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Tune in as Glenn Hunzinger, PwC’s Health Industries Leader, connects with Roel Van den Akker, PwC’s Pharma and Life Sciences Deals Leader, to discuss the rapid rise of China’s biotech industry and what it means for U.S. pharmaceutical companies. They discuss the evolving role of Chinese biotech in the global innovation landscape and share perspectives on how U.S. pharmaceutical companies can thoughtfully assess opportunities, manage cross-border complexities, and build effective partnering and diligence strategies.
Discussion highlights:
- China’s biotech industry is growing fast and becoming a global player, with U.S. companies increasingly looking to partner with Chinese firms on cutting-edge science
- U.S. pharma leaders are encouraged to move beyond skepticism and stay curious by building relationships, learning from local innovation, and exploring new partnership opportunities
- Successfully partnering with Chinese biotech firms requires a careful and well-structured approach that accounts for global complexity, protects data and IP, and uses creative deal structures like new company formations to manage risk and stay flexible
- U.S. companies need to be proactive in order to stay competitive by actively exploring global innovation, understanding the risks, and having a clear strategy to bring high-potential science to U.S. patients
Topics: pharmaceuticals, biotech, life sciences, innovation, partnerships, global strategy, in-licensing, science, investment, regulation, data integrity, intellectual property, risk, compliance, diligence, governance, geopolitical, complexity, value creation, newco structures, optionality, agility, China, U.S. market, oncology, immunology, breakthrough therapies, FDA, trust, talent, ecosystems, cross-border, scientific quality, strategic curiosity, deal structures, oversight, competitiveness, patient access, market dynamics, supply chain, operational planning
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Episode transcript
Find episode transcript below.
00:00:04:06 Welcome to PwC’s Next in Health podcast. I'm Glenn Hunzinger, PwC’s health industries leader. Today, we'll be diving into the rapid growth in China's biotech industry and exploring what it means for U.S. pharmaceutical companies.
00:00:18:10 Joining me is Roel Van Den Akker, our pharma and life science deals leader who recently published an insightful piece on the implications of this and what it means for the evolution of our industry.
ROEL VAN DEN AKKER:
00:00:28:04 It's great to be here, Glenn.
GLENN HUNZINGER:
00:00:30:10 Well, let's jump right in. So China's biotech industry is really fundamentally transformed in the past five years, right? Like no longer is China seen as just an access to patients, but it's really viewed as a global sort of innovator. What are the factors you're seeing and why this rapid sort of evolution?
ROEL VAN DEN AKKER:
00:00:51:04 Yeah, thank you, Glenn, and it's great to be here and I think you're spot on. We've seen tremendous developments in China's biotech industry and it has a lot of people in our industry talking about this pretty much ever since the JP Morgan conference in the beginning of this year.
00:01:05:05 And I think the quote and the stat that's being quoted the most is that one out of three in-licensing transactions that US multinational pharma companies are doing is coming from China these days and it compares to almost zero in 2019. So we've seen a rapid rise of in-licensing activity into the US out of China.
00:01:30:02 And why is that happening? Right? That's your question and I think it's a couple of key reasons. So first and foremost, China has evolved from an emerging market to a truly innovative powerhouse in our sector. The government has really prioritized biotech as a sector and there are large advancements that are being made in research and development activity
00:01:52:06 in key biotech clusters in China that almost look and feel very similar to what we're seeing in Kendall Square or research travel park here in the United States. In addition to that, there is a very strong talent pool and a skilled workforce that is increasingly focused on biotech and preclinical innovation.
00:02:13:00 And if you combine all of that you can, more appropriately understand the rise of a lot of these in-licensing transactions that we have seen. The attention is really going towards key areas of unmet medical need and with the deliberate focus on removing bottlenecks around innovative speeds,
00:02:32:08 we've really seen a lot of in-licensing happening there into the U.S. So I think that's kind of the context, Glenn, that has really fed the trend that we've been seeing here over the last handful of years.
GLENN HUNZINGER:
00:02:43:07 Yeah, I mean, it's fascinating background. I know you and I both as sort of deals partners years ago, were starting to see some of the trend on sort of the quality of the science that was coming out of China. Obviously, the scale and the ability to do research in that environment with that many people can sort of move the ball pretty quickly,
00:03:05:07 but despite people seeing the quality of the science and the assets and people are still pretty cautious, how should sort of leaders think about the innovation coming out of China and like what's the mindset shift?
ROEL VAN DEN AKKER:
00:03:18:14 Yeah, it's a great question. I think if you step back and you look at the journey, it's clearly gone from a low-cost manufacturing destination to an area right now where there's fantastic science coming out of this. And I think biopharma leaders need to pivot their mindset from sort of default skepticism that I think has sort of been prevalent,
00:03:39:05 if you will, in boardrooms for a long time really to strategic curiosity and really invest and learn about the strides that are being made in the market there. I think there is a little bit of debate around these in-licensing transactions in terms of is the science that's coming out of it really breakthrough science or is it a little bit more on the fast follower category?
00:04:02:20 But I do think when you look at the transactions that have been struck, they're in really in therapeutic areas like oncology, ophthalmology and immunology and around modalities such as maps, ADCs and T-cell engages that we do think are cutting-edge biology in terms of meeting a patient's unmet needs.
00:04:22:04 So I think to your question, we really need to pivot from that skepticism stance that we've had for a long time to curiosity and really lean into what is our strategy in terms of sourcing science out of China going forward. And I think Glenn, you and I have talked about this before, it requires things like ecosystem thinking, having a strategic view on what posture we take relative to that science.
00:04:48:50 It will necessitate investing in local hubs and partnerships and in brand building and particularly in winning trust in that market to ultimately source innovation that can meet patient on medical meet here in the United States.
GLENN HUNZINGER:
00:05:03:10 Yeah, Roel, that's super helpful and not that evaluating the science is easy, but it's certainly tried and true. I guess, the challenge nowadays is sort of the landscape beneath us all and sort of that geopolitical situation. And so, as you think about how people are thinking to partner with these assets to buy them license or otherwise,
00:05:27:10 what are we seeing as far as additional layers of diligence and how should companies think about, they have a fiduciary obligation obviously to get the best that's out there, but how do you balance that with all the other dynamics?
ROEL VAN DEN AKKER:
00:05:39:10 That's a great question. I think the strength that we're talking about, we're certainly not the only ones that have observed this. Everybody in our industry is talking about this. I think there's a congressional committee that has highlighted the ramification of this through the US biotech ecosystem and landscape more broadly.
00:05:56:05 And I think as you rightfully are asking, it triggers the question in terms of what this means for diligence. And I would almost put it in three or four distinct buckets, Glenn, in terms of what it would mean relative to doing the appropriate diligence to ensure that responsibilities to stakeholders and the fiduciary obligations are being met. Right?
00:06:15:30 So one is, a China-specific diligence playbook is going to be essential. The way you do these in-licensing transactions in a lot of ways will look and feel a lot like in-licensing transactions that you may have seen in other geographies, but they bring with them a whole host of new challenges given the geopolitical environment that we live in.
00:06:36:10 So I think a recognition of that fact pattern is critical and tailoring the diligence playbooks to be specifically catered to China is imperative. And I think a sub-bullet underneath that is really the emphasis on data integrity, data sets, the IP protection requirements and the raft of risks that come within licensing these data packages from China to the United States.
00:06:59:08 We have seen that the CMC environment and the data sets that exist there in these biotechs may not always be what it seems on the surface. So that really requires two to three layers of extra diligence as part of the process. And then, I think lastly, being nimble and agile around these transactions, political context is shifting rapidly.
00:07:21:00 The ramifications of sharing data across borders, particularly when it relates to China, are quite profound. And the bar I think generally for these types of partnerships in order to ultimately be successful is just a little bit higher. So I do think the diligence needs to appropriately assess that and encapsulate all those risk factors in there
00:07:41:08 and have an appropriate plan to take control of these data sets and ultimately progress these packages through phase two and phase three to ultimately bring them to market in the United States. So I would say Glenn, it's definitely a higher bar. It requires a very deliberate strategy and that's what we really see companies do that lean into this in order to make it successful.
GLENN HUNZINGER:
00:08:03:10 And Roel, you hit on some of those topics, but I know you live your life just helping your clients kind of get to yes. Right. And sort of balancing kind of that risk reward, remaining agile and sort of protecting long-term value. Can you just talk a little bit about how some of the structured deals are coming to play and the tools you would put to work here to be able to close some of these transactions?
ROEL VAN DEN AKKER:
00:08:29:17 Yeah, and I think that's right. Obviously, having a strategic awareness about the direction of scientific developments in China is critical, like I said early on. But I think there's a delicate balance between not getting lost in deal fever and doing the right deals, right?
00:08:44:09 And so at the end of the day, this is all down to long-term value preservation, risk mitigation, and making sure that there are appropriate paths there, right? But I do think it comes down to engineering and architecting around deal structures that have optionality to flex with regulatory changes, right?
00:09:04:30 I think that's critical. I do think as you think about these assets or data packages that may exist within Chinese companies, they may often co-locate with aspects or assets or liabilities that acquirers may not want to acquire. So new co-entities that serve as firewalls, right?
00:09:24:50 Where the IP gets sort of moved into a new co prior to transaction are sort of structures that increasingly are the norm when people think about these in-licensing transactions. And I think just the bottom line is, Glenn, as we're thinking about this and observing this, this is a topic where it's a very exciting time in terms of the science that is out there,
00:09:44:10 but passive engagement is just not viable here. These are developments that can really have an impact to US patients and that US MNCs have a lot of value that they can add in that process. But you need to be eyes wide open to the risk and it requires a full enterprise engagement relative to the diligence to make sure that the risks are understood
00:10:06:10 and ring fence, that there's agility around the evolving regulatory landscape. And then ultimately, when you get your hands on these assets, they have a strong take-control plan to ultimately bring this science through the FDA and through patients because that's ultimately what these companies are all about.
GLENN HUNZINGER:
00:10:22:07 I think you kind of hit on the head Roel, you've got great innovation that's out there, but what you've laid out is a path to getting to leveraging that landscape. And so, giving people something to think about, because ultimately, you leaning in to help our clients get to that place is ultimately going to be the best answer for patients and the science that's out there. So, appreciate you doing this and sharing those insights.
ROEL VAN DEN AKKER:
00:10:45:08 Thank you again for having me. Pleasure to be on, as always.
GLENN HUNZINGER:
00:10:49:05 We invite listeners to read our article linked in the show notes and follow us on social media. For more on these topics and other health industry insights driven by policy, innovation and care delivery changes, please subscribe to our podcast at pwc.com/US/next in Health podcast. Until next time, this has been Next in health.
FEMALE VOICEOVER:
00:11:20:10 This podcast is brought to you by PwC. All rights reserved. PwC refers to the US member firm, or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This podcast is for general information purposes only and should not be used as a substitute for consultation with professional advisors.
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