China Biotech Innovation Reaching Tipping Point?
Executive Summary
A rapidly reforming policy and regulatory environment and a growing culture of innovation are encouraging capital and talent to pour into China, making it a question of when, rather than if, the payoffs will come for both consumers and investors.
"Made in China" pharma and biotech breakthroughs are becoming a real deal, and it is "absolutely inevitable" that the country will at some point become a global center for innovation, predicts one chief executive, while other analysts are pointing to the cutting-edge research in areas such as genetic engineering that is already going on.
Expanded market access, a string of positive regulatory reforms, and increased investment are all coming together to create a fertile ecosystem for novelty and progress that offers major long-term business opportunities to nimble investors, with some local executives already pointing to big changes and chances. (Also see "Biosimilar Tipping Point: Five Questions For Henlius CEO" - Scrip, 21 Sep, 2018.)
Even so, it is a big call to make considering China’s pharma industry has for many years been described as “stagnant, underdeveloped and even impenetrable,” noted an October 1 report from global investment banking group Jefferies, which looked at some of the factors expected to drive innovation in the country.
At present, the bottom line is that none of the 46 drugs approved for marketing in the world’s biggest pharmaceutical market, the US, last year were developed in China, and that equally, just one of the 35 new drugs given Chinese regulatory approval in the first 10 months of 2017 were domestically originated.
Innovation, But When?
Yet the new Jefferies report - “China’s Biotech Industry Has Reached a Turning Point” - provides top-down evidence for a rethink about the direction of innovation in China. President Xi Jinping is cited as a prime policy mover with his “Made in China 2025” and “Healthy China 2030” strategic national plans, while significant capital inflows, helped by revamped listing criteria in Hong Kong for pre-revenue companies, signal China is “embarking on a new era of drug innovation,” the report states.
The time frame given for this is five-plus years, according to one of the report’s authors, equity analyst Michael Yee. He believes that given an acceleration of “approvals, reimbursement and capital investment to build the pipeline of next-generation drugs,” China’s market will eventually become bigger than Japan or Europe and second only to the US.
Speaking to Scrip, Yee expressed caution over trade conflicts with the US, and did note that China “strongly shows preferential deference in approvals and reimbursement to domestic companies over US companies.”
One China-based biotech company pioneering the innovation path is Hutchison China Meditech Ltd. (Chi-Med). Its small molecule product fruquintinib in September became the country’s first domestically-developed synthetic oncology drug to be as granted approval, as Elunate capsules, for colorectal cancer, by the National Medical Products Agency (NMPA, formerly China FDA). (Also see "New Drug Bonanza as Chi-Med, Eisai, Alexion Harvest Big Wins In China" - Pink Sheet, 7 Sep, 2018.)
Chi-Med CEO Christian Hogg told Scrip in a phone interview from Hong Kong that it had been a 17-year journey to get Elunate to market, and that the approval would allow the company to focus now on global expansion including bridging studies for the US.
“It was a big achievement to be the first China biotech to get a [locally originated cancer] drug across the line,” Hogg commented, adding that he is certain that it will be just the first of many China biotech hits, assisted by the “big bang” at the NMPA, which he said is leading to a “tsunami” of new molecule approvals and launches.
Regulatory Reforms' Real Impact
Jefferies’ report shows the new-look NMPA has loosened drug development restrictions, cracked down on fraud, and dubious clinical data, and also expanded its review team. As such, it approved 394 drugs in 2017, 278 of which were domestically produced and 116 imported. 10,000 Investigational New Drug (IND) filings, New Drug Applications (NDAs) and Abbreviated NDAs were reviewed last year, cutting down the average review time to about 200 days in the process. Meanwhile, the total number of IND approvals has nearly doubled in the past three years.
“We know the market is growing terrifically and with the new regulatory support there has been a lot of investment into China,” Chi-Med's Hogg observed. Looking forward, the expectation is that much of this new money will be clearing through expected new bioventure listings on the Hong Kong Stock Exchange (HKEX), which relaxed its listing rules for pre-revenue bioventures on April 30, although performance for the first listed ventures has since been mixed. (Also see "Mixed Views On Hong Kong Market's Role Despite IPOs Lining Up " - Scrip, 11 Sep, 2018.)
Though Chi-Med is listed on Nasdaq in the US and in London, Hogg would not be drawn on the possibility of a further listing in Hong Kong, although he does believe the HKEX provides a pathway to improved liquidity for Chinese biopharma startups generally. “Massive steps have been taken and if it continues at this speed then Hong Kong will have a successful biotech system,” he predicted.
The CEO also thinks it is important to build analyst and financier expertise as part of China's innovation ecosystem, but that this will likely happen in the same way that clinical and laboratory experts have been returning to China from abroad, as part of the “Thousand Talents Plan” to attract expertise. This again echoes the Jefferies report, which found that 250,000 (13%) of the two million returnees to China over the past six years were in the life science industry.
As for China becoming a global power for pharma innovation, Hogg stated: “It is absolutely inevitable that China will become an innovative force in the pharma industry worldwide. We have shown it can be done and have created a lot of value and benefit to patients.”
Quality, Funding Concerns Remain
Michael Choy, partner and managing director at global management consulting firm Boston Consulting Group, is also upbeat about the prospects for innovation in China’s biotech sector, but has a more measured view.
Speaking to Scrip on the way to a meeting in Philadelphia, Choy said: “It feels like we have hit a tipping point, as there’s a lot of excitement, new medicines in the pipeline from startups with credible experience, and a lot of people returning to China. It’s very exciting.
“But on a note of caution," he added, "there are concerns about the quality of clinical data, as successful research depends on this…and while talented researchers are returning, the infrastructure that supports all this is not as mature.”
Choy’s point was not just about deceitful practices, but that development of the sector in China will also be linked to training and ensuring there is global regulatory oversight and appropriate quality systems in place in the country. As for the HKEX changes providing an attractive new path to IPOs, he says this will most likely apply to Chinese companies in the main and not necessarily to US and European ventures just yet.
On the new-look NMPA and the impact of recent regulatory changes, he added: “Regulatory reform has certainly helped increase the attractiveness of the [Chinese] market, but we will have to see how this plays out and how it affects the drug pipeline. I certainly expect [development] times will be shortened for some major medicines.”
Other indicators that need to be looked at include market access and issues such as pricing and ability to pay, he said. While some challenges have been addressed, there are commercial/financial limitations for some medicines, especially major innovative drugs.
This is going to be hard to change, Choy believes. “The vast majority of funding for pharma [in China] comes from the government and unless more resources are going into that system it’s impossible to get that [higher] level of profitability.”
Looking Ahead
When considering China biotech's capability for being genuinely innovative, Choy has few reservations. “Absolutely. Though this depends on continued economic growth, and continued allocation of government funds, while investment and healthcare needs to stay a [policy] priority.”
Even so, all this is not to say that Chinese pharma is likely to be challenging US and EU companies in their own markets within the next 20 years. “But the Chinese market will shift to locally developed medicines, similar to the US and EU," Choy predicted.
“There will also be unique opportunities with innovative modalities for gene therapy, small molecules, antibodies, gene editing, stem cells, and tissue transplantation, where China is likely to have a more permissive [policy] stance on these things. In the West, there are more society-driven restrictions on how these are used.”
From the editors of PharmAsia News.