Speaker 1: Hey, Odd Loots listeners, We're coming to DC.
Speaker 2: We're finally doing it, Joe. It's going to be our
Speaker 2: first live show in Washington, DC, our nation's capital. It's
Speaker 2: also finally going to be the time where we actually
Speaker 2: talk about the Jones Act.
Speaker 1: Listen talk about doing the Jones Act episode of Odd
Speaker 1: Lots for a long time, and it's become this recurring
Speaker 1: joke that we've never done on But we're going to
Speaker 1: do it in grand style because we're going to be
Speaker 1: doing it live in DC and it's actually going to
Speaker 1: be a debate.
Speaker 3: Yeah.
Speaker 2: So we have Sarah Fuentes from the Transportation Institute. She's
Speaker 2: going to be taking the pro side, and we also
Speaker 2: have Colin graybou of the Cato Institute. He'll be taking
Speaker 2: the against side. It's going to be really interesting to
Speaker 2: see how all of that shakes out.
Speaker 1: In addition to that, we're going to be speaking with
Speaker 1: Blair Levin, who was around during the telecom bubble, and
Speaker 1: we have Andrew Ferguson, the new head of the FTC,
Speaker 1: the one who's replaced Lina Kong. We're going to be
Speaker 1: talking about mergers and acquisitions and all that stuff. So
Speaker 1: it should be a really fun night.
Speaker 2: If you want to come and join us for that evening,
Speaker 2: it's going to be on March twelfth at the Miracle Theater.
Speaker 2: Go to Bloomberg dot com forward slash odd Lots and
Speaker 2: you can find the link to purchase tickets. We hope
Speaker 2: to see you there.
Speaker 4: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 1: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 2: I'm Jio Wisenthal and I'm Tracy Alloway.
Speaker 1: Tracy, you know, we talk a lot about China, talk
Speaker 1: about cars and batteries. It's time for a Chinese biotech.
Speaker 1: It's time for the Chinese pharma episode.
Speaker 4: Joe.
Speaker 2: It's just what I always wanted. Thank you so much. No,
Speaker 2: I am genuinely excited to talk about this. One reason
Speaker 2: is because this is a sector that I don't really
Speaker 2: know that much about. Another reason is it has it's
Speaker 2: actually been in the news quite a bit recently with
Speaker 2: the cuts to NIH funding, which we've discussed and things
Speaker 2: like that, and then more generally, it sort of sits
Speaker 2: in that nexus of policy aimed at boosting specific sectors
Speaker 2: and also competition between the US and China.
Speaker 1: That's exactly right, and it's like you know, we've just
Speaker 1: gotten used to the fact that in many areas of
Speaker 1: sort of physical manufacturing, there are very there are many
Speaker 1: industries in which China can compete and produce things either
Speaker 1: cheaper and higher quality. It seems like many areas relate
Speaker 1: to batteries and automobiles and all kinds of stuff like that.
Speaker 1: We know that. And then of course we had like
Speaker 1: the deep seek moment and a bunch of people like, oh,
Speaker 1: it's not just physical things, it's not just gigantic plants.
Speaker 1: Also a lot of competition in areas like software, particularly
Speaker 1: artificial intelligence. That raised all sorts of questions. And then
Speaker 1: lately the drum is beating that we have to take
Speaker 1: very very seriously pharma and biotech, And this is one
Speaker 1: of those areas that I think most people, certainly me
Speaker 1: would say like in the year twenty twenty five. Still
Speaker 1: my conception my head is that the cutting edge is
Speaker 1: in the US and Europe still, which I can't say
Speaker 1: that for a lot of industries.
Speaker 2: At this point, I want to know how medicines are
Speaker 2: actually made manufactured. I've read a long time ago. I
Speaker 2: read a book about the Twinkie, and it broke down
Speaker 2: every ingredient that went into a twinkie and where it
Speaker 2: came from. And it was really interesting because it turns
Speaker 2: out a lot of those ingredients came from China. I
Speaker 2: didn't know that.
Speaker 1: I didn't know that either, but you know what I did,
Speaker 1: were didn't know because we briefly touched on it in
Speaker 1: our recent episode with the two fellows from Goldman Sax
Speaker 1: about China's role in the pharmaceutical supply chain providing key
Speaker 1: ingredients to India, which then plays a key role. Anyway,
Speaker 1: there's a lot I want to know. I don't think
Speaker 1: I know anything, and I just want to jump into
Speaker 1: this episode because I want to learn more. In that spirit,
Speaker 1: we really do have the perfect guest. He's someone who
Speaker 1: recently put together a slide deck and I kind of
Speaker 1: think that slide deck catalyzed some articles. The deep sea
Speaker 1: moment in biotech got a lot of attention on social media.
Speaker 1: Drowing straight to the source, we're speaking with Tim Oppler.
Speaker 1: He's a managing director in the healthcare investment banking group
Speaker 1: at Stefel. Tim, thank you so much for coming on
Speaker 1: odd Locks.
Speaker 3: Thank you and Joe and Tracy. I really appreciate you
Speaker 3: having me. I'm very excited to be here today.
Speaker 1: What is a managing director in the healthcare investment banking
Speaker 1: group at Stevefoild.
Speaker 3: I don't actually manage a lot of people, so managing
Speaker 3: directors just the title. But basically, I'm a senior banker,
Speaker 3: and investment bankers are in the business of putting people together,
Speaker 3: people that need money with people that have money, people
Speaker 3: that want to license something out, with people that want
Speaker 3: to license something in. So I'm a middleman basically and
Speaker 3: get paid commissions for doing it.
Speaker 2: With your middleman position, could you maybe describe the ecosystem
Speaker 2: of getting new drugs to market, like where does it
Speaker 2: tend to start, what corporate entities does it go through,
Speaker 2: and then what's the process from there to getting into
Speaker 2: an actual physical medicine.
Speaker 3: So great question. So you know, back in the old days,
Speaker 3: if you rolled back the clock fifty years ago, large
Speaker 3: pharmaceutical companies Merck, Pfizer, Eli Lilly had these research and
Speaker 3: development groups and they would sit around and read up
Speaker 3: articles and do their own basic science and say, you know,
Speaker 3: I think we should do something to go after such
Speaker 3: and such type of virus. They would work on it
Speaker 3: for five or six years. They would come up with
Speaker 3: a drug candidate, they would go test it in people,
Speaker 3: it would work hopefully, and then they would get it
Speaker 3: approved and then they go out and market it. Things
Speaker 3: started to change, you may remember, you know, as back
Speaker 3: as the late nineteen seventies, companies like genen Tech and
Speaker 3: Biogen came on the scene. And so today we have
Speaker 3: a huge biotech industry. These are kind of like the
Speaker 3: you might call them the farm league, a big pharma
Speaker 3: are the ones that come up with the new drugs.
Speaker 3: Of course, the farmers are still doing their own work too,
Speaker 3: and so biotech's become a huge part of our ecosystem.
Speaker 3: It's also become a big part of the capital market.
Speaker 3: So there's whole groups of people that you know, god
Speaker 3: mds and PhDs that went to work for funds and
Speaker 3: they sit there, you know, does this drug candidate look
Speaker 3: like it's gonna make it? I'm going to bet for
Speaker 3: it or I'm going to bet against it.
Speaker 1: What does biotech mean?
Speaker 2: Hey?
Speaker 1: Sometimes ask Tracy what fintech means, and I still don't
Speaker 1: know the answer to that.
Speaker 2: But what is biotech touch banking?
Speaker 3: So I'd like to give three different answers. First of all,
Speaker 3: when people say biotech in general, what they mean is
Speaker 3: kind of the more high tech part of the pharmaceutical industry,
Speaker 3: the cool part.
Speaker 1: Yeah, that's always I just figure it's a cool.
Speaker 3: What I mean by biotech is the when you have
Speaker 3: a company whose sole asset is a drug candidate that
Speaker 3: has not yet been approved by the FD so pre commercial.
Speaker 3: When I say biotech, that's what I mean. Other people
Speaker 3: think it refers to biologic, and it's true. The original
Speaker 3: biotechs like Genetech were focused on biologic so it's understandable
Speaker 3: that some people would associate biotech.
Speaker 1: It's a distinct type of therapy from the traditional type
Speaker 1: of medicine that would have been developed at America.
Speaker 3: That's correct. So traditionally there are two types of medicines.
Speaker 3: There's small molecules, those little white pills some people take
Speaker 3: every day, and then there are injectable biologics. Those are
Speaker 3: products that are much more complex, much larger molecules, and
Speaker 3: are made in very different ways.
Speaker 2: Can you talk about that, going right to my question
Speaker 2: about how medicine is actually made, how Yeah.
Speaker 3: So for a small molecule, it's actually a chemical. So
Speaker 3: the pharmaceutical industry actually came out of the chemical industry.
Speaker 3: So if you go back to the history of pharmaceuticals, say,
Speaker 3: like what was going on in sixteen fifty, Well, people
Speaker 3: were literally chemists. In fact, still in England today you
Speaker 3: can walk into what we would call it pharmacy, they
Speaker 3: call it a chemist and they would literally, you know,
Speaker 3: put together your antimony or whatever it was and serve
Speaker 3: it up to you. So that still goes on. But
Speaker 3: of course those small molecule pills are made in giant
Speaker 3: factories of what's called API, which is really just fine chemical.
Speaker 3: The other side of the industry, though, these biologics are
Speaker 3: made typically in bugs. So you would take, for example, yeasts,
Speaker 3: or you might take E. Coli, or you might take
Speaker 3: what are called Chose cells. Those are Chinese hamster ovary cells.
Speaker 3: Why do they use them because they're really good at
Speaker 3: growing biologics. And you insert a piece of DNA into
Speaker 3: the DNA of that species and then that causes that
Speaker 3: species to manufacture the protein of interest, and that's a
Speaker 3: whole other industry. And then those say Chose cells or E.
Speaker 3: Coli cells or whatever they are, they're grown in these
Speaker 3: giant tanks, and so you might have like a forty
Speaker 3: thousand liter tank full of growth medium and those cells
Speaker 3: are just swimming around and making their proteins. Then they're
Speaker 3: harvested and you pull out the protein of interest.
Speaker 2: I'm sorry, did you say Chinese have overy cells?
Speaker 3: I know, and we're talking about China. See, China is everywhere, Tracey.
Speaker 1: I already feel like we're gonna have to have Tim
Speaker 1: back already, right, because like this is already one of
Speaker 1: those topics where like we probably could just talk about
Speaker 1: one niche aspect of the supply chain for some ingredient
Speaker 1: because we're not even actually close to getting to it.
Speaker 1: But we need to build up to we need to
Speaker 1: build up to Chinese.
Speaker 3: Well, let's let's just jump right into it. I want
Speaker 3: to make sure, I want I want to make a
Speaker 3: comment here. Okay, So China is all of a sudden
Speaker 3: starting to be very competitive with the US biotech ecosystem.
Speaker 3: I personally don't think that's a surprise. I don't think
Speaker 3: that's the bad thing. And here here's what's going on.
Speaker 3: We developed the first biologics in the United States in
Speaker 3: the nineteen seventies. Well it's twenty twenty five, right, that
Speaker 3: was fifty years ago. Yeah, I mean you would think
Speaker 3: that the know how of how to make those things
Speaker 3: is spread around, and it has. And so what happened was,
Speaker 3: you know, in the nineteen nineties, two thousands armies of China,
Speaker 3: these people came to the United States for jobs inside
Speaker 3: all those companies, and they learned, not surprisingly, how to
Speaker 3: make what was being made then, which was biologics. You know,
Speaker 3: I don't want to call it racism. I think that's
Speaker 3: probably unfair. But for whatever reason, a lot of these
Speaker 3: Chinese personnel weren't promoted. They didn't become the SVP at
Speaker 3: some big shot US biotech company. You know, they were
Speaker 3: stuck in a director job, and they got frustrated and
Speaker 3: left and went home to China. Now here we are
Speaker 3: twenty twenty five, and they're crawling all over us like
Speaker 3: they know how to do exactly what we know how
Speaker 3: to do, and guess what, just like in batteries, just
Speaker 3: like in telephones and these other sectors, they're pretty good
Speaker 3: at it. And so all of a sudden, US biotech
Speaker 3: I think has really woken up just in the last
Speaker 3: year or two and said, WHOA, we've got competition. Like
Speaker 3: these guys are as good as US. I'd say they're
Speaker 3: probably better in a lot of ways.
Speaker 1: So I definitely want to get to where they are
Speaker 1: and why they might be better and what are the
Speaker 1: conditions that perhaps allow them to be better. One less
Speaker 1: sort of like precursor. Oh yes, und question is for
Speaker 1: these chemicals, I imagine that. Okay, we're going to talk
Speaker 1: about breakthroughs that are happening that are in China, that
Speaker 1: are you know, in terms of therapies or biologics, et cetera.
Speaker 1: But if we wind back a few years to where
Speaker 1: people's brains were stuck at in terms of what is
Speaker 1: the sort of global supply chain of I mean the
Speaker 1: Chinese hamster over is, what is the sort of sort
Speaker 1: of incumbent global supply chain of key materials, ingredients, equipment
Speaker 1: for biotech and what is China's role in that.
Speaker 3: So if you're making a small molecule which comes down
Speaker 3: to that basic fine chemical, let's say it's libatare, Okay,
Speaker 3: you could probably make it for less than a place
Speaker 3: like India or Indonesia or China. So that's called API,
Speaker 3: active pharmaceutical ingredient. And in fact, China has become a
Speaker 3: huge source of API because in many ways, you know,
Speaker 3: China's really good in the chemical industry. So why wouldn't
Speaker 3: they be good in the API industry?
Speaker 2: Can you contextualize some of China's I guess growth in
Speaker 2: this area with some specific numbers, because we see all
Speaker 2: these headlines coming out, like thirty percent of major pharma
Speaker 2: licensing deals now involve Chinese companies. I think that's up
Speaker 2: from like almost zero five years ago. There are some
Speaker 2: interesting data to look at.
Speaker 3: Yeah, So just to give you a couple stats the
Speaker 3: API that source into the US, I don't have the
Speaker 3: exact numbers on my fingertips, but I would say at
Speaker 3: least twenty five to fifty percent of API that's being
Speaker 3: used in the US generic pharmaceutical industry today is sourced
Speaker 3: from China. India is another big piece of that. So
Speaker 3: Indian China are both really big. What's interesting is India
Speaker 3: has not kind of had this phenomenon of their nationals
Speaker 3: coming home and opening up local biotech companies. So China
Speaker 3: created this policy, you know, very intentionally five ten years ago,
Speaker 3: saying hey, we want to be really good in biotech.
Speaker 3: It is strategic for US as a country. It's not
Speaker 3: that they're trying to beat the United States so that
Speaker 3: they need access to these medicines domestically. You know, why
Speaker 3: pay the giant global price that some US pharma company
Speaker 3: wants a charge? Like, why don't you just learn how
Speaker 3: to make it at home? So they very deliberately attracted
Speaker 3: back what are called sea turtles. These are people that
Speaker 3: crossed the sea from the US or Europe back home
Speaker 3: to China. They were then encouraged to start their own
Speaker 3: biotech companies and apply whatever they had learned, you know,
Speaker 3: in their jobs in Bristol Meyers squib or An Artists
Speaker 3: or what have you, and Boyd learned they had and
Speaker 3: support they got, and all of a sudden they're churning
Speaker 3: out really interesting molecules. And so Tracy, just like you said,
Speaker 3: last year, thirty percent of all molecules that were licensed
Speaker 3: in by big Pharma came from China, not from the
Speaker 3: United States, not from Europe, not from Japan. They came
Speaker 3: from China. And I do think that statistic, which was
Speaker 3: generated by our good friends at deal Forma, was really
Speaker 3: kind of a wake up call for a lot of
Speaker 3: folks in our industry.
Speaker 1: And what five years ago that would have been basically.
Speaker 3: Zero, yeah, five percent, zero to five percent?
Speaker 1: How much is it?
Speaker 4: Is?
Speaker 1: It genuinely novel therapies. How much is it? There's sort
Speaker 1: of an existing therapy, but they can make it a
Speaker 1: better version of it, a cheaper version of it. I understand,
Speaker 1: like cheaper it must be sort of a weird concept
Speaker 1: in an area where there's I know, a lot of
Speaker 1: intellectual property. But talk about what is driving that competitiveness
Speaker 1: and market share game.
Speaker 3: There's two or three different things going on. So the
Speaker 3: first thing is we're seeing what are called fast follower molecules.
Speaker 3: Let's just say for the sake of argument, that Daichi
Speaker 3: Senkio comes up with something called a B seven H
Speaker 3: three anti body drug conjugate B seven H three ADC. Well,
Speaker 3: the Chinese guys see that pop up, they see the
Speaker 3: patent filing, they look at it, and they're like, Okay,
Speaker 3: we're gonna make a B seven H three, but instead
Speaker 3: of using this toxin on the ADC, we're gonna use
Speaker 3: that toxin are instead of using this link or we're
Speaker 3: gonna use that one. So those are kind of doing
Speaker 3: small twists around existing constructs. So we call those fast followers.
Speaker 3: China's really good at past followers. The second thing that
Speaker 3: you're seeing are first in class molecules and So the
Speaker 3: hottest biotech in the United States right now is a
Speaker 3: company called Summit Therapeutics. They have a seventeen billion dollar
Speaker 3: market cap as we speak. Remember I define a biotech
Speaker 3: a company that doesn't yet have an approved drug. So
Speaker 3: that's the highest valuation in the world of any company
Speaker 3: in the world today that doesn't have an approved drug.
Speaker 3: That molecule, which is a combination of a PD one
Speaker 3: antibody with the VeVe jef modi PD one by Vegef
Speaker 3: it's called is an excellent molecule. It's working really well
Speaker 3: in mun cancer. And guess what it was invented in China.
Speaker 3: Mert didn't come up with it, Advisor didn't come up
Speaker 3: with it. Habit didn't come up with it. It was
Speaker 3: come up with in China. And it's the most interesting
Speaker 3: biotech molecule in the world today.
Speaker 1: But this is an American company, Summer, right, They went
Speaker 1: and licensed China got it, just like we're seeing the
Speaker 1: big pharmaus US biotechs licensing stuff from China all day long.
Speaker 2: How much does the difference in regulatory regimes play into here,
Speaker 2: because one thing we often hear when it comes to
Speaker 2: outsourcing manufacturing to China whether it's something basic like I
Speaker 2: don't know, clothing or something more advanced like medicines. Is
Speaker 2: that it's cheaper to make stuff in China because you
Speaker 2: don't have as many rules and regulations to either slow
Speaker 2: you down or add on to costs. Is that a
Speaker 2: factor here as well.
Speaker 3: That's a comp located question and a complicated answer. So yeah.
Speaker 3: So for most biologics, the Chinese will allow you to
Speaker 3: get those into patients more quickly. They have what we
Speaker 3: call phase zero studies where you can just go to
Speaker 3: a doctor and say, okay, hey, doc, you've got people
Speaker 3: coming in that are dying of ovarian cancer, use this drug.
Speaker 3: The FDA will not let you do that, right, So,
Speaker 3: the FDA won't let that ovarian cancer drug go into
Speaker 3: a patient until it's gone through typically a Phase one study. Interestingly,
Speaker 3: China's not the only country that does that. Australia does
Speaker 3: that too, and you know, we have kind of new
Speaker 3: sheriff in town at the FDA. It might be an
Speaker 3: interesting thing to explore kind of accelerating that time to
Speaker 3: get to the first patient. So that that's one place
Speaker 3: where China is a head. But in general, their rules
Speaker 3: are just as tough as our rules. It's not like
Speaker 3: they have a you know, a low hurdle and we
Speaker 3: have a high hurdle to jump over to get a
Speaker 3: drug approved. Their vantage is more speed to invent, speed
Speaker 3: to get into the clinic. They're just performing really well
Speaker 3: on a lot of those key performance indicators.
Speaker 1: What about there's the cost of conducting a phase one trial.
Speaker 1: I mean, these are really expensive endeavors in the United States,
Speaker 1: and you can spend millions and it goes nowhere past
Speaker 1: phase one. How does the cost compared to run the
Speaker 1: equivalent in China?
Speaker 3: I mean we should pause for moments. So the US
Speaker 3: has capitalistic medicine system, right, So doctors are for profits.
Speaker 3: So if you're a physician, of course you're trying to
Speaker 3: care for your patients. But let's be honest, a lot
Speaker 3: of those dermatologists and endochronologists that you see, they're running
Speaker 3: a business. The other day I was talking to a cardiologist.
Speaker 3: I said, like, how many patients do you see the year?
Speaker 3: He's like eight thousand, and I was out like asking
Speaker 3: the lady at the front, like, how much like does
Speaker 3: the average patient visit bill? She's like a four or
Speaker 3: five hundred bucks. So you can do the math that
Speaker 3: guy pulling down like five to ten million dollars, right,
Speaker 3: So running a physician practice in the United States can
Speaker 3: be very lucrative. I'm not saying every doc's doing it,
Speaker 3: just to be clear. But now you're a cancer doc
Speaker 3: and you're an MD Anderson or Dane Farber someplace, and
Speaker 3: some company shows up GSK and they want you to
Speaker 3: test this drug. How much are you going to charge
Speaker 3: GSK for each patient? It turns out that the average
Speaker 3: price to enroll a patient and a cancer drial in
Speaker 3: the United States is between two hundred thousand and four
Speaker 3: hundred thousand dollars per pat per patient.
Speaker 1: How much of that goes to the doctor.
Speaker 3: A lot and a lot to the hospital. I mean,
Speaker 3: this is a big issue that's just possed up.
Speaker 1: A big source of hospital and doctor profits that they're
Speaker 1: essentially selling access to their patients.
Speaker 3: You bet, especially at the big places. So developing drugs,
Speaker 3: especially in cancer in the United States is very expensive.
Speaker 3: The other thing I'd note is there's a lot of
Speaker 3: competition for talent in our country. Again, it's a capitalist
Speaker 3: talent market. So you know, let's say you're a doctor
Speaker 3: working in m D Anderson and then GSK comes along
Speaker 3: and says, hey, we'd like you to be our chief
Speaker 3: medical officer. We'd like you to run this cancer program. Like,
Speaker 3: is that a one hundred and fifty thousand dollars job.
Speaker 3: I don't think so. The average chief medical officer in
Speaker 3: the United States city is pulling down between a half
Speaker 3: million and one point five million dollars a year, depending
Speaker 3: on your level of experience and how good you are.
Speaker 3: So all of a sudden, you see biotech companies that
Speaker 3: are going out to raise one hundred million dollars. Well,
Speaker 3: that's how much you need to raise to enroll the
Speaker 3: trial and pay all those people. And you know they
Speaker 3: have lots of posh offices as well, and expensive places,
Speaker 3: and so US biotech is not so efficient. In contrast,
Speaker 3: in China, there are no seven hundred thousand dollars chief
Speaker 3: medical officers. There are no two hundred thousand dollar patients.
Speaker 3: It's a communist country, right. Doctors, you know, make thirty
Speaker 3: thousand dollars a year. You don't get to go make
Speaker 3: hundreds of thousands dollars a year for being a doctor,
Speaker 3: and you definitely don't rent out your patience.
Speaker 1: Tracy, I have to say this is something I sort
Speaker 1: of became aware of in this phenomenon of doctors and
Speaker 1: hospitals renting out their patients, and for this episode, I
Speaker 1: had no idea that that's how it worked, and I
Speaker 1: had no idea of the scale of these numbers. Like,
Speaker 1: if there's one fact that's sort of like expanding my mind,
Speaker 1: this is the one.
Speaker 2: I didn't know it either. We should probably do an
Speaker 2: episode just on the market for renting out cancer patients.
Speaker 2: That sounds very It.
Speaker 1: Sounds bad when you put it that way, like they're gating, right,
Speaker 1: they're profiting from the fact that they You're the sort
Speaker 1: of the channel, right, They're they're the channel through which
Speaker 1: the drug company must find patients.
Speaker 3: I mean, let's just talk reality of a medicine in
Speaker 3: America right now. There are certain specialties that make money.
Speaker 3: Cancer treatment is one, cardiology, surgeries is another. In contrast
Speaker 3: seeing people in the emergency room, seeing people in a
Speaker 3: primary care sense, you lose money doing those activities. Payments
Speaker 3: from insurance companies are poor, and so hospital systems, by
Speaker 3: necessity have become for profit. They have no choice.
Speaker 2: So one of the reasons we wanted to speak to
Speaker 2: you is because, in the course of your work, You've
Speaker 2: talked to a lot of CEOs and executives on I
Speaker 2: guess both sides of the ocean here in China and
Speaker 2: in the US give us a sort of temperature check
Speaker 2: of what people are saying right now when it comes
Speaker 2: to the US VERSUS China pharmaceutical biotech industries.
Speaker 3: So, first of all, the pharma companies, the big pharma companies,
Speaker 3: they're thrilled at China's there. It gives them more options, right,
Speaker 3: you know, there's new molecules, they might be innovative molecules.
Speaker 3: The Chinese companies generally don't globalize on their own. One
Speaker 3: of the interesting things is there's you know, Chinese big
Speaker 3: pharma companies. Name the largest pharma company from China you've
Speaker 3: ever heard of. You can't do it. There isn't one, right,
Speaker 3: It might be an obscure company like King Ray or CSPC.
Speaker 3: They're relatively small compared to our pharmaceutical companies. So it's
Speaker 3: great hunting for those guys. For the Chinese companies, access
Speaker 3: to the US pharmaceutical market is a god send capitalist
Speaker 3: tight prices are low for the US biotech company China
Speaker 3: can be worrisome, But honestly, when I speak to my
Speaker 3: friends in the US biotech ecosystem. There are some concern
Speaker 3: but most of them aren't in direct line of fire
Speaker 3: with Chinese competition. It's the US investor, the US biotech
Speaker 3: investor this kind of worried. So all those stories that
Speaker 3: you were referring to, a lot of them are sort
Speaker 3: of freaked out, saying, hey, like thirty percent of molecules
Speaker 3: are coming from China, what about our biotech companies?
Speaker 1: Wait, so why wouldn't your friends in the industry be
Speaker 1: ang I mean, presumably their leverage their own stocks. If
Speaker 1: the investors weren't, they aren't your friends in the industry more.
Speaker 3: Anxious because the Chinese, by and large are taking older
Speaker 3: technologies and biologics and putting twists and turns on those technologies.
Speaker 3: Most US biotech companies are not in that business right now,
Speaker 3: so by and large they have understood long ago that
Speaker 3: they need to differentiate. But that's not all of them.
Speaker 3: I mean, there are certainly some companies out there that
Speaker 3: are in direct competition. And by the way, you know,
Speaker 3: the other day I was looking at these antibody drug conjugates,
Speaker 3: So China's gotten really good and antibody drug conjugates are
Speaker 3: very popular. I think there's four or five major public
Speaker 3: antibody drug conjugate development companies in the US.
Speaker 1: They all have type of cancer treatment that combines the
Speaker 1: monoclonal antibody with a cytotoxic cancer killing drug. Okay, keep going,
Speaker 1: that's right.
Speaker 3: So an ady C is basically chemotherapy that's directed specifically
Speaker 3: to this cell. So you don't have to worry about
Speaker 3: losing all your hair or whatever if you take an ADC.
Speaker 3: So the average enterprise value that's your market cap, ple's
Speaker 3: your cash of a US ADC biotech today has gone negative.
Speaker 3: Two years ago was quite positive, and I do think
Speaker 3: that those folks have you taken some heat from Chinese college.
Speaker 2: I just want to go back to the anxiety or
Speaker 2: lack of it in the US and just focus on
Speaker 2: the investors for a moment. So the worry is that
Speaker 2: the people who actually fund some of these things, I
Speaker 2: guess venture capital, maybe private equity, things like that, that
Speaker 2: they are going to be intermediated by pharma that's going
Speaker 2: directly to the Chinese companies.
Speaker 3: That's right. So let's imagine you're a venture capitalists out
Speaker 3: in San Francisco. You've got this nice life, you know,
Speaker 3: on sand Hill Road, you come up with some ideas
Speaker 3: for some new biotech companies, you found them, and then
Speaker 3: you're waiting, you know, for merk to come along or
Speaker 3: genetech to come along, almost almost like you know, setting
Speaker 3: a trap for the groundhog in your backyard or something
Speaker 3: like that, and the groundhog never shows up because they
Speaker 3: don't go to your backyard anymore. They've found some other
Speaker 3: place to go. And so what's happening is that pharma
Speaker 3: have learned that they can find really interesting molecules in China,
Speaker 3: you know, one of.
Speaker 1: The themes that comes up in a lot of our
Speaker 1: conversations about Chinese industry in general. So you see these
Speaker 1: stories about sort of incredible growth and manufacturing of whatever
Speaker 1: with pretty slim profits, and famously, like the Chinese stock market,
Speaker 1: it's actually, i think the last few weeks, it's uh,
Speaker 1: this year is kind of doing okay. But like famously,
Speaker 1: the Chinese stock market, for all the growth that they've had,
Speaker 1: for all the success various industries, it's kind of been
Speaker 1: a dog for a long time. And part of the
Speaker 1: story is like, well, there's just so much capital intensity
Speaker 1: and you actually only stay at the cutting edge of
Speaker 1: all these capital intensive businesses. If you're spending all of
Speaker 1: your money that you take in on more research and
Speaker 1: so there isn't a lot left over for the end
Speaker 1: equity investor. It kind of sounds like something similar here
Speaker 1: where it's like, it's not great if you're a US
Speaker 1: equity investor in certain areas that are directly in the
Speaker 1: line of fire. But it doesn't sound like Chinese companies
Speaker 1: themselves are swimming in profits.
Speaker 3: Right. There's no fat cats in China, even though there
Speaker 3: might be nice to think that could be true. So
Speaker 3: I was on a trip recently to China. I was
Speaker 3: in this one building, like you know, just one of
Speaker 3: many buildings that had biotechs in Beijing, and like every floor,
Speaker 3: like it was like an apartment building, every floor had
Speaker 3: another biotech. And I asked one of the guys, I
Speaker 3: SAIDs like, how many biotechs are in this building? Said
Speaker 3: as sixty seventy? How many biotechs are in Beijing? He said,
Speaker 3: nobody knows exactly. So, you know, the US places like
Speaker 3: Bloomberg have phenomenal databases and stuff that they don't have
Speaker 3: that over there. Maybe that's a business for Bloomberg. I
Speaker 3: don't know.
Speaker 2: Well, thank you for the suggestion.
Speaker 3: So yes, he said, I think there's three thousand biotechs
Speaker 3: in Beijing. In other words, there's fifty buildings like that one.
Speaker 3: And I said, well, what about the country? He said,
Speaker 3: nobody knows, but like five to ten thousand biotech companies.
Speaker 3: So they've got a lot of people making molecules that
Speaker 3: are competing for the attention and of a relatively few
Speaker 3: large pharma companies.
Speaker 2: So one of the things you've been emphasizing is this
Speaker 2: idea of China just moving faster than the US on
Speaker 2: this and it does seem like they've come out of
Speaker 2: almost nowhere in recent years. How sustainable is that particular pace,
Speaker 2: Because if China got a leg up because it had
Speaker 2: a generation of researchers who came to US universities and
Speaker 2: maybe worked in the US and then took that knowledge
Speaker 2: back home. Eventually, does that mean that, you know, that
Speaker 2: sort of wave of talent ebbs away and it becomes
Speaker 2: harder or is it a permanent shift that they're going
Speaker 2: to hold on to for a long time.
Speaker 3: I would say that you have to look at where
Speaker 3: their advantage is coming from. So they have a really
Speaker 3: good ecosystem for going from an idea for a new
Speaker 3: biologic to an actual drug that can be tested in patience.
Speaker 3: I don't know, Tracy, if you saw this news last
Speaker 3: year about the Biosecure Act. The US Congress for some
Speaker 3: reason decided that they wanted to Like ban Wushie I
Speaker 3: spoke to the CEO of Wooshi, I said, like they're
Speaker 3: saying that you're communists. He said, yeah, we have members
Speaker 3: of the Communist Party and our company we're actually required to.
Speaker 2: By law, as do many Chinese companies.
Speaker 3: And he said, by the way, have you noticed how
Speaker 3: many Teslas are in China? Has anyone called up Elon
Speaker 3: Musk asked him, does he have anyone the Communist Party
Speaker 3: in this company? How did Tesla get to have one
Speaker 3: third market share of the electric vehicles in China? He said,
Speaker 3: of course, every company China's allied with the Communist Party.
Speaker 3: He said, We're no different than anybody else. So Wouh
Speaker 3: interestingly came up with this concept called idea to I
Speaker 3: and D in six months, That is, you give me
Speaker 3: an idea for a new biologic, and I will give
Speaker 3: you a drug in six months. That seems insane right
Speaker 3: in the US, it's like two three years. So if
Speaker 3: you ask the folks of wooh She, how did you
Speaker 3: get your molecule to go through the system so fast,
Speaker 3: He'll say it's all volume. He said, you need to
Speaker 3: have the people that know what they're doing at each step.
Speaker 3: He said, when you're slow, it's because you're fumbling around.
Speaker 3: You don't have volumes. So like, oh, yeah, we don't
Speaker 3: have the right cell line, let's go make that to
Speaker 3: the customer. They think, well, just take a year to
Speaker 3: get the selling going, But in fact, he said, you know,
Speaker 3: if you already have five good choices of a sell line,
Speaker 3: well you know you ought to be able to get
Speaker 3: that done in two weeks. So wou Shi is behind
Speaker 3: many of those Chinese molecules, and so they're able to
Speaker 3: access a really good industrial partner. And I'm just still
Speaker 3: befuddled by, like, why does US Congress want to deprive
Speaker 3: US biotech of access to woo she. It's kind of
Speaker 3: crazy when you think about it.
Speaker 1: The talent pool in the US and the incredible salaries
Speaker 1: that you could make in normal traditional tech, and I
Speaker 1: have to imagine smart, quantitatively minded people that probably have
Speaker 1: multiple options. They could go to work in a high
Speaker 1: speed trading firm. They could go to work at Google,
Speaker 1: they could go to work at open Ai, they could
Speaker 1: probably apply a lot of their skills in pharma. Have
Speaker 1: what's happened in the US to the supply of talent
Speaker 1: and has the huge salaries that have emerged over the
Speaker 1: last fifteen years in traditional tech, has that been drain
Speaker 1: on the sort of has that pulled people away who
Speaker 1: might have otherwise gone into pharma or biotech?
Speaker 3: I don't think so so much. I mean, you know,
Speaker 3: there are always the folks in a culture that have
Speaker 3: let's say that immigrant mentality, maybe Indian heritage, something like that,
Speaker 3: where you know, you're really motivated to be a lawyer
Speaker 3: or doctor whatever. I do think a lot of those
Speaker 3: folks have gone into the medical profession, and that's certainly
Speaker 3: more and more they're attracted, I think, to the tech profession.
Speaker 3: But your classic sort of biotech scientists is someone who
Speaker 3: got a PhD. You know, they they got interested in
Speaker 3: biology and college, they went off and got a PhD
Speaker 3: from some you know, nice place, and then they got
Speaker 3: a job at industry. Those people would in general not
Speaker 3: be you know, thinking about a programming jobs.
Speaker 1: Got it, Okay?
Speaker 2: I know we're talking mainly about US and China. But
Speaker 2: I have to ask, is Europe in the picture at
Speaker 2: all here? I mean the only this is partly because
Speaker 2: I don't follow pharma that intensely, but it feels like
Speaker 2: the only European name I hear nowadays is Novo Nordisk
Speaker 2: and it's golp Ones.
Speaker 3: I mean, Europe historically was the dominant place in the
Speaker 3: world for the pharmaceutical industry, so it's only I would say,
Speaker 3: in the last thirty years that the US has taken over. Unfortunately,
Speaker 3: Europe started putting in very draconian price controls and so
Speaker 3: that really hurt their domestic pharma industry. But nonetheless, Europe's
Speaker 3: got great universities, you know, whether talking about Gottingen, Erlangen, Lighten, Cambridge, Oxford.
Speaker 3: I mean, these are really good places, and so you
Speaker 3: can imagine the talent and ideas that are flowing out
Speaker 3: of those have really created a very vital and successful
Speaker 3: biotech ecosystem in Europe.
Speaker 1: So right now, as you mentioned, the really big US
Speaker 1: pharma companies are thrilled because they have new options from
Speaker 1: which they can source or license biologics. And you mentioned
Speaker 1: there's really even know at all big Chinese pharmaceutical companies.
Speaker 1: Do you think that could change like right now, like
Speaker 1: still like the J and js and the Pfizers and
Speaker 1: the other big one, Like they're pretty Eli Lillie like
Speaker 1: these are like pretty big chunks of the US market,
Speaker 1: and it seems like they you know, for an investor,
Speaker 1: an in diverse fyed investor, it's a decent chunk of
Speaker 1: their holdings. You know, we've seen, for example, China is
Speaker 1: going taking a shot to break into the aviation duopoly
Speaker 1: of Boeing and Airbus, go up the next level and
Speaker 1: actually compete at the highest level. Would you anticipate that
Speaker 1: at some point in the next few years some company
Speaker 1: or some initiative is like, let's take it to the
Speaker 1: next level, or we're not just licensing, but we want
Speaker 1: to be a behemoth. We want to sell into markets
Speaker 1: around the world that US multinationals are also selling into.
Speaker 3: You know, kind of comes back to like the core
Speaker 3: ideological conversation that we're having about China. Not only are
Speaker 3: there not Chinese global pharma companies in general, there are
Speaker 3: very few global Chinese competitors. Right There's not a Chinese
Speaker 3: version of Coca Cola, not a Chinese version of Procter gamble.
Speaker 3: So you know, the question quickly becomes why, and the
Speaker 3: answer is simple. The country is controlled by the Communist Party.
Speaker 3: Of course, the Communist Party has one goal survive and thrive. Well,
Speaker 3: you don't survive by going and conquering the US soft
Speaker 3: drink market. You survive by keeping the people in your
Speaker 3: country happy and supportive. Right they have had their political instability,
Speaker 3: and so that is the over writing goal. And it's
Speaker 3: for that reason that you don't see global commercial ambitions
Speaker 3: from China. Car. Yeah, on cars, but you know that's
Speaker 3: only because they had to like competing against Tesla, because
Speaker 3: Tesla has taken over their car market. I would say this,
Speaker 3: I do think it could change. I do think that
Speaker 3: China could easily have a large, globally successful pharmaceutical company.
Speaker 3: They have the people, they have the innovation, they have
Speaker 3: the domestic market. All of the pieces are there, but
Speaker 3: for whatever reason, it has not been prioritized.
Speaker 2: I want to go back to the deep seek idea
Speaker 2: and ask if you could talk maybe about the connection
Speaker 2: between AI and biotech here, because we hear people say
Speaker 2: like AI can do these amazing things. It can generate
Speaker 2: formulas for potential new medicines, it can tell you how
Speaker 2: to manufacture them easier, streamline the manufacturing. How is that
Speaker 2: playing out in China?
Speaker 3: I mean, Tracy, that is such a great question. So
Speaker 3: I'll tell you. So last November, I was in China,
Speaker 3: and you know, I'm a banker, like I said, you know,
Speaker 3: just brokering these deals and stuff. So you go around
Speaker 3: and you meet all the Chinese vcs. So we're seeing
Speaker 3: this one VC, but unlike all the other ones, Like
Speaker 3: the guy I was talking to you, like twenty eight
Speaker 3: years old and he's like the head of this VC.
Speaker 3: So he's attracted capital at a very young age. And
Speaker 3: I asked him, just point blank, I'm like, so, why
Speaker 3: are all your companies just making sort of like, you know,
Speaker 3: slightly better molecules than the Western molecules. You're essentially doing
Speaker 3: the fast follower model. He said, Tim, you haven't been
Speaker 3: to going down province. He said, down there, guys my age,
Speaker 3: they've never worked in the United States before. It Eli Lilly,
Speaker 3: he said, the folks there they learned AI, like they
Speaker 3: grew up with AI. They know all about AI. And
Speaker 3: he said, you're gonna see a whole generation of biotech
Speaker 3: coming out of China. It's gonna be first in class
Speaker 3: AI driven innovation. You quickly get into the next conversation,
Speaker 3: which is AI any good at developing drugs? And you know,
Speaker 3: I would say, like a lot of things, maybe the
Speaker 3: first couple generations aren't so good, but AI is getting
Speaker 3: really good at developing drugs.
Speaker 1: Because I can never tell. I was like, if you
Speaker 1: always say, oh, hey, it's gonna be so great a
Speaker 1: little big drugs, I can't tell if that's just one
Speaker 1: of those things people say, but you think it's real.
Speaker 3: I mean, here's my theory of AI. If you go
Speaker 3: to London twenty years ago, you get in a taxi
Speaker 3: and you'd say, take me to Paddington Station. No matter
Speaker 3: where you were in London, the guy would know exactly
Speaker 3: where to go because he'd memorize the street system knowledge. Well,
Speaker 3: then one day came along this thing called a sat NAF,
Speaker 3: and all of a sudden, you didn't need that guy anymore.
Speaker 3: He was obsolete. Overnight Uber moved in, like they're like,
Speaker 3: you know, saying, hey, Uber's going to crash you in
Speaker 3: the Thames River. Of course that was false, and pretty
Speaker 3: soon the market changed fundamentally. That's a medium dimensional problem.
Speaker 3: In other words, a human being can figure out how
Speaker 3: to navigate London with you know, four years of training,
Speaker 3: but a computer can do it in four microseconds. Well,
Speaker 3: coming up with all the drug possibilities against a potential target,
Speaker 3: that's a high dimensional problem. That's too hard. The computer
Speaker 3: actually can't do it. At least today. You can have
Speaker 3: all the unbidio chips in the world. You can't do it.
Speaker 3: But in contrast, these biologics that we're talking about, even
Speaker 3: though they're more complex molecules, it's their complexity that lowers
Speaker 3: the dimensionality of the problem because biologics have to fold
Speaker 3: and fit in a very specific way, so all of
Speaker 3: a sudden it starts to look like the London street map.
Speaker 3: And so what we're seeing are these new companies coming
Speaker 3: out of places like Google that are focused on making
Speaker 3: biologics with AI, and they're really good. So we're going
Speaker 3: to see some excellent AI based molecules.
Speaker 1: Tim, when you get out of here, we're going to
Speaker 1: just like rebook you for the next time we have
Speaker 1: you on, because there's so much stuff here I want
Speaker 1: to ask you about. But you're so great to have
Speaker 1: you on. Tim Oppler, fantastic discussion, Truly the perfect guest
Speaker 1: thank you so much for coming on.
Speaker 3: Odlin, Joe, thank you so much, and Faci, thank.
Speaker 1: You, Tracy. That was obviously a great episode. There's so
Speaker 1: many different interesting things there. We're definitely gonna have to
Speaker 1: have Tim back. I like, actually, like I'd love to
Speaker 1: just talk about that last point he made about complexity.
Speaker 1: And but the point about a major profit center for
Speaker 1: the entire US healthcare system is the cost is borne
Speaker 1: by the pharmaceutical companies to get access to the patients
Speaker 1: is just like to me, that reveals so much, Like
Speaker 1: that says so much right there about the sort of
Speaker 1: tension between the profit motive and frankly speed of innovation.
Speaker 2: Absolutely. The other thing I was thinking about is this
Speaker 2: sort of gets to the idea that US protectionism of
Speaker 2: strategic industries can sometimes backfire. This is like the line
Speaker 2: that a lot of China has been taking this idea
Speaker 2: that well, if you cut China off from key technologies,
Speaker 2: key developments, it's just going to accelerate its own progress.
Speaker 2: It's gonna, I guess, kick its research and development into
Speaker 2: high gear. And I mean it kind of kind of
Speaker 2: seems to be the case. I guess. I'm wondering also
Speaker 2: what happens with the Biosecurity Act with the Trump administration,
Speaker 2: because it's still in a legal limbo.
Speaker 1: It would be interesting. There's so many more angles, you know,
Speaker 1: it would be interesting to learn more about the sort
Speaker 1: of generation of Chinese research scientists in the US that
Speaker 1: felt they had hit a ceiling on how far they
Speaker 1: were allowed to progress within the US companies, and then
Speaker 1: they formed the basis of this booming industry. There's interesting
Speaker 1: parallels in just this idea of like sheer scale, right,
Speaker 1: and sheer scale of the number. You know, China is
Speaker 1: a gigantic country with thousands and thousands of companies and
Speaker 1: the advantage that affords you both in terms of cutting
Speaker 1: edge research but also doing lagging edge production of various
Speaker 1: things at size and at low cost. There's a lot
Speaker 1: of interesting angles there.
Speaker 2: There is a lot, and I expect we're gonna record
Speaker 2: a few more episodes at least on this. We're going
Speaker 2: to fast follow yeah, all of this. Shall we leave
Speaker 2: it there?
Speaker 1: Let's leave it there.
Speaker 2: This has been another episode of the Authoughts podcast. I'm
Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 1: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 1: Follow Tim Oppler at Tim Oppler. Follow our producers Carman
Speaker 1: Rodriguez at Carman armand dash Ol Bennett at Dashbot and
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