Pharmaceutical groups signed partnerships with Chinese biotech start-ups at a record pace last year despite geopolitical tensions and concerns over intellectual property rights and data security in the country.

China has opened up its healthcare sector over the past five years, prompting US and European companies to strike deals with local companies to gain access to the world’s second largest drug market.

A record 271 cross-border licensing partnerships were entered into in 2020 between multinational groups such as Roche, Bayer, AbbVie and Pfizer and Chinese pharmaceutical companies, according to data from consultancy ChinaBio. The collaborations involve clinical trials, development, commercialization and data sharing and have increased by almost 50% compared to 2019 and more than 300% since 2015.

Agreements are being signed despite concerns about intellectual property protection and US health data security in China, with analysts saying the market is too big and growing rapidly to ignore.

China’s healthcare industry overtook Japan in 2016 to become the second largest in the world and is expected to overtake the United States within three years. Pharmaceutical spending in China totaled $ 137 billion in 2018 and will reach $ 140 billion to $ 170 billion by 2023, according to data provider IQVIA.

“There has been an increase in the two agreements where Chinese companies will develop and market innovative drug candidates discovered by Western companies and where multinational companies will do the same with advanced Chinese pharmaceuticals outside of China,” said Sam Thong, Chairman of Goldman. Sachs healthcare group in the Asian investment banking division.

170 billion dollars

Potential size of pharmaceutical spending in China by 2023

As part of the Made in China 2025 Strategy, a program designed to advance the country’s technology and manufacturing goals, Beijing has set targets for domestic pharmaceutical companies to advance in innovation and streamlined the process of innovation. drug approval.

China’s state health insurance plan has also added more brand-name non-generic drugs to a list of those eligible for patient reimbursement, including products from foreign companies such as Novartis, to an extent that could stimulate demand.

Western groups have already signaled the financial benefits of their Chinese strategies.

Eli Lilly, the US pharmaceutical company, reached a $ 255 million deal with Shanghai-listed biotech company Junshi Biosciences last May to collaborate on a Covid-19 antibody treatment and announced a hike of 41 % of its quarterly profit in January. Chief scientist Eli Lilly praised the “exciting” results of the phase 3 trial for treatment with Junshi, which showed that the antibodies reduced the risk of hospitalization and death by 70%.

Junshi said the record series of partnerships proved that Chinese medicines were of “international quality.”

The United States was the most desirable region for cross-border partnerships

Pfizer reached a $ 480 million deal in September with CStone Pharmaceuticals that gave the U.S. group a 9.9% stake in the Hong Kong-listed company, which focuses on immuno-oncology drugs, as well as ‘an exclusive license to market CStone’s cancer drug in China. .

For Chinese start-ups, partnerships can be used as a springboard for their global ambitions, allowing companies to conduct trials and gain commercial approval for their products in the west.

Eli Lilly signed a licensing agreement worth more than $ 1 billion with Suzhou-based oncology group Innovent in August for the exclusive rights to its lung cancer treatment outside of China.

AbbVie, another U.S. pharmaceutical group, agreed to pay mainland biotech I-Mab up to $ 2 billion to gain access to its investigational cancer drug in September.

“This is an important milestone for Chinese companies because it validates their capabilities – their R&D is reaching a global standard,” said Cathy Zhang, Morgan Stanley healthcare manager for global financial markets in Asia.

Column chart of number of deals showing pharmaceutical partnership with China hit record high in 2020

But China remains under pressure to better protect intellectual property, a long-standing grievance for foreign companies.

Changes to the patent law in 2020 have given foreign groups more confidence in their protection, but “enforcement remains a big problem in practice,” said Rocky Wu, a Shanghai-based partner for KPMG, the professional services company. “The detailed guidelines on how to implement the patent link have not been officially published.”

U.S. national security experts are also concerned about Beijing’s access to U.S. health data, especially genomic information, both for privacy reasons and concerns about the ability to use that data for. help. develop biological weapons.

The U.S.-China Economic and Security Review Commission, which assesses the national security risks associated with doing business with China, said last year that Beijing had made collecting foreign health data a priority and had attempted to access US information through “lawful and illegal.” means”.

Chinese entities have done so through investments, partnerships and sales of equipment and services, the commission said in its 2020 Report to the US Congress.

The commission added that “Beijing has imposed increasingly stringent restrictions on the ability of foreign companies to access and share healthcare-related data collected in China,” despite official encouragement for foreign participation.

Additional reporting by Wang Xueqiao in Shanghai, Thomas Hale in Hong Kong and Hannah Kuchler in New York

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