T
he explosion of activity in Chinese biopharma since the initiation of the CFDA (China Food and Drug Administration) reform in 2015 is shaping the industry on a global level.
The first wave of new molecules launched as a result of the reform has reached the market, encapsulated (quite literally) by Chi-Med’s recent announcement of the China approval of fruquintinib, an oral treatment for metastatic colorectal cancer patients.
This and other such milestones are very exciting developments, not just for China, but for patients around the world, many of whom can expect to benefit from treatments originating here in the not too distant future.
Meanwhile, the startup scene has exploded, birthing new companies headed by experienced international teams, and backed by local and global venture capital. The news cycle has so far been overwhelmingly positive, punctuated with headline-grabbing fundraising rounds, which in turn have driven a proliferation of healthcare-focused funds. Indeed, six companies have already listed on the biopharma chapter of HKEX since it opened last year.
As Steve Yang, Chief Business Officer of Shanghai and Hong Kong listed Wuxi AppTec put it to me: “We are living in the Cambrian age of Chinese biopharma,” neatly referencing the geological time period that marked a dramatic burst of evolutionary changes in life on Earth, known as the “Cambrian Explosion”.
China’s biopharma ecosystem and the players that populate it now face their own evolutionary crossroads, at which hard choices will determine who is to thrive, and which Chinese labs will incubate genuinely innovative science.
In the first of this two-part article, I’ll outline five thoughts on the state of China’s biopharma market, before in a second part offering advice on how the country’s biopharma upstarts can best achieve success.
1. Licensing is swelling Chinese biopharma ahead of a ‘real innovation’ shake out
An interesting characteristic of the profile of Chinese biopharmas’ pipeline is that the number of molecules in development tends to be larger than that of peers in the United States.
The rationale for this is that many companies have raised funds to secure the China rights to global molecules that have already reached Phase III, or even commercialization, in the U.S. or EU. This is a logical “de-risked” way to get going. The probability of regulatory approval is high, and these pioneer molecules will yield valuable lessons relating to the development process, help establish a commercial presence, and secure valuable cash-flow.
However, company boards will know that to be truly considered innovative, and not just a “licensing shop”, they must foster their own innovative pipeline development, build research capabilities, and move assets towards early development. Chinese biopharma’s relatively larger number of assets under development is a result of companies pursuing these parallel developmental tracks.
2. Chinese biopharma follows a classic herd effect
The data speaks for itself. As of late 2018, over 60 percent of all molecules Chinese biopharma has developed, as measured by CTA approval, are in oncology.
Granted, unmet needs in that therapeutic class are huge, with close to 10,000 new cancer cases diagnosed every day in China, and five-year survival rates at half those seen in developed Western countries. Available treatments are often out of reach for Chinese patients, and more affordable options are needed. The risk is real though of over-indexing and crowding the field with poorly differentiated molecules. PD-1, an innovative immuno-oncology therapy, is a perfect illustration of this phenomenon. Competition is necessary and welcome, but will Chinese hospitals, and patients, really need 20+ PD-1s options?
China is also facing a heavy burden in cardiovascular, diabetes, respiratory, and infectious diseases, but so far relatively few local companies have chosen to focus on these areas. As an example, Ascletis is targeting infectious diseases such as hepatitis B and C, but it is an outlier in a crowd dominated by “onco” start-ups.
3. Quality could be the ultimate differentiator, and quality control is a major risk factor
We recently interviewed Chinese biopharma leaders, asking “What keeps you up at night?”
Talent figured highly, but quality was also a primary concern. In a market characterized by hyper-competition, ensuring quality standards at the highest level will be a differentiating factor for KOLs, regulators, prescribers, and even patients. It will determine price positioning and share capture, and ultimately drive company value.
Every CEO we talked to recognizes that achieving the highest quality standards is a huge challenge. There was widespread recognition that the Chinese innovation system, including clinical trials infrastructure as well as CROs (contract research organizations), and manufacturing, is still immature.
There simply aren’t that many people with the right experience. Moreover, the Chinese healthcare system is still struggling to establish consistent quality standards, as evidenced by recent scandals in the vaccines or plasma spaces and doubt still lingers over practices at some clinical trial centers. As such, reputations risk being destroyed as a result of quality control failures at this early stage of market development.
4. Expect major China effects on developed markets
The direction of the China biopharma market is clear. The government has the ambition to provide universal, quality care at an affordable cost. It is likely that Chinese biopharma will pursue a launch strategy of volume maximization, with pricing substantially different from global practices. This will be particularly felt in immune-oncology, and oncology. In fact, the first examples are upon us, with Junshi Bioscience launching its first domestic PD-1, Tuoyi, at a roughly 50 percent discount to the price offered by multinationals. We are likely to see more such examples with three key implications for market participants.
1) Within China, order of entry in a given therapeutic class will be very important as it will impact the ability to secure reimbursement, but also listing spots in hospitals, as well as room to effectively engage prescribers.
2) Given its high global visibility, China could become a reference country for pricing and reimbursement in other emerging markets, and even developed markets as time goes on.
3) Successful molecules launched in China, achieving high volume, will find their way into the global market at an attractive price, putting pressure on incumbents in the relevant categories.
5. Patience is needed but breakthrough innovation is on the way
In our latest China Drug Innovation Index, published in November at the 5th BioCentury China Healthcare Innovation Summit held in Shanghai, we highlighted the “fast and slow” development of China’s innovation ecosystem. The fast assessment applies to regulatory changes and integration with global innovation, while the slow applies to capability building, and quality of Chinese innovation. The fact is, the vast majority of molecules in development today in Chinese labs are “me too/me better” with known mechanisms of action (MOAs).
Some differentiation exists, but one can hardly call these breakthroughs, though a few examples stand out. For example, Hua Medicine is developing a first-in-class GKA inhibitor, currently in Phase III. Fundamentally, the elements required to foster breakthrough innovation are still in their infancy in China. The system needs to promote more collaboration and risk-taking (of the good kind), but it would be unwise to discount the potential of China to emerge as a credible new hotspot of global innovation. The convergence of resources, talent, and policies is gaining momentum. If we had to bet, we would say that within a five-year horizon, we will see a drastic uptick in the quality of innovation coming out of China. Will it rival the U.S.? Clearly not. Will it become even more meaningful on the global stage? Undoubtedly.
In the next part of this article, I will present some views on how Chinese biopharmas can stay at the head of the pack as the race to achieve genuine innovation unfolds.
