In-licensing and the dream of striking it rich with Chinese startups

Founded in 2020 by U.S. investment firm Perceptive Advisors, startup LianBio built its business on in-licensing investigational drugs from the U.S. and Europe for development and commercialization in China. As the company put it in its IPO filing, "Our vision is to be the gateway to China for Western biopharmaceutical companies."

 IPO: Initial Public Offering

What is in-licensing?

In-licensing means purchasing from another company the rights to develop, commercialize, or market a drug or product. The licensee pays the licensor an upfront fee, along with agreed milestone payments and future sales royalties, in exchange for the rights to subsequent development, clinical trials, and commercialization of the product in a specific country or region.

Money pours into China

From 2019 to 2021, drawn by the enormous market and its appetite for innovative drugs, numerous companies poured hundreds of millions of dollars into licensing deals in China. But the market collapsed quickly — experts attribute it to pricing pressure, fierce competition, and a global funding crunch.

A rising star falls

LianBio had raised more than US$700 million from RA Capital, Venrock, and other investors. By 2023, LianBio had gone through a strategic review, sold back the rights to two drug candidates, rejected a takeover bid, and watched its management team depart. Within months, it announced it would wind down operations and return its capital to investors.

China remains the world's second-largest pharmaceutical market with strong demand for innovative drugs — but companies clearly need to rethink how to enter it and succeed.

The idea of combining overseas assets with Chinese R&D expertise to speed the launch of advanced drugs in China is nothing new. In-licensing deals of this kind began climbing in 2018, peaked in 2019, and appear to have rebounded after bottoming out during the COVID-19 pandemic. NRDL: National Reimbursement Drug List

What comes next?

Analysts believe the business model can still work if companies carefully select drugs with large markets or few competitors. NRDL pricing is also showing early signs of improvement. "The problem isn't the underlying business model — it's raising the money," because these companies focus on late-stage development and commercialization, phases that demand substantial capital.

Weighing the returns more carefully

Beyond that, in-licensers now pay much closer attention to the quality of a product's patents. Companies typically look for products with longer patent protection, to keep their profits from being squeezed by generics under China's volume-based procurement system.

Reference: https://endpts.com/startups-raised-millions-to-in....../