WIM 2022: Transcript of Fireside Chat of Biotech [1/2]

Healthcare Author: Fuller Wang, Aaron Ma, Sally Shi, Sidney Li Aug 05, 2022 09:11 PM (GMT+8)

EqualOcean organized the WIM2022 event in New York City from July 29 to July 30, 2022. The following is the transcript for Fireside Chat of Biotech. Leon Tang, Bing Yuan, Ying Huang, Dahai Guo, and Sally Wang are the five guest speakers in this chat.

WIM 2022

On July 30, 2022, we successfully organized the Fireside Chat of Biotech in the WIM2022 Day 2 event. We are honored to have Leon Tang, Bing Yuan, Ying Huang, Dahai Guo, and Sally Wang become the guest speakers in this chat. They shared their insights and experiences in this chat. The following are the discussions.

Leon: Let us start with "the good." Based on the latest data from the United States government, the Healthcare industry in the United States in 2020, accounted for 19.7 percent of the total GDP. China was 6.6% in 2019. Japan was 12%. We see tremendous growth in China, and this is the good part. Also, the United States healthcare industry in the past, or over ten years, has been growing in high double-digits. China has been and in the future is estimated to grow at a low double-digit. And this will not be impacted by the recession in the United States or slow GDP growth in China.

Now let's talk about "the bad" and challenges in the United States' and China's health sectors. In the United States, the drug company is doing well. But patients are not so much. In China, to my knowledge, is the opposite: most innovative biotech companies are running red, especially the recent generation of biotech. However, patients have been doing fantastically. Neither is ideal because we want both companies and patients to do well.

With that being said, let's get to "the ugly" side. That is where we see tremendous opportunities. Based on government data, in 2020, in the United States, 8.6% of Americans did not have healthcare insurance. Therefore, they could not afford lifesaving drugs because they could not afford lifesaving drugs in the United States. For example, in the immune-oncology space, Keytruda is the best-selling IO drug from Merck, a company in New Jersey. If you google it, it is also called Jim Carter's drug. The cost is an average of USD 180 thousand per year. A similar drug developed by the Chinese company costs USD 7 thousand per year. The difference is almost 26 times. How does that impact the public health of the United States? According to a study published in April 2022, United States citizens have a slightly shorter life expectancy than that in China. I don't think that is good news. Broadly speaking, the United States healthcare spending per capita in 2020 is USD 12.5 thousand per person per year. And China is probably 5% of that. We still have huge opportunities. I think that is the problem all the panelists know. In today's discussion, we hope we can come up with some ideas.

Discussion Q1:

Question: What is the current status of China's biotech? How have China's and the world's healthcare landscapes changed?

Dahai: I can give a crack on that. I personally observed in the last 14 years, especially the last ten years, that China's pharmaceutical biotech industry is starting from nowhere or absolutely nothing. You could not believe it: the first China GMP regulations passed in 2011. So only ten years ago, China had the first true GMP regulations. The first United States regulatory standard drug was launched in China market in 2017. Before that, in my standard, there were no qualified drugs. Ten years ago, I didn't really see the true biotech research that met the international standard. And I think China right now is developing extremely fast. The speed of catching up is unprecedented, but it's presented in front of our eyes. I should say, or to a great degree, we should appreciate the returnees. People, like a lot of folks here, really helped the China pharmaceutical biotech industry, starting from a really low base to a higher standard.

Sally: Yeah, I am happy to comment on that. I saw it when I was doing business in China. I saw the China biotech shifts and the shift of capital to invest in biotech. I remember that in my first year in China when I was raising money, there was not a sense of wanting deep tech and biotech. And in the second year, when I was back in 2016 and 2017, it was a complete shift. People wanted their products and patents to be patentable. It was really drastic. Also, from the regulatory side, China has made a series of regulatory changes. China's government is quite forceful in the sense that they are willing almost to shut down an entire industry to be able to spurn innovation. We saw that they probably killed the generic industry with the new pricing scheme there. I think China, with a more centralized government, can have a policy tool that is at the disposal to sponsor innovation in a way that the United States cannot. We also witnessed the return of many scientific talents to China in the United States. The combination of the shrinkage of funding here in the United States for research and the bias against overseas graduate students that are trying to seek employment made them better off going back to China to start their careers. A combination of a lot of forces in China has all those programs, such as CAS Hundred Talents Project (百人计划) and Overseas High-level Talent Recruitment Program (千人计划), to welcome these people. So all these things allow us to have the flourishing biotech industry that we have right now.

Bing: I have a point on one effect, which is the impact on Chinese patients. I think, to me, the real take-off of the Chinese biotech industry was back in 2015. Once they changed the policy, then the whole funding and eventually China and Hong Kong opened the stock market that helped to boost the entire industry. Then we have so many drugs that were originally not accessible to Chinese patients, indicating the western drugs. But now, both western drugs and domestic drugs are available for Chinese patients. This is the first point I want to add. The second point is an even bigger trend. Because of the boom of the last seven years, many companies can now develop globally competitive assets. I personally believe that more and more companies that originally innovated from China, such as Legend, will come to the global market. And I hope my company is one of them. 

Ying: In 2015, China joined ICH. For those people who are not in our field, ICH means "in terms of clinical trial standard." China was actually not exactly the same standard as the United States and Europe prior to joining ICH. So China can become a part of the global trial community, which means in terms of the regulatory affair, you can actually run a segment of your subgroup in China. And that will be protected by the whole world regulatory agency such as the EMA in Europe and the FDA in the United States. That's a very important milestone, at least. China really adopted international standards. The second point is that the Hong Kong stock exchange passed Chapter 18A in 2017, which means any pre-revenue companies and pre-commercial stage companies can actually raise capital by going public. So that is actually very strong in terms of capital raising in both private and secondary markets. With those two milestones, I think the third one is innovating. And this business is really taking place in China.

Sally: China is doing more than just opening up the stock market in Beijing to support young biotech further. Biotech will not stand a chance of going public here with the IPO window effectively in a down market. Now, Chinese companies do not face those hurdles at all for going public. It is a very different public financing environment.

Discussion Q2:

Leon: This is a fantastic transition to the second question. We know you guys have touched base a little bit that we are in one of the worst winters of biotech capital raising in the past 30 or 40 years. But all the panelists are very strong swimmers who can swim against the tide. For example, Ying Huang raised 402 million USD this week despite the whole environment. I remember the notes from Mike Yee of Jefferies said some 200 Biotech companies are being traded at or below cash level. But Ying is a strong swimmer, and Legend is doing really well. I also know that Bing and Sally have been raising money in the private market. For some portfolio companies, Sally also raised capital in the public market. We have some people with lots of experience and with recent achievements in the capital market. 

Question: Can you please share this with us? I will start with Ying since this was a piece of big news. How did you make it so big? What is your secret? 

Ying: Before I talked about our public raising, I do think there is a point I want to make. I joined Wall Street as a junior, and a first-year associate. I was at a program, and now it is a part of Wells Fargo's capital market operation. But back in 2007, we had about 160 public biotech companies on NASDAQ. Today I don't know if you guys know that we have about 760 public biotech companies. So, if you look at the share number of the public company at trading, it is five times that of 15 years ago. Second, if looking at the amount of capital we are able to raise in the industry, it is astronomical. Suppose you look at how many companies go public every year for financing or for private rounds. Even though we are in a very difficult bear market for biotech today, we have grown a lot in the past 10 or 15 years. I think we are still overall at a very good stage in terms of capital formation and funding for discoveries.


So, we did actually raise 400 million this weekend which was just posted yesterday. I think the first lesson I learned is that we always treat our shareholders as family members because you have to establish trust and a long-term relationship with them. So, if you look at some of our largest shareholders, one of the companies started the relationship with us back in 2019. It took three years, but every year they continue to increase the investment. But you can't imagine that it is one deal that I raised money from you, and then I don't care if you make money or not. Because next year I don't think you can raise money from me because you have been losing money.

Our board has an unofficial rule. It is a rule almost every time when you have capital raising. We ensure that this time is always higher than the last capital raising. For example, back in 2019, when we passed over, it was about USD 15 or 16 per ADR share. When we went public in June 2020, the price was USD 23. After that, it was USD 28. In December 2021, we received USD 250 million at USD 40 per ADR. Anyone who purchased last time has made money. This time we reached USD 43. Even for people who put in money in December 2021, they made about a 7% return, which is not bad in this market. So you always treat them as true shareholders and part of the company and make sure they always make money. 

Secondly, we are in biotech. Many like us know that data doesn't lie. Every six months, we tend to update our data set. People always ask what your expectation is. And just like our partner J&J, we never say anything but just say wait until we see the data. We never give too high expectations. We want to be under promise and over delivery, just like what we did in June. So now, with a 28-month median follow-up, we have still not reached the median PFS yet, compared to our competitors, which is about 8.8 months PFS. So we let the data speak. In science, we all know maybe you can cheat for one day, but you can't cheat forever. So at the end of the day, your job is worth it, and then the market will reward you for that. That is my principal. And that is how we treat the market and the investors.

Discussion Q3:

Question: Now, let's move into the private market. How do you feel about the private market?

Bing: The private market definitely feels pressure from the secondary market. The United States is letting down 50%. And China, as well as Hong Kong, even at 70%, which clearly posed that investors are very cautious about investing. But I actually echo what Ying just said. Some investors tend to say investing in a platform or this and that, but at the end of the day, it is a product that will consistently deliver data, and you should know that. Eventually, companies with good assets like Legend will survive and be successful. So you should not just look at different mechanisms or past models. You should pay attention to assets. Right now, it is very difficult for the private sector to convince that a company has promising assets with some scientific data at this stage. And then, you put a value on that. Hopefully, they will buy your stories.

Leon: I want to add to this. When I was doing BD at Henlius, we started a project trying to do some M&A., And one thing I realized is that this is a tremendous opportunity. We talked about that there are 200 biotech companies that are at or below cash level. A lot of them have really good assets, actually. In the last two years, the IPO was a little bit too easy. I think I agree with you that there are a lot of great assets. And from a former BD person's point of view, it is absolutely the most important thing: let the data speak for itself. 

Sally: My role is more into supporting more of our companies with post-investment management, especially for fundraising. I am on the board of 8 of 90 companies. And 5 of those are board positions, or board of board. Following Bing's comment, the wind has shifted much more away from central platform companies to asset-centric companies. I think it is a reflection that asset-centric companies are much more near-term and immediate value inflection. Also, back a few years ago, there were a lot of deals because later deals were so expensive. Pharmaceutical companies were doing the earlier stage platform-centric deals. Some of those could really fetch a big belly. For example, VenBio tests for gene therapy delivery. It was able to strike billions of dollar deals in just a few years. So, I think that trip was partially what drove the platform central and the mentality the VC industry had. Another factor that we are seeing this year is that people are much harder to raise a large amount of money. So the VCs are generally being more cautious. And what I have seen is that the company could otherwise raise 50 to 60 million or raise half of that. So that is much more common. 

I think in this climate, the best thing is to find VCs that resonate with your story. Different VCs have different preferences. And if you really find a VC that resonates with your story, then that could be a way of overcoming some of the current challenges. I am even able to see glorified the single asset company that otherwise will be really hard to raise money even harder in this climate, be able to overcome that by finding investors interested in the pharmaceutical area or asset-centric companies, and do not think that as a flaw.

Discussion Q4:

Leon: I heard from a lot of investors, especially VCs, to advise their companies that they do have to have the financial and capital disciplines to make sure the lead assets cross the finish line, instead of spaghetti strategy just have like a pipeline of 20 assets. That story does not fly anymore. That is what I heard. And that could be wrong. Dahai, you probably don't need to raise any money because you are making a profit. 

Question: What is your thought? Are you planning to buy some companies since they are so cheap?

Dahai: I used to buy some companies. But right now, I do not buy any companies. Working with investors and shareholders has been almost a part of my life in the last few years. I believe we are in the pharmaceutical biotech industry as long as your science is solid and as long as you have solid revenue and profit, and the capital is always there. The question is how much. That is just valuation. You can always get capital. It is just how much. Depending on the situation of the macro and micro economy situations, I can give an optimistic view for investments. It is just a matter of time and a matter of valuation. If we talk about "as long as your science is solid," this is the fundamental thing. For me, because I have had products on the market for years from other companies I founded, as long as I make a decent profit, the investor will chase me.


Sally: I know we have talked a lot about science. But jockey is also important. Having the right team with the right connection and experience is also instrumental. In many cases, the reason why some companies are struggling with fundraising is not the science is not good. It is because they don't have the team that the investors are looking for.

Discussion Q5:

Leon: Let's talk about another topic, the elephant in the room, the FDA. This is an example of oncology. In 2019, at ACR, which is one of the two most important cancer conferences (the other being ASCO), I was there in the audience. The chief of FDA's chief of the Oncology Center of Excellence, Rich Pazdurwas, was there. Every cancer drug approved in this country has to get a nod from him. And that year at AACR, he was on stage with a bunch of big pharma chefs in charge of PD-1 or PD-L1, which is the drug class of Keytruda that costs like USD 180 thousand per year. And Keytruda is projected to USD 20 billion in sales this year. He was not happy with those companies for wasting precious patient resources on PD-1. And then he politely poked those big pharma, saying that if you do not behave, I would open the door and let cheap Chinese PD-1 flood the market. After that, indeed, the FDA had a pretty good gesture to PD-1 that was developed by Chinese biotech companies. But a half year ago, the tide changed, especially for PD-1. We got a bunch of rejections for PD-1. Chinese biotech companies such as Junshi and BeiGene got rejections. And BeiGene withdrew their applications for lung cancer review. PD-1 space for Chinese biotech companies used to be championed and welcomed by the chief of OCE. The result is now they were rejected. Ying, you did a really good job, and you got approval. 

Question: What do you think about the FDA? Do you think they really have beef with China's biotech companies, or did China's biotech companies make some mistakes or have gaps to fill?

Ying: I can only talk about our examples. I do not want to speak for other players. We entered the global collaboration with Johnson&Johnson back in December 2017. In March 2018, J&J submitted the IND to the US FDA. So, when we are negotiating with FDA, we have data from 74 patients in phase one in China. Actually, 73 Chinese patients and 1 US patient flew over to China to take the trial. We said this is a China trail. However, we did the phrase one already. Can we do phase two directly? Basically, FDA said that they did consider the whole data set from the 74 patients in China. However, they did ask us if we could just confirm the safety and those again in a very small data set. So we decided to do a so-called phase 1B, in which we enrolled 29 patients in the United States. And then immediately, we seamlessly went to the period of phase two, so we in total have 97 patients in the trial in the United States. To my knowledge, I do think the agency was flexible and very much science-driven because they looked at every single patient's chart from the 74 patients' data we had in phase one. And then again, last year, we went through BLA submission, and we, fortunately, got what we are looking for as well. So actually, I and also Pure Liquids have global development oncology with J&J. We both jumped on the call with FDA on that day. So I think FDA is definitely more strict and much more experienced in gene therapy today compared to five years ago. So, we can tell from their scientific advice and suggestions that the agency is very much more experienced now. They know how to look at the data set from the start. And that is probably why some companies say FDA is more strict. I still believe that FDA is really science-driven, and they go by their rules very much.