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Biopharma's Future: Made in China

The world’s second biggest pharma market is entering a new growth phase – but meeting its needs takes investment and expertise

Just a few decades ago, ‘Made in China’ was a phrase redolent of cheap, poorly-made consumer goods, or even counterfeit copies of big Western brands.

All that has changed in the last 20 years, with an economic and manufacturing revolution transforming China into the world’s biggest exporter, making everything from iPhones to underwear.

But now the country’s economic growth is slowing, its leaders are looking to the next phase – moving from being a low-cost location for manufacturing, to an economy developing its own intellectual property-based products – including innovative medicines.

The country’s Made in China 2025 policy identified ten strategic sectors of the economy it needs to strengthen, with one of them being pharmaceuticals.

President Xi Jinping has identified the country’s reliance on foreign drug imports as a critical concern (with popular sentiment also a factor – see China’s demand for modern medicines opposite), and a series of sweeping reforms is now opening China’s pharma market to rapid modernisation.

This includes changes introduced last year to allow data from trials conducted outside China to be used to gain approval, rather than having to conduct additional tests in the country.

Shanghai

Shanghai is now established as a global hubs for pharma R&D

Meanwhile the national medicines regulator the Chinese Food and Drug Administration has also been reformed and renamed as the National Medical Products Administration of China (NMPA). In 2018 it has issued a flurry of approvals to new and innovative drugs such as MSD’s Keytruda and Pfizer’s Ibrance.

Twinned with the near-complete health insurance coverage across the country and the broad public health plan, Healthy China 2030, these changes are accelerating uptake of modern healthcare in the country, including new medicines.

China is already the world’s second biggest market for pharma, worth $123bn in revenues last year, according to LEK Consulting. It forecasts that the market will post growth in excess of 5% every year until 2022, reflecting an increasingly wealthy and ageing population, which is succumbing to the once ‘western diseases’ of heart disease, diabetes and cancer.

Multinationals such as AstraZeneca and Pfizer have posted astonishing growth in China this year by catering to the vast needs of the country’s population of 1.39 billion people.

However, in the long term these huge demographic shifts and market reforms will also create an environment which will encourage home-grown innovation-based companies to emerge.

Nooman Haque, managing director, life sciences and healthcare at Silicon Valley Bank comments: “Everybody thought the big pharma companies would be the obvious winners of these reforms, and that probably is true. But as we have seen in other sectors, Chinese entrepreneurs and companies are adept at moving quickly themselves – they’ve managed to do it in technology, for instance.”

Examples include computer hardware giant Lenovo, and tech giants Alibaba and Tencent, which have all established themselves as global players.

The rise of Chinese biopharma

One home-grown pharma company which could replicate this accomplishment is Beijing-headquartered BeiGene.

The firm is based on a mix of American and Chinese talent – many of its commercial and research leaders are Chinese ‘haigui’ or ‘sea turtles’ who have studied and worked in the US or Europe and have now returned to China.

BeiGene’s CEO John Oyler told a Goldman Sachs recent conference that a Chinese biopharma sector was ready to emerge.

John Oyler

BeiGene's John Oyler

“This is China’s moment,” he says. “We really think this is the time a global company – or several – can and will emerge from China with huge scale.”

Having just raised a gargantuan $903m via an IPO on the newly deregulated Hong Kong exchange, the company is bullish about becoming one of those Chinese-headquartered global pharma companies, complete with its own novel drug discovery and development capability in the country.

“There is made for China, and there is made in China – Beigene believes that we can build a company that can lead innovation and that’s what we are aspiring to do,” he says.

It has just submitted its PD-1 immunotherapy candidate tislelizumab with China’s regulator, and also has a late-stage BTK inhibitor to challenge J&J’s Imbruvica with a potential best-in-class profile.

Meanwhile the boom in digital health seen in Europe and the US is also taking place in China – with demand even stronger, given the shortfall in primary care health provision. Tencent’s WeDoctor, which produces diagnosis and online booking services, raised $500m from investors in May, and the firm’s value is now estimated at $5.5bn with an IPO also in its sights.

China’s demand for modern medicines

Dying to Survive was one of the biggest movie hits of the summer in China this year: a fast-paced, darkly comic thriller about a man who is diagnosed with cancer but finds himself unable to afford the Western medicine that could save his life.

This slick tale is in fact based on a true story of a man called Lu Yong who received a long prison sentence for importing and selling a cheaper version of Novartis’ leukaemia treatment Glivec.

The twist in the real-life story was that Lu’s sentence was later quashed after the patients that had benefited from his illicit imports petitioned the court to lessen the sentence and release him.

The film reflects the huge demand within China for modern ‘western medicine’, which is one of the most powerful reasons for the government’s decision to reform its medicines regulation, and to encourage a home-grown pharma industry, as well as investment from multinational giant.

Big pharma reaps the benefits

There is no question that established US and European big pharma companies are also reaping the benefits of the new China boom.

AstraZeneca has emerged as one of the leading multinationals in China, and its earnings grew an astonishing 25% in Q2 of 2018, thanks to the uptake of new medicines such as targeted lung cancer drug Tagrisso and diabetes treatment Forxiga.

Mark Mallon is executive vice president of Global Product & Portfolio Strategy at AstraZeneca, and before that spent many years as the company’s head of China and then the wider Asia Pacific region.

Multinationals have had to accept major price cuts in China; however the sheer volume of sales this creates means making these concessions can pay off.

Mallon comments: “I think the Chinese government recognises the value of innovation and it wants to ensure that medicines are competitively and fairly priced. We are now seeing pricing of medicines within the same range as Europe.”

Even if a drug fails to make it on the national drug reimbursement list, there are formularies in the country’s cities and provinces that cover many millions of people. But being able to cover this vast country and understand its regional variations takes major investment and lots of local knowledge.

Mallon says this is vital to success in the country: “One of the keys to our success is our focus on developing our talent in China so that we really have the best possible understanding of the market. From a talent perspective, we’ve been able to build one of the top companies in pharma, maybe even beyond, over the past 25 years and today we have a very strong and experienced team under the leadership of Leon Wang, executive vice president for the International region at AstraZeneca.”

Money flowing into Europe

Meanwhile, just as multinationals are increasing their investments in China, there is also a huge amount of investment capital flowing out of China, and into European and US biotechs.

Venture capital funds based in China invested $1.4bn into private US biotech firms in the first three months of 2018, accounting for about 40% of the $3.7bn raised in the sector overall, according to data provider PitchBook.

So will China reshape the US and European sectors as well? Nooman Haque says the sweeping reforms to China’s economy and regulations, and the scale of the market created could bring a new world order in pharma and biotech – but that change won’t happen overnight.

In terms of biotech funding, the emergence of Hong Kong’s stock market could potentially make Europe’s Euronext and AIM markets, already dwarfed by the NASDAQ, irrelevant.

However the US and its hubs of Boston in the east and San Francisco in the west will remain the pre-eminent place for R&D, and the US the most important market.

Obstacles remain

There remain some major potential pitfalls for pharma companies competing for a share of this rapidly-expanding market.

One of the most serious concerns is bribery, corruption and fraud, well-known problems in the country in recent times. The most notorious case to hit pharma came in 2014 when a $490m fine was imposed on GSK after a court found its operatives guilty of paying bribes to doctors and hospitals in order to have its products promoted.

So how does AZ ensure it doesn’t get entangled in bribery or corruption in China?

Mark Mallon

AZ's Mark Mallon

“We have built the right culture there,” says Mallon. “We continually train our people on our values, remain vigilant and will take any action as required. You see similar commitments from the government in China and there’s no complacency on this matter. Doing business ethically and in a compliant way is incredibly important for us globally, not just in China.”

Despite such precautions, a scandal is currently casting a shadow over the sector’s trustworthiness and the safety and efficacy of its products.

BeiGene’s enormous Hong Kong IPO did in fact fall short of expectations of raising $1bn; this reflected a loss of investor and public confidence in the wider sector following a major scandal after  ChangSheng Biotechnology was found to have falsified data and produced ineffective vaccines in the country, with another, the Wuhan Institute, found to have also produced substandard vaccines.

Finally, the cost of doing business and conducting research in China is rising, as the demand for scientists and commercial pharma personnel outstrips supply. This is already tempering growth in the sector, which still lacks the infrastructure and maturity of US and European markets.

Nevertheless, China’s demographics, growing wealth and growing burden of disease means it will be an increasingly key market in the coming decades, and an increasingly active player in pharma’s global ecosystem.

Article by
Andrew McConaghie

26th September 2018

From: Marketing

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