4 ASIAN LEGAL BUSINESS CHINA • 亚洲法律杂志-中国版 APRIL 2024 The first quarter of 2024 saw a flurry of cross-border transactions involving Chinese companies and global pharmaceutical giants like AstraZeneca and Novartis in the space of innovative drugs. Legal experts say the industry’s focus on out-licensing transactions signals a growing international recognition of China’s R&D prowess in innovative drugs, promising both market confidence and strategic partnerships. 2024年第一季度，中国多家创新药企与全球制药巨头进行了 一系列跨境交易。法律专家表示，对外授权许可交易的增加体 现了国际社会对中国药企研发实力日益认可，这既带来了市场 信心，也带来了更多战略合作。 BY VICTOR WU 作者：吴嘉林 In the still sluggish deal-making market of the first quarter of 2024, the innovative drugs industry stands out as an exception. Over the past three months, Chinese innovative drug companies have engaged in multiple deals with overseas pharmaceutical giants such as AstraZeneca and Novartis, from mergers and acquisitions to out-licensing transactions. This activity demonstrates the international market’s recognition of China’s research and development prowess in innovative drugs, boosting market confidence amidst the current climate in the medicine sector. Yu Zhengchun, senior partner at Allbright Law Offices, has valuable insights to share. “Between January and February, Chinese innovative drug companies completed over 30 cross-border deals with overseas pharmaceutical firms, including M&A, equity financing, and equity cooperation, with out-licensing deals being predominant.” This momentum follows that of 2023, which saw over a hundred outlicensing deals in China alone, reaching historic highs in both deal value and down payment ratios. FROM CHINA TO THE WORLD 中国创新药“出海”加速 BIG STORY According to Yu, deals between Chinese and foreign pharmaceutical companies typically take two forms: M&A, including equity and asset acquisitions, and equity cooperation, encompassing full equity transfers or partial equity partnerships. “Regardless of the form, cooperation partners leverage their respective strengths to jointly advance the R&D and commercialization of innovative drugs, significantly improving the success rate and efficiency of the entire process.” Given the high-risk, high-investment nature of innovative drugs, out-licensing has become the new trend in R&D, with some innovative drug pipelines in China gaining recognition from multinational pharmaceutical companies. OUT-LICENSING UNDER SCRUTINY Alan Zhou, leader of the life science and healthcare practice at Global Law Office, observes that Chinese innovative drug companies have long shown enthusiasm for out-licensing transactions. In 2017, Global Law Office represented BeiGene in completing out-licensing and equity transactions with Celgene Corporation, with a deal value of nearly USD 1.4 billion. This breakthrough surprised the industry and served as early proof of the international recognition of the R&D capabilities of Chinese innovative drug companies. Zhou believes that after this landmark deal, more Chinese pharmaceutical companies began to “go global” through the out-licensing model. While there have been many influential out-licensing projects since then, such as Legend Biotech and Johnson & Johnson, license-in transactions were decisively more popular than out-licensing before 2021. However, in 2022, “with continuous improvement of indigenous R&D capabilities, as well as factors such as the cooling of domestic and Hong Kong capital markets and the impact of industry policies, the innovative drugs industry entered a period of adjustment,” says Zhou. “The demands of innovative drugs companies shifted more towards ‘selling,’ resulting in a rapid growth of the number of out-licensing deals, which exceeded the number of license-in transactions by a large margin.” Yu also acknowledges that in the current climate, where equity financing remains quite difficult for Chinese innovative drug companies, “getting a higher down payment through out-licensing is also an important way out.” However, he notes that multinational pharmaceutical companies are mainly interested in pipelines with the potential for “firstin-class” drugs, which excludes most Chinese innovative drug companies. Furthermore, there have been cases of pipelines going global “in clusters” in
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