The China Licensing Opportunity:
Executive Summary

Record Activity Level in Pharma In-Licensing in China

October 22, 2018

This report provides an overview of burgeoning market for in-licensing of pharmaceutical products into China.

In this report:

  • We discuss the types of products that Chinese companies are looking for, the trends in licensing activity, and typical deal terms.
  • We discuss the most important licensees that are focused on the China market over the last several years.
  • We also provide advice on how to structure and negotiate a China licensing transaction.

Key points:

  • China licensing activity has skyrocketed. Licensing activity is up 300% over the last five years. Over 50 deals have been concluded through mid-October in 2018 alone.
  • The average upfront payment on a China pharmaceutical licensing deal in 2018 was $10.9 million (including pre-clinical deals). The average sum of milestones and upfronts in 2018 was $95.6 million.
  • By far the most common deal structure involving U.S. and Chinese companies is a straight drug license. But joint ventures, distribution deals and research collaborations also take place. In addition, at times, more complex transactions take place such as the cross-licensing and distribution deal entered into between BeiGene and Celgene in 2017.
  • Protection of intellectual property has improved substantially. China has a modern intellectual property regime and provides full enforcement of patents on medicines today.
  • Interestingly, China offers 25 years of protection on newly filed drug patents versus 20 years in the United States and Europe.
  • The Chinese drug approval process has become substantially more efficient in recent years driven in part by policy support for biomedical innovation.
  • There is significant long-term upside to be had from China licensing deals given that the market is growing rapidly, driven by an aging population and increasing health needs from the middle class population.
  • An important backdrop for licensing discussions is the increasingly vocal trade dispute between the United States and China. It is important to note that in October 2018 the U.S. instituted FIRMMA guidelines requiring that many investments by Chinese companies (and companies from other countries) undergo a CFIUS review.
  • Importantly, CFIUS rules do not require a prior review of Chinese licensing deals. Thus far, pharmaceutical licensing transactions have not been subject to CFIUS oversight.

Please contact Torreya China team if you have any questions or comments:

Jie Liu  |  Managing Director  |  |  bio
Kylor Hua  |  Vice President, M&A, New York  |  |  bio
Vivian Xu  |  Associate, China, New York  |  |  bio