

The Chinese biotech environment is worse off than most of the world. The US slid lower in 2021, but didn’t drop as far, and it is now on its way back to nearly the 2021 highs. The NASDAQ Biotech index lost only 31% of its value in 2021.

The constituents of the NASDAQ index, it must be said, are much older biotechs, with names like Amgen, Gilead and Biogen. Most have been through many difficult markets. BioNTech, an outlier in the group, is newer and a beneficiary of the national COVID vaccinations in the West, with profits that BioNTech invests freely in biotech hubs like China. Fortunately for both sides, China biopharmas need cash and western biotechs need novel drugs.

The Numbers

In the first seven months of 2024, there were 15 Chinese biotech deals with a value of $1 billion or more. The total value of these 15 deals was $28.8 billion. There was another $7.5 billion of out-licensings in smaller deals that didn’t hit the $1 billion mark, bringing the overall total of China partnership agreements to $36 billion in the first seven months of 2024.

Looking back at the mid-2021 peak, there were 658 partnership deals with a total value of $41.6 billion, an average of $63 million each. That was a lot of deals, much more than this year, some of them in the $200 million to $900 million range, but many more below $50 million.

If the current dealmaking continues at the present rate, 2024 will far outpace 2021 with a total deal value near $71 billion. But in number of deals, 2021 was ahead of 2024 by almost 15 times, a deficit that it is unlikely to top. In short, 2024 will book a smaller number of deals but will probably double the total value of those deals because deals are now bigger than they were three years ago.

2024 Partnering Examples

As a partnering example, Shanghai’s ImmuneOnco out-licensed global rites for two of its antibodies to Instil Bio of Dallas, Texas. Besides the $2 billion in milestones, ImmuneOnco will receive $50 million in upfront and near-term payments. That $50 million is about the same as the proceeds of a medium sized IPO at this point in China’s biopharma slump. Besides the money, ImmuneOnco keeps the China rights to the combination therapy, which may have been its plan in the first place.

ImmuneOnco is just now starting a China trial of the two drugs as a combination therapy, so Instil does not have a lot of clinical data for the pair. Nevertheless, Instil was willing to pay a considerable amount of money upfront to nab rights to the bispecific antibody candidates.

The biggest deal of the year so far is Hengrui’s $6 billion three-drug pact with US startup Hercules, which is backed with $400 million of US venture capital. Hengrui’s three GLP-1 candidates target the red hot (but very crowded) market for type2 diabetes and weight loss. Hengrui will receive $110 in an upfront payment and near-term milestones. It will also be eligible for $200 million in clinical development and regulatory milestones. Hengrui also was given a 20% stake in Hercules. But in this agreement, as in most deals, the largest part of the payoff is much later -- $5.7 billion available in sales milestones.

Life Outside of Partnering

Although the absence of the usual financial supporters in China may have slowed the development of China biopharmas, there are some small signs that traditional biotech support systems are returning. There have been five IPOs on the Hong Kong exchange this year, though only one in Shanghai.

In addition, there are some announced deals that will probably be completed later this year:

• Nanjing Legend Biotech, an early CAR-T company, was reported to have received a takeover bid, possibly from its partner Janssen;
• Sichuan Biokin, the parent of SystImmune, plans a $500 million IPO in Hong Kong, an unusually large amount for an IPO. SystImmune develops multi-specific antibodies and antibody-drug conjugates that target the tumor microenvironment.
• Fosun will acquire the outstanding shares of its biologics subsidiary, Henlius Biotech, for $1.7 billion.

Stock prices, however, remain near their lows.

An Overview

The 2015-2021 boom came at a perfect time. From 2010 to 2015, well-financed Chinese biopharmas like BeiGene and Innovent showed that China-based novel drug development was possible. And Nanjing’s Legend proved that China-developed CAR-T drugs offered very high efficacy in diseases that did not have similar candidates from western biopharmas.

Once these companies (and others like them) had viable candidates – or maybe only convincing science -- partnering became a source of non-dilutive capital. During the boom years, a boom that China shared with the rest of the world, partnering was equally advantageous to in- and out-licensors. It still is.

Clearly, there is a lot of viability in China’s biopharma companies. BeiGene recently announced it was profitable in the second quarter of 2024, the first time ever in the history the 15-year-old company. BeiGene has been a monster in terms of raising cash -- three IPOs (the last one in late 2021 raised $3.5 billion) and billion dollar deals with other biopharmas like Amgen. It has a huge portfolio of candidates and an even larger clinical trial program. It was also a member of the first wave of biopharma startups.

BeiGene is an active in- and out-licensing company. It has partnered ex-China rights to its PD-1 candidate twice. The first time to BMS for $650 million upfront and then to Novartis for the same amount. Both times, the partner gave the drug back as their plans changed, though tislelizumab was edging closer to approval. A very well-funded company, BeiGene has the financial stability to smile when a drug is de-partnered. Not every China biopharma has that luxury, unfortunately.

Summary

While venture capitalists, IPOs and takeovers are taking a longer-than-usual vacation, partnerships continue to make news. Western biopharmas see the value of products from Chinese biopharmas and the advantages of forming cross-border relationships. At some point in the future, the political disagreements between China and the US may put a halt to these collaborations, but so far, the disagreements haven’t stopped new partnerships from being formed.

ChinaBio^® Partnering Forum, September 10–11, 2024 in Shanghai, China offers a crucial lifeline for biopharmas looking to secure capital and expand their global footprint. As partnerships emerge as the driving force behind growth and innovation, attending this event can open doors to the strategic alliances that smaller companies need to thrive. Whether you are seeking capital, exploring cross-border collaborations, or aiming to out-license your pipeline, ChinaBio Partnering Forum remains an indispensable platform for navigating these challenging times and ensuring your company’s long-term viability in a complex global market.