U.S. Venture Investors Seek Deals in China's Biotech

 "U.S. venture capitalists are racing to tap into China's growing biotechnology prowess, a shift moving the industry into a more global market for the most promising new drug candidates.

 

Several licensing pacts between Western and Chinese drugmakers have marked China's emergence in biotech, a rise decades in the making. Last week, for instance, Pfizer disclosed a deal, potentially worth more than $6 billion, to secure rights outside of China to a cancer treatment from China's 3Sbio.

 

Long known for versions of Western medicines, Chinese biotechs now develop increasingly innovative therapies. Roughly 30% of the drugs large pharmas licensed last year and in 2023 came from Chinese biotechs, up from 12% in each of the previous two years, according to a January report by investment bank Stifel.

 

"Across the board, they are getting more and more competitive," said Dr. Juergen Eckhardt, executive vice president and head of Leaps by Bayer, the impact investment arm of Bayer, and head of business development and licensing for Bayer's pharmaceuticals division. Bayer last year launched a Shanghai site for its global network of life-sciences incubators.

 

Dealmaking is occurring even as the U.S. wages a trade war with China, carrying with it the risk that President Trump could seek to stop the flow of drugs to the U.S. The activity also is leading U.S. investors and startups to reconsider where their advantages lie and how they themselves can capitalize on China's strengths.

 

Dr. Simeon George, chief executive and managing partner of SR One, a London- and Redwood City, Calif.-based venture investor, said he had an opportunity around 2010 to invest in BeiGene, a biotech startup founded in Beijing. He passed.

 

Now, BeiGene -- which has renamed itself BeOne Medicines -- is a global company with a $30 billion market capitalization.

 

George calls it the biggest miss of his career, saying at the time he wasn't sure he was the right partner for the company. Today, SR One has a three-pronged China strategy.

 

The first is to back biotechs that license assets from China. They include Avenzo Therapeutics, which in January disclosed a deal with China's Duality Biotherapeutics to secure rights, excluding Greater China, to develop a potential cancer treatment known as a bispecific antibody-drug conjugate.

 

Several other venture investors have incorporated this approach into their strategy. In January, for example, U.K. startup Verdiva Bio said it had raised $411 million from Forbion, General Atlantic, OrbiMed Advisors and other investors to develop potential obesity treatments licensed from China's Sciwind Biosciences.

 

SR One also encourages portfolio companies to consider conducting clinical trials in countries including China where they can increase their access to participants and lower their costs. The firm also is looking to create companies around Chinese assets or pull these drugs into new or existing companies, George said, adding that molecules the team has seen in China are world-class and that the firm considers opportunities globally.

 

"We need deals that make sense from a value standpoint; China to this point has offered a compelling value proposition," he added.

 

Total values of licensing agreements Western companies strike with Chinese counterparts look similar to those they make with U.S. and European companies, said Daniel Parisotto, a managing director with investment bank Oppenheimer.

 

But with venture capital scarce in China, biotechs there have less ability to advance drugs on their own and therefore less leverage to demand large upfront payments, although increased competition for Chinese assets has pushed upfront payments higher lately, Parisotto said.

 

That allows Western companies to put less capital at risk because large sums are dispensed only after a drug reaches success-based milestones. It also enables them to make more deals.

 

"These assets are not cheaper, just the upfronts are cheaper," Parisotto added.

 

Growing innovation in China also compels U.S. investors and startups to be more nimble.

 

Chinese companies typically have lower labor costs and, with a ready supply of Ph.D.s., can move fast.

 

A paper published on a promising molecule is the starting gun to a race Chinese biotechs are well equipped to win, investors and entrepreneurs said.

 

"The half-life of a good idea in biotech has been shortened; if you have a good idea, you better act on it quickly," said David Yang, a partner with New York- and Menlo Park, Calif.-based Lux Capital.

 

Seeking an edge, Lux scours academic labs and considers research that hasn't made it into the scientific literature yet. "We want to get into these ideas even before they get published," Yang said.

 

Technology may also help the U.S. compete. Menlo Park-based investor Khosla Ventures is incubating and investing in capabilities involving automation and artificial intelligence that could help U.S. companies create inputs needed for chemical synthesis and development of drugs, according to Partner Dr. Alex Morgan. It hasn't yet disclosed details, he said.

 

"If we can make it cheaper than outsourcing and do it better, the U.S. will have a great competitive advantage," Morgan said.” [1]

 

1. U.S. Venture Investors Seek Deals in China's Biotech. Gormley, Brian.  Wall Street Journal, Eastern edition; New York, N.Y.. 30 May 2025: B10.