As Big Pharma Faces ‘Patent Cliff’, China’s Biotech Boom Emerges as Industry’s Most Critical Lifeline

Chinese firms stand to benefit from deals struck with Western pharmaceutical majors. (istockphoto) Summary As Big Pharma prepares for a massive revenue collapse when patents on blockbuster drugs expire, an unexpected player steps into the gap. China’s biotech sector is central and could ally with Western drugmakers – unless geopolitics gets in the way. For pharmaceutical firms, it has long been part of the business cycle to see lucrative patents on their best-selling drugs expire. There is enormous pressure to find ways to cover the deficit. For the first time, China has something to offer. Its prolific biotech companies are in the mix as a powerful solution to the upcoming so-called ‘patent cliff’ facing the industry. A new popular drug can generate tens of billions of dollars a year when it first goes to market. Each therapy typically gets two decades of patent protection. However, when that period is over, competitors are allowed to release generic or biosimilar medicines. This is good news for patients. But the loss of exclusivity can decimate revenue. Over the next five years, about $314 billion in sales is expected to be affected. The expected losses will peak in 2028, the year Merck’s patent on its best-selling cancer drug Keytruda expires. Drugmakers learned painful lessons from the last revenue cliff, which began around 2010 and lasted about four years. Driven by the loss of patent protection for a number of branded anti-depressants, anti-psychotics and painkillers, this led to a period of subdued sales growth. To avoid a similar fate, Big Pharma has gone after promising targets to replenish pipelines. There is so much revenue to replace that the shopping spree has expanded to a phenomenon not seen during the last patent cliff cycle: a surge in licensing deals with Chinese companies to take their experimental therapies worldwide. The deals have been insane, with seven of the top 10 biggest deals since 2020 happening this year. Cancer research and licensing has traditionally been an area of ​​dominance. Over the past two years, however, metabolic disease and immunology deals have accelerated, indicating an expansion of China’s innovation ambitions, according to Alison Labya, senior analyst at GlobalData. It is impossible not to see parallels with the car industry. For decades, both sectors in China were caught up in catching up. Homegrown automakers have been churning out vehicles based on blueprints from their foreign partners at a time when biotech firms are copying ‘me-too’ drugs from abroad. That era is over. Chinese EVs now offer best-in-class technology, while their pharmaceutical counterparts are holding their own in early-stage research and development (R&D). The similarities end there. Automakers are stepping into the world with confidence and selling their wares so successfully that even allies have imposed effective tariffs. However, medicine is a much more tightly regulated industry. Chinese drugmakers still have a long way to go in later-stage work such as overseas trials, regulatory submissions and bringing products to the international market. Meanwhile, partnering with legacy firms is the best strategy. There are valid concerns about rising regulatory risk in the US, home to many Big Pharma members, despite a one-year trading freeze. I have written before about China’s dominance of the production of soil ingredients to make medicine. There is a need for Washington to try to disengage in specific areas considered to be of national security. However, this applies to supply chains of certain commoditized materials behind everyday necessities like antibiotics—not to the kinds of new therapies that can emerge from Chinese innovation. Recently, US lawmakers unveiled another defense authorization bill, an annual bill that must be passed by Congress to approve military spending. This year, it is particularly notable because it includes a revised version of the Biosecure Act, which could limit federal contracts with Chinese biotech firms. Due to strong industry opposition, the Act could not be included in last year’s legislative package. This watered down version does not name any firms specifically. But it allows the US Department of Defense to include companies on a grid called the 1260H, which it claims are working with the People’s Liberation Army. The bigger question is whether Wuxi AppTec, which provides outsourcing services to the cream of Big Pharma (the TSMC of biotech), might be added. Inclusion on the 1260H list does not come with any immediate penalties, but carries reputational risk. Because the contractor works with dozens of the world’s largest pharmaceutical companies, the addition will disrupt supply chains. But again, this firm is not developing its own treatments. With the arrival of the patent cliff, global pharmaceutical giants are looking for new acquisition and licensing candidates. China remains a ripe target. Legitimate research breakthroughs should not be stifled by geopolitical concerns. They must be commercialized and made available to people who need them. ©Bloomberg The author is a columnist for Bloomberg Opinion’s Asia team, covering corporate strategy and governance in the region.