Big Pharma Needs New Drugs. China Has Them

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1:54Podcasts. Radio. News. Every summer, doctors, researchers, and drug executives from around the world descend on Chicago to attend an important medical conference. This is like the world's biggest cancer conference, with 20 ,000 or 30 ,000 people in attendance. That's Bloomberg senior reporter Robert Lankrith. He's been covering biotech and health care for 30 years. It's called ASCO, and this is one of the biggest forums for new drug studies to come out in cancer. This year, one of the most talked about drugs came from the American pharma giant Merck. It already makes the world's best-selling cancer treatment.

2:33And the drug company has a new product in development that it thinks could become one of its most important cancer medicines yet. It's called SAC-TMT. That drug has become, you know, one of the cornerstone drugs it's testing. It's testing in 17 late-stage trials in lung cancer and breast cancer and other tumors. Merck is betting that SAC-TMT could treat a range of different types of cancer. But there's something unusual about it. Merck didn't discover the drug. A Chinese company did. Merck licensed SAC-TMT from a Chinese company called Sichuan Colon Biotech. and this is a drug that is already approved in China.

3:16In fact, one of the reasons why Merck was so excited about it is because of all these clinical data that they already saw come out of China that they believed offered evidence that the drug does work and is safe. Amber Tong covers Asia's biopharma industry for Bloomberg. She and Robert say China's become one of the hottest places in the world for finding promising new medicines. Novel drugs from Chinese companies now make up around a third of the development pipeline globally. Think of some of the big U.S. drug companies. They're sort of like Netflix, a kind of insatiable need for new content.

3:52And they found in recent years that China is a great place to go to to buy, you know, early stage drugs at a lower price. And a lot quicker, too. What one of the drug company executives said to reporters at one point is that they said literally you can go twice as fast at half the cost in China.

4:18This is The Big Take Asia from Bloomberg News. I'm Wan Ha. Every week, we take you inside some of the world's biggest and most powerful economies in the markets, tycoons, and businesses that drive this ever-shifting region. Today on the show, why an explosion of new drugs are being developed in China and what this could mean for the U.S.'s dominance in biotech.

4:49Merck's experimental cancer medicine, SAC-TMT, isn't the first breakthrough to come out of China. In 2024, a Chinese biopharma company called Akiso surprised the world with a new lung cancer medication. In a Chinese trial, it outperformed one of the most successful and profitable drugs on the market, Merck's Keytruda treatment. And Robert says at the big cancer convention this year, the innovations Chinese biotech companies are making were front and center. For one of the first times, a drug exclusively tested in China in a phase three trial was one of the featured presentations there. is a drug from Summit Therapeutics that was licensed from a company in China called Akizo.

5:33And so the exploding number of drugs coming out of China was just a very big focus and topic of conversation at the conference this year. For decades, the biggest breakthroughs in medicine largely came from drug makers in the U.S. and Europe. Chinese pharmaceutical companies were better known for making generic medicines and supplying ingredients for larger firms overseas. But Robert and Amber say that's changing. The companies there historically, you know, not too many years ago, working on generic drugs, been working on like, they call it API, you know, active pharmaceutical ingredients, the raw chemicals that go into some of the finished products.

6:11They're way down the value chain. But China is rapidly moving up the value chain. If we look at the whole universe of experimental drugs that are being developed around the world, depending on how you count, between a third to half of the pipeline came from China. So there's just a lot of innovation going on. There's a lot to choose from. Amber says the biggest turning point for China's biopharma industry came in 2015. China essentially overhauled its regulatory system for drugs and aligned China's standards more closely with international standards, streamlined drug reviews and kind of enforced quality control to really level the playing field for local drug developers.

6:56Around the same time, Beijing ramped up support for the biopharma industry. It pushed companies away from lower margin generic drugs and toward innovation. The authorities reformed the national insurance system to incentivize innovative drugs and really squeezed the profit margin of generics. And that also kind of pushed even the older guard pharma companies in China to focus on innovative drugs because, frankly, they could no longer make money on generics. But China's rise is only half of the story. The other half is what's happening inside the biopharma industry worldwide. Pharmaceutical companies are facing a so-called patent cliff where they will lose patent protection over the next few years.

7:42And that would expose really important sources of revenue to generic competition. It's part of the reason pharma giants like Merck are constantly on the hunt for new medications. Patents expire at different times depending on the country, and exclusivity can expire years before a patent does. Keytruda, Merck's best-selling cancer drug that we mentioned earlier, loses its U.S. patent protection in 2028. That's potentially good news for patients. Bad news for Merck, which saw more than$31 billion in sales from the drug last year. So they have an urgency to kind of buy a lot of promising treatments with the hope that some of them will become top sellers that can, you know, plug the revenue gap.

8:30At any big pharma company, there's always a mix of what they call in-house or internal innovation and external innovation. And decades ago, it might be a little more common for pharma companies to rely on their own drug discovery, drug development teams. But over the past decades, we've also seen big companies kind of rely more on smaller companies to kind of fill their pipelines. One of the most common ways they do that is through licensing deals. That's where a pharmaceutical company pays for the rights to develop and sell a drug discovered by another company. So that means they are getting the intellectual property.

9:16The seller would transfer the formula for the drug and all the related data to the buyer. And then the buyer, with all this know-how, can start to plan their own trials and manufacture them in their own facilities. And then eventually, if the drug gets approved, the buyer will be able to sell that drug under their brand name. The COVID vaccine sold by Pfizer, for example, came from a licensing and development partnership with Germany's BioNTech. Another draw for big pharma is the structure of licensing deals themselves. Maybe only a small percentage of that money is paid up front, so it's much cheaper.

9:54And that makes it cost effective for the big pharma companies. So they're very happy to pay. If you have an early stage drug, we'll license it for$500 million. Hey, but it works for every type of cancer. Sure, we're going to pay you$10 billion years down the road. Today, a closer look at those deals shows China's outsized influence in developing new drugs. Last year, nearly half of global pharmaceutical licensing deals involved Chinese companies. That's up from just 16 % in 2022. These deals are being done with Chinese companies Rapid Fire. So in May, Bristol-Myers signed a collaboration. It was worth as much as$15.2 billion with Hangrui Pharmaceuticals Co.

10:32And then just weeks later, Pfizer had its own deal with a different Chinese company worth as much as$10.5 billion to develop cancer drugs. and in that deal, a Chinese company is also in charge of conducting initial trials. So there's increasingly, it's becoming like an early stage research arm of the U.S. drug industry. That's one way that you could think of it. So why China? A big part of it is speed. China can move drugs through early development faster because it is huge patient pools and large research hospitals that can fast track this work. It's also found ways to streamline the regulatory processes that mirror the U.S.

11:12Food and Drug Administration's rules. U.S. companies still need to conduct their own trials involving U.S. patients under FDA scrutiny. But China's advantages help companies recruit patients and gather critical clinical trial data much faster than in the U.S. or Europe. That means even drugs that might be similar to what's being developed elsewhere, You can get the clinical data faster, and that means you can potentially bring it to market faster. And for the drug industry, time is kind of money. Faster trials can make drug development cheaper. And pharmaceutical companies say China's often a cheaper place to acquire drug assets, too.

11:53But in the race to secure the next blockbuster treatment, are American companies actually undermining their dominance of the biopharma industry? That's after the break.

12:09This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT work. I'm Carol Masser. AI is creating a new path for musical stardom. As Bloomberg's Lucas Shaw and Ashley Carman report, Suno, an AI-generated music company, lets users generate a song in any style based on a text prompt. People can upload their own lyrics or start from scratch, record their own voices, or rely on ones provided by Suno. While most of the songs generated on the service go unheard of by the masses, a few have taken off, including a recent TikTok trend that involves users uploading text messages to Suno and turning them into musical performances, like taking the text from a crazy night out and making it a gospel song.

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15:45this year through July. That puts 2026 on track to surpass last year's record of 45. That's according to data from Bloomberg Intelligence. For many Chinese biotech firms, these deals offer something valuable. Here's Bloomberg's Amber Tong. The U.S. is the biggest market for pharmaceuticals in the world. And if these Chinese companies, their drugs have the potential to be sold in the U.S. that can become a really important and promising source of revenue. The China biotech industry overall is still very young, and they lack the capability, experience, sophistication, what have you, to enter the U.S.

16:31or European markets by themselves. Take Sichuan Kölun Biotech, which we mentioned earlier. the company that developed the experimental cancer drug Merck is now testing. Just a decade ago, Ke Lun's parent company was best known for manufacturing IV fluids. But the U.S. market isn't just about money or expertise. It's about access to something more valuable. Deals with Western companies, particularly with large multinational companies, help give validation for Chinese biotech companies because the deals essentially serve as an endorsement of the ability of these Chinese companies to innovate. And the American companies, they are paying real money to license their drugs.

17:18And that is, for a lot of the Chinese companies, a very important badge of honor to show their investors, to show the world that their innovation has passed the rigorous vetting of some of the largest and most premier companies in the world. And while Chinese and American biopharma companies see these partnerships as a win-win, some industry observers and lawmakers see the development as a threat. Here's Bloomberg's Robert Lankrith again. The U.S. drug industry, the U.S. biotech industry, it's a world-leading industry, and this is an area we've historically had a competitive advantage. My perception is basically a worry that the U.S.

18:03industry will eventually be disadvantaged if they give away too much of their expertise and Chinese companies learn from them and then in the future, you know, don't have to license them to U.S. companies. They can just sell them themselves. I think that's the basic worry, that there'll be Chinese drug giants, you know, making most of the money from these things in the future and not doing the deals. And then because we've trained them. For U.S. drug makers, it could mean a slow erosion of their dominance. That could be bad news for investors in those companies, as more profits from blockbuster drugs made in Chinese labs could flow to Chinese firms.

18:39And then there's the question for lawmakers. What happens if an industry that's been the driver of biotech innovation and behind hundreds of billions in revenue becomes dependent on a geopolitical rival? As more and more high-value portions of the drug development chain go to China, the worry is, if there's any geopolitical conflict, we'll lose access to that in crucial parts of the drug development chain, such as all-important human clinical trials. And the early stages of those are increasingly being done in China in some of these deals. A big question that people are raising is what this all means for U.S.

19:18biotech dominance and future access to medications. If, and this is a big if, because we're really not there yet, but if the world becomes reliant on China to come up with breakthrough medical innovation, what does it mean for countries that don't have the best relationship with China, for example? These questions are hypothetical right now, but they're already making their way to Washington. Over the summer, members of both the Senate and U.S. House of Representatives introduced bills that would subject biotech investments in China to greater government scrutiny. If passed, that would put the biotech sector in the same category as other strategic sensitive technologies like semiconductors and AI.

20:06But even among lawmakers who view China as a growing threat, there's little agreement on what should happen next. I talked to a senator. Senator Young said, hey, this is a threat that's glowing red. But like what to do about all these deals, even among the China hawks, that's, you know, a subject of debate. And the counter argument against any kind of restrictions or review is that, you know, if a company in China invents a cure for ovarian cancer, well, don't you want American patients to have access to it? So it's a tricky proposition because if you just restrict or put some kind of restrictions on deals in U.S.

20:40companies and Chinese companies, well, the Chinese companies might just go to our European rivals and license it to a company in Europe. So it's an intense debate right now and no one's quite figured out what the right answer should be. The geopolitical implications may not feel urgent yet. Drugs discovered by Chinese companies accounted for just 4 % of FDA approvals over the past five years. But Morgan Stanley projects that figure could rise to 35 percent by 2040. And it raises a more fundamental question. If a drug saves lives, should we care where it came from? In an ideal world, the only common enemy is the disease.

21:21It doesn't matter where the drug comes from. If it cures cancer, if it cures cardiovascular disease, if it saves people's lives, it's a good drug. And I believe that's what the scientists and the doctors are striving for. That being said, we unfortunately live in an imperfect world. And unfortunately, this topic has become almost politically sensitive. But ultimately, if I am a patient, I think at the end of the day, I just want a drug that works.

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