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The Drug Industry Is Having Its Own DeepSeek Moment
The Drug Industry Is Having Its Own DeepSeek Moment
The biotech industry’s DeepSeek moment came last fall.
That is when Summit Therapeutics, backed by billionaire Bob Duggan, announced that its drug had outperformed Merck’s blockbuster therapy Keytruda in a head-to-head lung-cancer trial. Keytruda, a $30 billion-a-year immunotherapy juggernaut, is the bestselling drug in the pharma industry and has long dominated the market. So the prospect of a superior competitor was seismic. Even more remarkable: Summit had licensed the drug just two years earlier from a little known Chinese biotech called Akeso.
The news added billions of dollars to Summit’s market capitalization, catapulting it into biotech’s upper ranks despite having no approved drugs. While Summit’s drug still hasn’t received U.S. regulatory approval, the results were a watershed moment for the industry, underscoring the competitive threat emanating from China.
China’s rise in biotech has been years in the making, but it is now impossible to ignore. In 2020, less than 5% of large pharmaceutical transactions worth $50 million or more upfront involved China. By 2024, that number had surged to nearly 30%, according to DealForma. A decade from now, many drugs hitting the U.S. market will have originated in Chinese labs.
China’s biotech boom mirrors its rise in tech. In both cases, China has moved up the value chain, from manufacturing goods to becoming a more sophisticated hub for innovation, competing in industries once dominated by the U.S. There are several reasons for the industry’s growth. For one, many top scientists trained in the U.S. have returned to China over the past decade, fueling the emergence of biotech hubs around Shanghai. And just as DeepSeek built a formidable chatbot—allegedly on a lean budget with limited access to semiconductors—Chinese biotech companies are also scrappier, capitalizing on a highly skilled, lower-cost workforce that can move faster.
Additionally, companies can conduct clinical trials at a fraction of what they would cost in the U.S., while recent changes in the Chinese regulatory system have streamlined and accelerated the approval process to get a study started.
For now, much of China’s biotech innovation is incremental rather than groundbreaking. Many companies focus on improving existing drugs—tweaking the chemistry, enhancing efficacy or differentiating them in key ways.
But Chinese innovation is steadily improving and is already starting to disrupt the U.S. drug-development ecosystem. For decades, the U.S. biotech industry has thrived in hubs such as Boston-Cambridge and the San Francisco Bay Area, fueled by talent streaming from top academic centers like Massachusetts Institute of Technology and Stanford University. Those biotech companies have an insatiable client in Big Pharma, which is willing to pay top dollar for new drugs to replace those going off-patent.
While that isn’t going away, chief executives of large pharmaceutical companies are broadening their horizons. Why spend $10 billion acquiring a U.S. biotech with a mid-stage drug when a similar molecule can be licensed from China for a fraction of the price?
The red-hot obesity-drug market offers one example. Eli Lilly and Novo Nordisk are the dominant players with GLP-1 drugs such as Wegovy and Zepbound. At this stage in the obesity drug market, it makes sense for some large pharma companies to skip over trying to develop an injection and try instead to make a more convenient pill.
Merck and AstraZeneca are two pharma companies looking for a way in, and both turned to China for earlier stage orals under development. In late 2024, after scouring the market for obesity assets—presumably eyeing U.S. companies like Viking Therapeutics, which trades at a market value of around $3.7 billion—Merck chose to license an oral GLP-1 drug from China’s Hansoh Pharma. The deal: $112 million upfront, with potential milestone payments of up to $1.9 billion. A year earlier, AstraZeneca made a similar move, paying $185 million upfront with future milestones totaling nearly $1.83 billion in a deal with China’s Eccogene.
These “bargain” deals are great for Big Pharma. But for U.S. biotech companies—and their venture-capital backers—they are creating real challenges. Investors increasingly struggle to value early-stage biotechs because it is difficult to predict what competition might emerge from China. That is at least part of the reason why the S&P Biotech ETF has been basically flat over the past two years, while the S&P 500 has surged 48%.
“It’s unquestionable that this has been a big negative for the U.S. biotech ecosystem,” said Tim Opler, a managing director of investment banking at Stifel. “The real question now is how to adapt. How do you maintain leadership in innovation while improving cost efficiency and speed?”
From a patient’s perspective, the growing global competition is a win. People with cancer probably don’t care which country a drug was developed in. What matters is that it works. But for policymakers focused on maintaining America’s competitive edge, China’s biotech surge is a wake-up call. The innovation race isn’t limited to AI or crypto—it extends deep into life sciences.
Summit’s partnership with Akeso didn’t go unnoticed by Merck. Just months after Summit’s clinical-trial results, Merck said it had licensed another promising cancer drug that essentially followed the Summit-Akeso approach of a dual-target antibody that hits both PD-1, an immune checkpoint that cancers exploit to hide from the immune system, and VEGF, a protein that helps tumors grow new blood vessels. And where did Merck find this drug? At a private biotech company, LaNova Medicines, based in Shanghai.
“If you’re looking for innovation,” Duggan, Summit’s billionaire leader said in a recent interview, “that’s the logical place to go.”
