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6. The difficulty of drug development is under-appreciated here. Failures will be eye-opening experiences to be learned from.
There are two issues I see in this regard. First, since China is just now turning its attention to developing innovative medicines in a major way for the first time, many here have not gone through the normal failures that come with this difficult business. One person on the stage at CHIC had it right when he said that conversations in the room had a tone as if 90% of everything succeeds, when we know that reality is the exact opposite. Second, valuations in Hong Kong are currently high compared to Nasdaq. See the below slide from the HKEX to see what I mean. Many new companies want to rush in so we will have to see what the market can bear in the future when there are many more listings. Either way, I think the value of diversification will be made clear in regards to both of these factors in due time.
The industry's journey will almost certainly be bumpier at moments than many realize. That is natural and I think it will be a healthy thing as it happens. We go through this in the U.S. constantly. But the long term - where biotech in China can go in 5-10 years from now - is truly exciting. I think this is a very important point. What we are talking about is not what will happen over the next one or two years, it is about what Chinese companies can achieve over the coming decades. This is a very nascent industry just reaching an inflection point and if you keep a long term perspective, I think the enthusiasm about it is very warranted.
On a related note, a quick plug for the product my company recently launched: the China BioPharma Index (LCHINA). This index tracks a diversified basket of 32 China-focused biopharma stocks and will provide a metric to follow the ups and downs of the industry here in real time. The inspiration for it is the Nasdaq Biotech Index that we use in the United States. Being able to quantify the growth rate of the industry in this way offers value that goes well beyond the stock market, and that is exactly what LCHINA enables anyone to do now.
7. China's biopharma sector will be complementary to the U.S. for a long time.
The key point is that it will be 'complementary' to and not 'competitive' against the United States and other regions. The growth of the industry here is a good thing that should be embraced. It is about innovation and global patient health. The guy who was cured by Nanjing Legend's BCMA CAR-T doesn't care where it came from. He only cares about the result. Speaking of that, below are some photos of Legend's Chief Strategy Officer Li Zhu and Janssen's VP of Business Development for Oncology Debi Watson.
8. The potential for quality science, entrepreneurship, and company building in China is all without a doubt. What is much less clear is the payment situation.
This is one of the biggest unknown risks I see from an investor perspective. Despite all of the negative headlines we have in the United States about the high price of medicines, it is what keeps our sector and its innovation flowing. Since most of the population in China leans on a government system exclusively, what the future for higher priced innovative medicines will look like is still largely an open question. Important components of the industry such as the rare diseases business model simply do not exist in China currently. More clarity will be needed over time as this gets worked out. Aside from that, the capacity for innovation here is without a doubt. Below are some slides from Fangning Zhang of McKinsey & Company showing how China has been embracing innovation at a rapid pace.
9. Visiting Shanghai is an awesome experience.
Here is some basic advice I can offer: 1) Download WeChat before you go to China. It is central to life and is LinkedIn, Twitter, and Apple Pay all in one. This is a hugely important business tool that will help you make connections and stay in touch with people after your visit. 2) Do the Shanghai Tower observation deck. It is the second largest building in the world and the views of Pudong are breathtaking. 3) Visit some museums. My photos are from the Shanghai Museum near People's Square. 4) Have a drink at the top of the Ritz. 5) Eat everything!
