Thoughts from Geoff Meyerson
This past two weeks I had the privilege of visiting Japan and China, hosted by Locust Walk’s amazing teams in both geographies. Some observations about both ecosystems worth sharing:
Japan:
There is a real push to cultivate a venture ecosystem starting with the government’s AMED program, which provides a 2 for 1 match for qualified investment. Basically a $10M equity investment is worth $30M to the biotech. More firms are AMED qualified, and the scheme is getting more popular. For this to have a real and lasting impact, a few things need to happen.
- Pharma executives with experience developing commercial products need to get more comfortable taking risks by running venture-backed biotech companies. This is a common path in the US for pharma veterans to jump into biotech companies. Too many entrepreneurs in Japan have the passion and enthusiasm but often not the development expertise. Additionally, pharma politics to get the next job are fierce because pharma is not perceived as having an alternative career path to the biotech ecosystem.
- Failure needs to be more celebrated than frowned upon. It is still much more culturally damaging for an executive’s career to fail in Japan than in the US.
- Japanese executives with experience in the US need to employ that experience in building newcos. This will help raise capital from US investors.
- Biotech companies should align their pipeline more closely with the purchasing interests of pharma. Still, too many Japanese biotechs are undercapitalized and not able to get to true value inflection points. More challenging even than that is often products are developed that should never have been, despite having very interesting technologies that could have been deployed to more value creating applications. Regular dialog with pharma would avoid such inefficiencies.
- Lastly and perhaps most importantly, biotech entrepreneurs need to start their companies with dual headquarters in both Japan and the US with at least partial US leadership to attract capital from the US. This will help address chronic underfunding as well as impart some of the entrepreneurial vigor found in the US ecosystem.
China:
I have now been to China four times in the past 9 months – December 2024, March 2025, May 2025, August 2025, and I will be going again this October. I’ve learned a lot and have even seen the evolution of the sector through this short window. A few observations from my travels:
It’s amazing how many large biopharma companies China has that many in the west have never heard of. Names like CSPC, GenSci, JemniCare, Qilu, and Mabwell all have >$1B in revenue and/or market caps more than $5 or $10B yet are largely unknown in the US. Many of these companies have roots in generic pharma and domestic product sales and have forward integrated into innovative products based on protein engineering. Most people assume that only companies like Hengrui are worthy of doing deals. I can say with confidence that the quality of the assets from these and many other companies is comparable; Hengrui has simply perfected how to interact with pharma as well as the investor community. I also found there is profound interest from Chinese senior executives for increased cross-border communications to bridge gaps. Towards that end, we will be facilitating these conversations in part through the Align Summit October 7 in partnership with MassBio and McKinsey. Please get in touch if you’d like to know more about attending.
Another interesting fun fact is that almost all the top-quality companies in China are run by US citizens. These people are almost entirely western educated with PhDs and MDs and have experience in major western pharma companies. Without exception, they are all friendly, incredibly smart, accomplished, and overall, quite impressive. Trust with senior leaders in China is critical and is built over time. Face-to-face interactions from my trips to China allow me to accelerate the trust building and befriend them including enjoying many a Peking duck together. It’s very hard to see the US/China trade war as adversaries when you meet the people running these companies. There are certainly bad actors in China, who give the reputable companies a bad name. There is a lot of good innovation coming out of China that will help US patients. My one piece of advice to the US government is to focus on making the US more competitive rather than blocking innovation out of China. Combating IP theft is an important part of the strategy but doesn’t require barring companies who are operating ethically to create new medicine.
Which leads me to the next point that the level of innovation in China is increasing. The first part of the recent wave was mostly me-too biologics where pharma companies wanted to have their own GLP-1 or their own PD1-VEGF. Increasingly that low hanging fruit has been picked and more novel biology is the next wave. I define novelty here as combining novel yet validated targets together in bi-specifics and ADCs as well as improvements on binding efficiency or reducing off target effects. I can quickly see that this next wave will also play out relatively soon as these approaches start getting saturated. The third wave has already started, which is where China starts to really compete with western biotechs by going after science with novel modalities or unvalidated targets. In vivo CAR for autoimmune comes to mind, as some of the first clinical data ever generated in such a modality comes from China.
An interesting theme I heard is around the speed and cost advantage in China from concept to IIT. The challenge a lot of these companies have is not knowing which targets to pursue. Instead, many throw spaghetti against the wall with broad pipelines to see what sticks as interesting. As these companies learn more biology and figure out what pharma wants to buy, I suspect they will get increasingly competitive with the US.
Right now, Hong Kong IPOs are the rage for mainland Chinese private biotech. Every private company I met with spoke about their Hong Kong IPO strategy or timeline, even if it was 18 months away. This market is on fire but suffers from lack of liquidity and small capital raises. Companies are getting public, which removes redemption rights from investors, an important consideration for entrepreneurs. In the process many highly valued companies have been minted. Because liquidity is low as is the quantum of capital raised, this creates a different set of problems where expectations from investors are high, yet the ability to continue to finance is low. BD is the only way even large $500M+ market cap companies can continue to fund their burn rate and western clinical development.
Another interesting conversation with a large reputable investor centered around WuXi and other CROs that helped China rapidly innovate. He said the downside of such efficiency is it was also the source of perfect competition, which will eventually hold back the industry. IP leakage or at least knowhow transfer reduces the advantage of a company working on novel biology. New models with value added providers who get real upside and insourcing chemistry/protein engineering will provide greater IP protection even if more expensive.
Larger Chinese companies have rapidly learned the game of NewCos and are adjusting. Some of these companies are cutting out the middlemen and going direct to pharma. Hengrui received $20M upfront for the asset behind Aiolos, which was sold for $1.4B less than a year later to GSK. Instead of doing a newco and then having the pharma pay an arbitrage price, Hengrui recently executed a 12 asset, $500M upfront deal with GSK. Expect more such deals in the future for assets that are pharma ready. For assets that are not yet ready for the BD deal, newcos are still a viable and valuable option to get western data.
We probably have about 3 years more of this wave as the companies evolve and mature. More will insist on retaining US rights as part of their deal making and thus the prices will go up for the best assets. Undifferentiated assets will still sell at a discount due to perfect competition, but the best assets will always command a premium. More to come on this topic shortly.
Sound decision making comes from reliable and up-to-date market information. With information asymmetry typically acute for western pharma, biotech, and investors, Locust Walk’s continued dialogues with all parties can be valuable to all stakeholders.
I’d welcome a dialog on any of these topics and if others have had a different experience.
Special thanks to Locust Walk’s Eric Liu, Managing Director in China, and Hiro Yamamoto, Managing Director in Japan and the whole Japan team, for hosting me over 8 days and 36 meetings.