The Biotech Urban Legend, The Wire China, July 23, 2023.
Can China and the U.S. work together to cure cancer?
In the early afternoon of June 5, 2017, at the annual American Society of Clinical Oncology (ASCO) conference, hundreds of the world’s leading cancer researchers, pharmaceutical firms and biotech investors focused their attention on a virtually unknown Chinese firm called Legend Biotech.
At that time, the U.S. company Johnson & Johnson’s $10.6 billion research and development budget amounted to $3 billion more than all Chinese pharmaceutical firms combined. But despite hailing from a biotech backwater, Legend Biotech had secured a marquee slot at the conference to present data on their new drug for multiple myeloma, a type of blood cancer that develops in bone marrow and kills more than 100,000 people around the world each year. The study’s principal investigator Zhao Wanhong explained that the drug used an exciting new cell therapy technology called CAR-T and that 33 out of 35 multiple myeloma patients in Legend’s trial went into remission within two months of treatment.
The audience at Chicago’s McCormick Place convention center collectively scratched its head.
“It was almost a 100 percent response rate — that is something you don’t see every day in cancer care,” says Ying Huang, who at the time was serving as the Bank of America’s biotech analyst and who is now Legend’s chief executive officer. Even though Ying’s job was to keep up to date with the latest advances in multiple myeloma research and CAR-T research, he had never heard of Legend Biotech, which prompted a certain degree of skepticism. “Legend just came out of nowhere,” he says. “People thought it was too good to be true.”
But while many in the audience did not take Legend’s data at face value, representatives from American pharmaceutical giant Johnson & Johnson wanted to know more. Peter Lebowitz, global therapeutic area head of oncology for Janssen Pharmaceuticals, a subsidiary of Johnson & Johnson, says his colleagues barely let Legend’s representatives leave the stage before approaching him about a potential collaboration.
“We said ‘Hey, we have to work together,’” Lebowitz recalls. “Our approach was: We are going to believe the data until we have reasons not to. We wanted to believe that innovation could come from anywhere.”
Lebowitz and his team spent the next few months putting that belief to the test, thoroughly vetting Legend’s study data and the firm’s operations in China. The due diligence convinced them that Legend’s data was real, and in December 2017, six months after the ASCO presentation, Johnson & Johnson announced a $350 million initial investment into Legend Biotech. At that point, Johnson & Johnson’s bet on Legend was among the largest-ever U.S. investments in Chinese biotech IP and a milestone moment for China’s biotech industry.
The Legend-J&J partnership is a really beautiful example of how entrepreneurs on both sides of this geopolitical divide are trying to get around regulations to pursue innovation.
“The idea of a Western company licensing innovative plans from a Chinese company was really historic,” says Brad Loncar, a biotech investor. “That was a big coming out party not just for Legend but for Chinese biotech.”
Two years later, in 2019, Legend and Johnson & Johnson presented a landmark study confirming Legend’s initial findings, and according to Lebowitz, the oncology community finally paid attention. “That was the big reveal that we actually knew what we were talking about,” he says. “These were spectacular results.”
Since the drug candidate, now called Carvykti, was launched in the U.S. market in March 2022, doctors have been stunned by its impact. Dr. Manni Mohyuddin, who specializes in multiple myeloma at the University of Utah’s School of Medicine, calls Carvykti “truly a remarkable step forward for multiple myeloma treatment,” while Dr. Rahul Banerjee, a multiple myeloma physician at the Fred Hutchinson Cancer Center in Washington state, says the treatment’s efficacy is “mind boggling.”
Currently Carvykti is only approved as a fifth-line treatment — meaning that doctors can only prescribe it after patients relapse four times with other therapies — but the drug has still generated $268 million in sales. If the FDA approves it for earlier lines of treatment, Johnson & Johnson estimates that Carvykti could eventually produce $5 billion in annual sales and extend the lives of multiple myeloma patients by years.
To many, the success of Carvykti represents the best of cross-border collaboration, illustrating in stark terms what is possible when U.S. and Chinese scientists and companies work together on issues of shared interest.
“The Legend-J&J partnership is a really beautiful example of how entrepreneurs on both sides of this geopolitical divide are trying to get around regulations to pursue innovation,” says Reva Goujon, a director at Rhodium Group, the research firm.
But with both the U.S. and Chinese governments increasingly getting in the way, the very first successful cross-border partnership also looks like it could be the last. Biotech has not been spared amid the broader breakdown of U.S.-China relations in recent years, and both countries have grown increasingly wary of collaboration in the biotech space. In a speech last September, national security advisor Jake Sullivan said biotech was one of three critical technologies, including computing and clean energy, where it is necessary for the U.S. to keep a technological edge over China. “Leadership in each of these is a national security imperative,” Sullivan said. “We must maintain as large of a lead as possible.”
China is also choosing to see biotech through a national security lens. The Legend-Biotech partnership itself was almost derailed after Chinese authorities detained Legend’s chairman and chief executive Frank Zhang in September 2020 for allegedly leaking state secrets from China. (At the time, Zhang had roles at Legend and its parent company, Genscript.) Frank Zhang has barely been seen or heard from in the two years since his arrest.
Indeed, it is unclear whether companies and scientists from the world’s two most powerful countries will continue to come together to find cures for ailments like cancer. Gary Rieschel, founding partner of Qiming Venture Partners, notes that the stakes for humanity are high.
Through just data sharing and trial coordination, he says, the U.S. and China could likely reduce the time and cost of drug trials by 30 to 40 percent.
“When you start to look at some cancer therapies, you’re talking about millions of lives a year,” he says. “We hope that the governments are going to be smart about the fact that this truly is a common cause, and not a U.S. or China issue. But both sides can be equally short-sighted on this.”
A LEGEND IS BORN
In many ways, Johnson & Johnson helped kickstart the idea that the U.S. and China could come together in pharmaceuticals.
In 1976, Dr. Paul Janssen, the Belgian scientist who founded the Johnson & Johnson subsidiary Janssen Pharmaceuticals, visited China for the first time, aiming to bring access to modern healthcare and pharmaceuticals to the country.
Two years later, then Chinese leader Deng Xiaoping began to open up the country to western business, and Dr. Janssen dispatched two of his top executives to establish a factory that would produce pharmaceutical products, like the anti-parasitic medicine mebendazole. By 1985, Janssen had cemented its presence in China through Xi’an Janssen Pharmaceuticals, the first western healthcare joint venture to open in China.
As China constructed the building blocks of its pharmaceutical industry through the 1980s and 1990s, it had to learn how to transition away from a centrally-planned drug development and distribution system to one with market incentives and regulations. The presence of western firms like Janssen proved critical.
“Learning how to bring a drug to market and going through a regulatory system was just as important as creating actual drugs,” says Anna Puglisi, a senior fellow at Georgetown University’s Center for Security and Emerging Technology. “The tacit knowledge and technological know-how that western companies brought to the China market was really important.”
At first, much of China’s biotech industry focused on contract research organizations, which helped firms conduct clinical trials in China as a means to get foreign drugs approved and marketed to the Chinese public. But in the late 1990s and 2000s China’s government began a concerted effort to develop the country’s innovative capacity in pharmaceuticals. In addition to investing more in the industry, China began recruiting scientists in the Chinese diaspora to return home, most notably via the Thousand Talents Plan.
“That influx of mainlanders in the 2000s and 2010s coming back to China really kicked off the industry,” says John Wong, chairman of greater China at the Boston Consulting Group. “And the market opportunity was obviously very, very clear for many mainland Chinese who were well-trained in the U.S. to come back.”
Frank Zhang,1 Legend Biotech’s founder, was one of them. Originally from China’s western city of Chengdu, Zhang got his PhD in biochemistry from Duke University in 1995 and then spent seven years working as a scientist for the pharmaceutical firm Schering-Plough in New Jersey. He never stopped tracking what was happening back in China, and in 2002 he saw an opportunity.
“China’s vast population was rapidly becoming wealthier and was able to spend more money on improved healthcare and medicine,” he later said in an interview with Milestone Magazine. “With the Chinese government also announcing plans to invest large amounts of money into biotech, we believed it was the perfect time to launch a company.”
Zhang founded Genscript in New Jersey in 2002, and opened research and development operations in Nanjing two years later.
Genscript was one of the first companies to commercialize gene synthesis, the process of manufacturing synthetic DNA, which quickly became integral for academic institutions and private companies conducting medical and biological research. A university research scientist, for example, could design a strand of DNA that they hoped would target and shut down a specific gene responsible for the progression of Alzheimer’s disease. Genscript would then synthesize the DNA strand, based on the scientist’s design, and send it to the scientist within days of ordering.
This model of gene synthesis became incredibly valuable. By 2012, ten years after launching, Genscript generated $53 million in annual revenues. Today it is one of the world’s largest outsourcing companies for biomedical research, and with over 200,000 customers globally Genscript controls 30 percent of the world’s gene synthesis market, a Genscript spokesperson told the Wire.
But as the gene synthesis market and Genscript grew, Zhang believed that he and his colleagues in China could deploy their gene-editing expertise to not just make genes for other scientists but to innovate their own therapies.
At the time, a brand new gene therapy technique called CAR-T was transforming the landscape for cancer therapies. CAR-T, or chimeric antigen receptor T-cell therapy, is based on the idea that your body’s blood can be taught how to better find and fight off cancerous cells. A patient’s blood samples are sent to a lab where scientists train T cells — or white blood cells that help fight off disease — to home in on and destroy cancer cells; the blood samples are then injected back into the patient’s body.
Scientists first discovered that CAR-T therapy worked effectively against a type of blood cancer called acute lymphoblastic leukemia. Zhang and some of his Genscript colleagues thought that CAR-T might also be effective against multiple myeloma, and in 2012, they formed the “Legend Project,” operating in a room the size of a freight elevator in Genscript’s Nanjing offices, according to Legend’s website. After two years of research, Zhang officially founded Legend Biotech in New Jersey as a Genscript spin-off to focus on a CAR-T drug candidate for multiple myeloma.
The fact that Zhang chose to double down on CAR-T is not entirely surprising, according to experts.
“Cancer therapeutics has been a primary focus of China’s biopharma industry since the beginning, as they have a huge domestic need for that large aging population and a high incidence of cancer,” says Mark Kazmierczak, a microbiologist at Gryphon Scientific. “China doesn’t necessarily have the breadth of technologies and treatment areas as the U.S., but there are areas like CAR-T, where China is competitive and maybe ahead of the United States.”
In 2017, the year of the ASCO conference in Chicago, China overtook the U.S. in the number of CAR-T trials taking place in the country. Now, 55 percent of the world’s CAR-T therapy trials are conducted in China compared to the U.S.’s global portion of 27 percent. And investors have taken note: From 2016 to 2021, the value of Chinese biotech companies on stock exchanges in mainland China and Hong Kong rose from $3 billion to more than $380 billion, according to McKinsey & Company.
But the overall scale of China’s biotech industry still pales in comparison to the U.S. — the U.S. accounts for 40 percent of global pharmaceutical revenues compared to 12 percent for China — and even innovative Chinese biotech firms like Legend often lack the expertise and know-how to bring novel drugs to market.
Ying Huang, who became Legend’s chief financial officer in 2019 and its chief executive in 2020, notes that the marriage between Legend and Johnson & Johnson was especially productive and complementary for this reason, allowing Carvykti to hit the U.S. market just four years after starting its U.S. operations.
“We brought in this highly innovative drug, which saw great efficacy in the China trial, but we did not have a lot of experience in late stage development, such as clinical trial development, regulatory affairs, large scale manufacturing, and finally commercialization,” he told the Wire. “This partnership really leverages the strength of both partners really well.”
In June 2020, Legend debuted on the Nasdaq stock market in New York, raising $424 million on the $4.8 billion IPO. (The company is now valued at about $13 billion.) With Hong Kong-listed Genscript retaining controlling shares over the firm, it marked a celebratory moment for China’s biotech industry.
But Legend’s coming out party would not last long.
VINDICATED?
Genscript’s shares were suspended from trading on the Hong Kong Stock Exchange right after the opening bell rang on the morning of Friday, September 18, 2020.
The following Monday, Genscript announced that China’s Customs Anti-Smuggling Department had raided the offices of Legend, Genscript and other Genscript subsidiaries for “suspected violations of import and export regulations.” Chinese police put Legend founder and CEO Zhang under “residential surveillance” and detained three other employees for questioning.
Two months later, Legend announced that Chinese authorities had formally detained Zhang and that he would resign from Legend’s board of directors. Chinese media outlet Caixin reported that the arrest was likely related to Zhang attempting to smuggle “genetic data” outside of China.
China has regulated the use of what it calls Human Genetic Resources (HGR) since 1998, but the government has tightened restrictions in recent years, explicitly making the protection of genetic data a national security issue.
China basically has all of the world’s genomic data to work with. At the same time, foreign companies and researchers don’t get access to the Chinese data. It’s a brilliant strategy.
When asked about Zhang’s arrest, Lebowitz, the Johnson & Johnson executive, told the Wire, “When you want to do transnational work on human tissues in China, you do it in China… Those laws in China have been in place for some time.”
Zhang was released on bail in February 2021, and Genscript announced in a May 2022 filing that Chinese authorities had cleared Zhang and the other three employees of any wrongdoing. But Zhang has laid low ever since; late last year, he returned as chairman of Legend, though he is no longer the public face of the company. Genscript, Legend Biotech and Chinese authorities have still not provided much by way of an explanation for why one of China’s most prominent and innovative biotech founders was detained and effectively silenced.
Source: The Wire China
As national security concerns increasingly collide with biotechnology, experts note that it may become more difficult to form partnerships similar to the one Zhang set up with Johnson & Johnson. China’s Biosecurity Law, which went into effect in April 2021, banned the export of all genetic material from Chinese borders without the government’s explicit consent. China’s government further tightened HGR regulations as of July 1 of this year to make it even more difficult for foreign firms to access or share data collected in China.
Yanzhong Huang, a senior fellow for global health at the Council on Foreign Relations, says that China’s state controlled media has played up the notion that China might be vulnerable to being attacked by some sort of bioweapon made by a foreign power, which has played a role in justifying the government’s increasingly strict stance in protecting genetic data.
“The idea that foreign countries could collect Chinese genetic resources and develop genetic weapons against China has actually become a major concern in China,” he says.
Indeed, when Russia invaded Ukraine last year, China’s foreign ministry spokesman even promoted a conspiracy theory that the U.S. was assisting Ukraine’s efforts to build bioweapons that could be used against Russia.
“We’ve seen the Chinese government become more concerned and sometimes paranoid about the exploitation of genetic data by foreign powers,” says Elsa Kania, an adjunct senior fellow at the Center for New American Security.
The effect of these fears on innovation is up for debate, with many experts noting that it comes with both costs and benefits. On the one hand, China’s ban on exporting genetic data could stifle innovation, including future joint ventures. As Wong, from the Boston Consulting Group notes, “The more interaction between different research centers, the more innovation you’re going to get. There’s no question.”
But on the other hand, when paired with the U.S.’s open research environment, China’s protectionism could end up benefiting the country’s home-grown efforts.
“China basically has all of the world’s genomic data to work with,” says Puglisi. “At the same time, foreign companies and researchers don’t get access to the Chinese data. It’s a brilliant strategy.”
Puglisi notes that this advantage is difficult for Westerners to fully appreciate — after all, why does it matter who cures cancer? “The assumption [in the West] is that everything will be shared equitably,” says Puglisi. “However, I think we make that assumption at our own risk.”
In recent months, discussion about constraining China’s biotech capabilities has become much more popular in Washington, D.C. The U.S. Department of Commerce, for instance, is considering imposing new restrictions on China’s biotech sector, which might include adding more biotech companies with ties to the military to its trade blacklist, as Commerce did with Chinese genomics giant BGI last year.
“I’m not trying to stop China from curing cancer, or providing healthcare to its citizens, because that’s not the goal here,” Alan F. Estevez, head of the Commerce Department’s Bureau of Industry and Security (BIS), recently told The Wire. “The goal is to stop growth in military capability that can be used against us.”
The Biden administration is also considering making the biotech sector part of its anticipated executive order on screening outbound investments, which could theoretically pose a roadblock to companies like Johnson & Johnson being able to invest in innovative pharmaceutical companies and IP in China. The U.S. government also recently created the National Security Commission on Emerging Biotechnology, a coalition of politicians and private sector actors that will focus on biotechnology.
The U.S. congress is also considering a range of measures that would restrict China’s ability to work with the U.S. in biotech, including banning the use of federal funds to buy Chinese-made pharmaceuticals and increasing domestic capacity to re-shore pharmaceutical supply chains.
“The possible legislation and administrative actions coming out on pharma and things like an outbound investment screening mechanism would make collaboration even harder, whether it’s U.S. companies providing capital to Chinese companies or more direct collaboration,” says Niels Graham, associate director of the GeoEconomics Center at the Atlantic Council. “The U.S. is making it more challenging from a regulatory standpoint for these sorts of joint companies to operate.”
Some American investors may already be pulling back from Chinese biotech amid the increasing geopolitical risks of operating between the two markets.
“The money coming in [to China] from private equity firms in the U.S. has pretty much dried up,” says Wong, of the Boston Consulting Group. “You just don’t know when the U.S. government might say you can’t invest in this Chinese company. At any time you might have a fire sale, and you’re going to lose your shirt.”
But Wong and others say that geopolitical considerations have yet to completely dampen enthusiasm for partnerships between Chinese and American pharmaceuticals. Many multinationals, he says, are “increasing their headcount and research in China in order to be able to collaborate with local companies.”
Just in the last few months, Merck invested $175 million in a Chinese company called Kelun-Biotech, which is researching a cutting-edge form of chemotherapy called antibody-drug conjugates; Eli Lilly has poured $250 million into a Chinese startup called Xtalpi, which uses AI to develop new drugs; and Sanofi has announced a $308 million investment into China’s Innovent Biologics to jointly develop two novel cancer drugs in China.
“Believe it or not, the market is exploding right now for U.S. companies taking Chinese drugs and developing them outside of China,” Loncar says. “The reality is that, just like in every other industry, it’s much cheaper to produce in China than it is anywhere else. For a scientist in Cambridge, Massachusetts, the average salary is probably $300,000. In China, it’s like $50,000. There’s a cost factor here, but also a quality factor. China is developing high-quality drugs.”
After its success with Legend, Johnson & Johnson has also struck two major deals with Chinese companies in recent years, and Lebowitz told the Wire that the company remained committed to investing in the Chinese market — despite Zhang’s arrest.
“The truth is we continued on with the work as needed to be done,” Lebowitz says. “In China right now, there is tremendous innovation. The number of biotech companies and their innovative approaches is just massive.”
Indeed, Carvykti’s legend is still alive. Just last month, six years after Legend first broke onto the scene, the company was back at ASCO, again presenting impressive data — this time on the five-year follow up from the original data set. Frank Zhang was nowhere to be seen, but Ying Huang, who watched incredulously from the audience last time and is now CEO, spoke to the crowd of industry leaders with a calm confidence about Legend’s trajectory.
Despite dustups with Chinese authorities, despite an absent founder, and despite increasing tensions in the U.S., Ying says the data speaks for itself.
“There was a certain degree of vindication,” he says of the most recent ASCO conference, “because people are still awed by the data but now they believe in it.”