After a round of continuous increases in US biotech stocks, the investment community is beginning to worry: Chinese companies are catching up too quickly. It seems that American pharmaceutical companies, who have enjoyed years of overestimated valuations due to their technological lead, may find it increasingly difficult to maintain this situation.
According to a report in The Wall Street Journal on August 28th, the S&P Biotech ETF has increased by approximately 85% over the past 12 months, far exceeding the 20% growth of the S&P 500 index during the same period. However, the article describes this bull market as facing a “slowly approaching threat,” which is said to come from China.
The article states that over the past few decades, countries like the United States have nearly dominated the field of advanced biotechnology. A new technology, once patented and entered clinical trials, can create a “moat” that lasts for several years. Now, with the rapid development of China's biotechnology industry, this window of opportunity is shrinking.
American medical investment expert Kosta Kleyman said that Chinese companies can now develop competitive products quickly based on proven mechanisms, conduct early clinical trials at a lower cost and faster pace, and then license the results to Western companies.
The report cites American company Revolution Medicines as an example. The company’s pancreatic cancer drug, Rasonque, was approved by the US Food and Drug Administration this week, and its stock price has risen by nearly 500% in the past year. However, a Chinese biotech company developed a similar oral medication several years ago. Later, American company Erasca obtained global licensing rights for it.
It is worth noting that The Wall Street Journal also acknowledges that such competition is mostly completely legal: Chinese companies are not copying patented drug molecules, but rather developing drugs with different chemical structures that target the same targets. This is a practice that has long existed in the pharmaceutical industry.
What really keeps some American investors awake at night is the speed and cost of Chinese companies. Kleiman even lamented that it will be difficult for a company like Revolution Medicines to continue enjoying such exclusive market benefits in the future. Once a company presents promising data, similar drugs will quickly emerge and be rapidly marketed.
Under the competitive pressure posed by Chinese enterprises, some American biotech companies have begun reducing public information about their research and development activities. Washington even attempts to elevate industrial competition to a level of so-called “national security,” thereby imposing restrictions on the flow of American capital into the Chinese biotech industry.
In fact, during the Biden administration, the US tried to use executive measures to respond to China’s challenges in biotechnology. At that time, China emphasized that economic globalization is an objective reality and a historical trend. We hope that the US will respect the laws of market economies and the principles of fair competition, and avoid artificially hindering global technological exchanges and trade interactions.
American politicians' actions that go against market laws are causing increasing concerns.
Peter Kolczynski, managing partner of RA Capital, a biotechnology venture capital fund that manages assets worth 14 billion dollars, believes that including this industry in the National Security Act would be counterproductive and could cause an 'unprecedented devastating blow' to the U.S. biotechnology market.
In an interview with the Financial Times, he warned: "Washington is discussing how to deal with China's influence in other industries and supply chains. Biotechnology is just the latest battlefield. Washington's strategies for rare metals and chips should not be mistaken for strategies that can be applied to biotechnology."
