Here Comes the Booming Chinese Biotech Sector

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1:21It's also finally going to be the time where we actually talk about the Jones Act. We've been talking about doing the Jones Act episode of Odd Lots for a long time, and it's become this recurring joke that we've never done. But we're going to do it in grand style because we're going to be doing it live in D.C. And it's actually going to be a debate. Yeah. So we have Sarah Fuentes from the Transportation Institute. She's going to be taking the pro side. And we also have Colin Graybaugh of the Cato Institute. He'll be taking the against side. It's going to be really interesting to see how all of that shakes out.

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2:41Hello and welcome to another episode of the Odd Lots podcast. I'm Jill Weisenthal. And I'm Tracy Alloway. Tracy, you know, we talk a lot about China, talk about cars and batteries. It's time for a Chinese biotech. It's time for the Chinese pharma episode. Joe, it's just what I always wanted. Thank you so much. No, I am genuinely excited to talk about this. One reason is because this is a sector that I don't really know that much about. Another reason is it has actually been in the news quite a bit recently with the cuts to NIH funding, which we've discussed and things like that. And then more generally, it sort of sits in that nexus of policy aimed at boosting specific sectors and also competition between the U.S.

3:31and China. Yeah, that's exactly right. And it's like, you know, we've just gotten used to the fact that in many areas of sort of physical manufacturing, there are very there are many industries in which China can compete and produce things either cheaper and higher quality. It seems like many areas related to batteries and automobiles and all kinds of stuff like that. We know that. And then, of course, we had like the deep seek moment and a bunch of people like, oh, it's not just physical things. It's not just gigantic plants. also a lot of competition in areas like software particularly artificial intelligence that raised all sorts of questions and then lately the drum is beating that we have to take very seriously pharma and biotech and this is one of those areas that I think most people certainly me would say like in the year 2025 still my conception my head is that the cutting edge is in the U.S.

4:27and Europe still, which I can't say that for a lot of industries at this point. I want to know how medicines are actually made. I do too. And manufactured. I read a long time ago, I read a book about the Twinkie. Oh. And it broke down every ingredient that went into a Twinkie and where it came from. And it was really interesting because it turns out a lot of those ingredients came from China. I didn't know that. I didn't know that either. But you know what? I did know because we briefly touched on it in our recent episode with the two fellows from Goldman Sachs about China's role in the pharmaceutical supply chain providing key ingredients to India, which then plays a key role.

5:08Anyway, there's a lot I want to know. I don't think I know anything. And I just want to jump into this episode because I want to learn more. In that spirit, we really do have the perfect guest. He's someone who recently put together a slide deck, and I kind of think that slide deck catalyzed some articles, the deep seek moment in biotech, got a lot of attention on social media. So we're going straight to the source. We're speaking with Tim Oppler. He's a managing director in the healthcare investment banking group at Stiefel. Tim, thank you so much for coming on OddLots. Thank you. And Joe and Tracy, I really appreciate you having me.

5:42I'm very excited to be here today. What is the managing director in the healthcare investment banking group at I don't actually manage a lot of people. So managing director is just the title. But basically, I'm a senior banker and investment bankers are in the business of putting people together, people that need money with people that have money, people that want to license something out with people that want to license something in. So I'm a middleman, basically, and get paid commissions for doing it. With your middleman position, could you maybe describe the ecosystem of getting new drugs to market?

6:12Like, where does it tend to start? What corporate entities does it go through? And then what's the process from there to getting into an actual physical medicine? It's a great question. So, you know, back in the old days, if you roll back the clock 50 years ago, large pharmaceutical companies, Merck, Pfizer, Eli Lilly, had these research and development groups, and they would sit around and read up articles and do their own basic science and say, you know, I think we should do something to go after such and such type of virus. They would work on it for five or six years. They would come up with a drug candidate.

6:49They would go test it in people. It would work, hopefully. And then they would get it approved, and then they'd go out and market it. things started to change. You may remember, you know, as back as the late 1970s, companies like Genentech and Biogen came on the scene. And so today we have a huge biotech industry. These are kind of like the, you might call them the farm league of big pharma. They're the ones that come up with the new drugs. Of course, the pharmas are still doing their own work too. And so biotech's become a huge part of our ecosystem. It's also become a big part of the capital market.

7:23So There's whole groups of people that got MDs and PhDs and went to work for funds, and they sit there, you know, does this drug candidate look like it's going to make it? I'm going to bet for it, or I'm going to bet against it. What does biotech mean? I sometimes ask Tracy what fintech means, and I still don't know the answer to that. But what does biotech mean? Right-touch banking. So I'd like to give three different answers. First of all, when people say biotech in general, what they mean is kind of the more high-tech part of the pharmaceutical industry, the cool part. Yeah, that's always, I just figure it's like cool.

7:56What I mean by biotech is when you have a company whose sole asset is a drug candidate that has not yet been approved by the FDA, so pre-commercial. When I say biotech, that's what I mean. Other people think it refers to biologics. And it's true, the original biotechs like Genentech were focused on biologics. So it's understandable that some people would associate biotech with biology. And that's a distinct type of therapy from the traditional type of medicine that would have been developed at a Merck? That's correct. So traditionally, there are two types of medicines. There's small molecules, those little white pills some people take every day.

8:33And then there are injectable biologics. Those are products that are much more complex, much larger molecules and are made in very different ways. Can you talk about that? going right to my question about how medicine is actually made, how? Yeah. So for a small molecule, it's actually a chemical. So the pharmaceutical industry actually came out of the chemical industry. So if you go back to the history of pharmaceuticals, say like what was going on in 1650? Well, people were literally chemists. In fact, still in England today, you can walk into what we would call a pharmacy. They call it a chemist.

9:09And they would literally put together your antimony or whatever it was and serve it up to you. So that still goes on. But of course, those small molecule pills are made in giant factories of what's called API, which is really just fine chemical. The other side of the industry, though, these biologics are made typically in bugs. So you would take, for example, yeast, or you might take E. coli, or you might take what are called cho cells. Those are Chinese hamster ovary cells. Why do they use them because they're really good at growing biologics. And you insert a piece of DNA into the DNA of that species.

9:47And then that causes that species to manufacture the protein of interest. And that's a whole other industry. And then those, say, CHO cells or E. coli cells or whatever they are, they're grown in these giant tanks. And so you might have like a 40 ,000 liter tank full of growth medium. And those cells are just swimming around and making their proteins. then they're harvested and you pull out the protein of interest. I'm sorry. Did you say Chinese hamster ovary cells? I know we're talking about China. See, China is everywhere. Tracy, I already feel like we're going to have to have Tim back already, right?

10:21Because like this is already one of those topics where like we probably could just talk about one niche aspect of the supply chain for some ingredient. Because we're not even actually close to getting to it. But we need to build up to we need to build up to Chinese. Well, let's just jump right into it. I want to make a comment here. So China is all of a sudden starting to be very competitive with the US biotech ecosystem. I personally don't think that's a surprise. I don't think that's a bad thing. And here's what's going on. We developed the first biologics in the United States in the 1970s. Well, it's 2025, right?

10:57That was 50 years ago. I mean, you would think that the know-how of how to make those things is spread around, and it has. And so what happened was, you know, in the 1990s, 2000s, armies of Chinese people came to the United States for jobs inside all those companies. And they learned, not surprisingly, how to make what was being made then, which was biologics. You know, I don't want to call it racism. I think that's probably unfair, but for whatever reason, a lot of these Chinese these personnel weren't promoted. They didn't become the SVP at some big shot U.S. biotech company. They were stuck in a director job and they got frustrated and left and went home to China.

11:41Now, here we are, 2025, and they're crawling all over us. They know how to do exactly what we know how to do. And guess what? Just like in batteries, just like in telephones and these other sectors, they're pretty good at it. And so all of a sudden, U.S. biotech, I think, has really woken up just in the last year or two and said, whoa, we've got competition. These guys are as good as us. I'd say they're probably better in a lot of ways. So I definitely want to get to where they are and why they might be better and what are the conditions that perhaps allow them to be better. One last sort of like precursor question or background question is for these chemicals.

12:20I imagine that, okay, we're going to talk about breakthroughs that are happening that are in China that are, you know, in terms of therapies or biologics, et cetera. But if we wind back a few years to where people's brains were stuck at in terms of what is the sort of global supply chain of, I mean, the Chinese hamster ovaries, what is the sort of incumbent global supply chain of key materials, ingredients, equipment for biotech, and what is China's role in that? So if you're making a small molecule, which comes down to that basic fine chemical, let's say it's Lipitor, you could probably make it for less in a place like India or Indonesia or China.

13:03So that's called API, active pharmaceutical ingredient. And in fact, China has become a huge source of API because in many ways, you know, China's really good in the chemical industry. So why wouldn't they be good in the API industry?

13:21Thank you.

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14:32EasyCater, your business tool for food. To learn more, visit easycater.com slash podcast. Can you contextualize some of China's, I guess, growth in this area with some specific numbers? Because we see all these headlines coming out, like 30 % of major pharma licensing deals now involve Chinese companies. I think that's up from like almost zero five years ago. There are some interesting data to look at. Yeah. So just to give you a couple stats, the API that's sourced into the US, I don't have the exact numbers on my fingertips, but I would say at least 25 to 50 % of API that's being used in the U.S.

15:15generic pharmaceutical industry today is sourced from China. India is another big piece of that. So India and China are both really big. What's interesting is India has not kind of had this phenomenon of their nationals coming home and opening up local biotech companies. So But China created this policy, you know, very intentionally five, 10 years ago saying, hey, we want to be really good in biotech. It is strategic for us as a country. It's not that they're trying to beat the United States. It's that they need access to these medicines domestically. You know, why pay the giant global price that some U.S.

15:51pharma company wants to charge? Like, why don't you just learn how to make it at home? So they very deliberately attracted back what are called sea turtles. These are people that crossed the sea from the U.S. or Europe back home to China. They were then encouraged to start their own biotech companies and apply whatever they had learned, you know, in their jobs in Bristol-Myers Squibb or Novartis or what have you. And boy, learned they had and support they got. And all of a sudden, they're churning out really interesting molecules. And so, Tracy, just like you said last year, 30 % of all molecules that were licensed in by big pharma came from China.

16:29not from the United States, not from Europe, not from Japan. They came from China. And I do think that statistic, which was generated by our good friends at Dioforma, was really kind of a wake up call for a lot of folks in our industry. And what, five years ago, that would have been basically zero? Yeah, 5%, 0 % to 5%. How much is it? Is it genuinely novel therapies? How much is it? There's sort of an existing therapy, but they can make it a better version of it, a cheaper version of it. I understand cheaper must be sort of a weird concept in an area where there's, I know, a lot of intellectual property.

17:05But talk about what is driving that competitiveness and market share gain. There's two or three different things going on. So the first thing is we're seeing what are called fast follower molecules. Let's just say for the sake of argument that Daiichi Senkio comes up with something called a B7H3 antibody drug conjugate, B7H3 ADC. Well, the Chinese guys see that pop up. They see the patent filing. They look at it. They're like, okay, we're going to make a B7H3, but instead of using this toxin on the ADC, we're going to use that toxin. Or instead of using this linker, we're going to use that one.

17:41So those are kind of doing small twists around existing constructs. So we call those fast followers. China's really good at fast followers. The second thing that you're seeing are first-in-class molecules. And so the hottest biotech in the United States right now is a company called Summit Therapeutics. They have a$17 billion market cap as we speak. Remember, I define a biotech as a company that doesn't yet have an approved drug. So that's the highest valuation in the world of any company in the world today that doesn't have an approved drug. That molecule, which is a combination of a PD-1 antibody with a VEGF modi, PD-1 by VEGF it's called, is an excellent molecule.

18:26It's working really well in lung cancer. And guess what? It was invented in China. Merck didn't come up with it. Pfizer didn't come up with it. Habit didn't come up with it. It was come up with in China. And it's the most interesting biotech molecule in the world today. But this is an American company, Summa. Right. They went and licensed it for China. Got it, got it. Just like we're seeing the big pharmas, U.S. biotech's license syncs up from China all day long. How much does the difference in regulatory regimes play into here? Because one thing we often hear when it comes to outsourcing manufacturing to China, whether it's something basic like, I don't know, clothing or something more advanced like medicines, is that it's cheaper to make stuff in China because you don't have as many rules and regulations to either slow you down or add on to costs.

19:15Is that a factor here as well? That's a complicated question and a complicated answer. We like that. Yeah, so for most biologics, the Chinese will allow you to get those into patients more quickly. They have what we call phase zero studies where you can just go to a doctor and say, okay, hey doc, I've got people coming in that are dying of ovarian cancer. use this drug. The FDA will not let you do that, right? So the FDA won't let that ovarian cancer drug go into a patient until it's gone through typically a phase one study. Interestingly, China is not the only country that does that. Australia does that too.

19:56And we have kind of new sheriff in town at the FDA. It might be an interesting thing to explore, kind of accelerating that time to get to the first patient. So that's one place where China is ahead. But in general, their rules are just as tough as our rules. It's not like they have a low hurdle and we have a high hurdle to jump over to get a drug approved. Their advantage is more speed to invent, speed to get into the clinic. They're just performing really well on a lot of those key performance indicators. What about the cost of conducting a phase one trial? I mean, these are really expensive endeavors in the United States, and you can spend millions and it goes nowhere past phase one.

20:42How does the cost compare to run the equivalent in China? I mean, we should pause for a moment. So the U.S. has capitalistic medicine system, right? So doctors are for profit. So if you're a physician, of course, you're trained to care for your patients. But let's be honest, a lot of those dermatologists and endocrinologists that you see, they're running a business. The other day I was talking to a cardiologist. I said, like, how many patients do you see a year? He's like, 8 ,000. And I was asking the lady at the front, like, how much does the average patient visit bill? She's like, oh, 400 or 500 bucks.

21:17So you can do the math. That guy's pulling down like five to$10 million, right? So running a physician practice in the United States can be very lucrative. I'm not saying every doc's doing it, just to be clear. But now you're a cancer doc and you're at MD Anderson or Dana-Farber someplace, and some company shows up, GSK, and they want you to test this drug. How much are you going to charge GSK for each patient? It turns out that the average price to enroll a patient in a cancer trial in the United States is between$200 ,000 and$400 ,000. Per patient. Per patient. And how much of that goes to the doctor?

21:54A lot. And a lot to the hospital. I mean, this is a big issue that just popped up. This is a big source of hospital and doctor profits that they're essentially selling access to their patients. You bet, especially at the big places. So developing drugs, especially in cancer, in the United States is very expensive. The other thing I'd note is there's a lot of competition for talent in our country. Again, it's a capitalist talent market. So, you know, let's say you're a doctor working at MD Anderson, and then GSK comes along and says, hey, we'd like you to be our chief medical officer. We'd like you to run this cancer program.

22:32Like, is that a$150 ,000 job? I don't think so. The average chief medical officer in the United States today is pulling down between a half million and$1.5 million a year, depending on your level of experience and how good you are. So all of a sudden, you see biotech companies that are going out to raise$100 million. Well, that's how much you need to raise to enroll the trial and pay all those people. And they have lots of posh offices as well and expensive places. And so US biotech is not so efficient. In contrast, in China, there are no$700 ,000 chief medical officers. There are no$200 ,000 patients.

23:08It's a communist country, right? Doctors make$30 ,000 a year. You don't get to go make hundreds of thousands of dollars a year for being a doctor. And you definitely don't rent out your patients. Tracy, I have to say, this is something I sort of became aware of in this phenomenon of doctors and hospitals renting out their patients for this episode. I had no idea that that's how it worked. And I had no idea of the scale of these numbers. Like if there's one fact that's sort of like expanding my mind, this is the one. I didn't know it either. We should probably do an episode just on the market for renting out cancer patients.

23:53Although that sounds very dystopian. It sounds bad when you put it that way. I know, but like they're gating, right? They're profiting from the fact that you're the sort of the channel, right? They're the channel through which the drug company must find patients. I mean, let's just talk reality of a medicine in America right now. There are certain specialties that make money. Cancer treatment is one. Cardiology, surgeries is another. In contrast, seeing people in the emergency room, seeing people in a primary care sense, you lose money doing those activities. Payments from insurance companies are poor.

24:34And so hospital systems, by necessity, have become for profit. They have no choice. So one of the reasons we wanted to speak to you is because in the course of your work, you've talked to a lot of CEOs and executives on, I guess, both sides of the ocean here in China and in the U.S. Give us a sort of temperature check of what people are saying right now when it comes to the U.S. versus China, pharmaceutical, biotech industries. So first of all, the pharma companies, the big pharma companies, they're thrilled that China's there. It gives them more options, right? You know, there's new molecules.

25:11They might be innovative molecules. The Chinese companies generally don't globalize on their own. One of the interesting things is there's no Chinese big pharma companies. Name the largest pharma company from China you've ever heard of. You can't do it. There isn't one, right? It might be an obscure company like King Ray or CSPC. They're relatively small compared to our pharmaceutical companies. So it's great hunting for those guys. For the Chinese companies, access to the U.S. pharmaceutical market is a godsend capital. It's tight. Prices are low. For the U.S. biotech company, China can be worrisome.