How financial architectures shaped (and will continue to shape) Chinese drug development

4.5k words, 20 minutes reading time

Note: this essay is connected to a prior one titled “Curious cases of financial engineering in biotech”. I conclude that piece with the following paragraph:

To end this off: I have deliberately left out China, which may be the most aggressive current example of financial architecture shaping a drug pipeline. That deserves its own essay, and will get one soon.

This is that essay. And to those who already know vaguely understand this area: yes, ‘NewCos’ are part of the ‘current state’ section. The future will get more complicated!

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1. The current state of Chinese drug development

2. The future of Chinese drug development

3. Conclusion

The current state of Chinese drug development

If you had to take a guess, why has China been out-licensing drugs so frequently?

I naively assumed it’s because China got very good at moving through early-stage clinical development fast and because the domestic market is simply not as good as the US’s. Neither of these are wrong, but they are incomplete, as they do not explain the timing. The speed advantage and the weak domestic market have both been true for the better part of a decade, but you really only started to hear about the out-licensing in the past few years; 2022 if your job depended on it and 2024 if not. Something else has to be doing the causal work.

And much of that “something else” has to do with finance. My claim is not that finance created Chinese biotech productivity, merely that it determined how the shape of that productivity interacted with the rest of the world. I’d like to start by discussing the contribution of one thing in particular: Chapter 18A of the Hong Kong Stock Exchange (HKEX). Many, many things can be traced back to this particular rule.

But before we wonder what Chapter 18A is, we should first ask: where did Chapter 18A come from?

The proximate cause of it was none other than Alibaba.