8 ways China could help transform the global biopharma industry
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The recent emergence of a thriving biopharmaceuticals industry in China is no longer just a China story. It is a global one, with profound implications for years to come.
For the past 15 years competitive intensity in the global biopharma market has increased markedly. Most recently, China has emerged as an important actor in the global biopharma ecosystem, adding a potent additional source of global biopharma innovation and disruption. What impact will this emergence of China have on the global industry?
First, here are a few important facts underpinning the rise of China biopharma:
China biopharma has very good access to the necessary ingredients for innovation:
● Funding – The cumulative market value of China originating biotechs, listed on HKEX, STAR or NASDAQ, rose from $1bn in 2016 to $180bn as of May 2021. CB Insights indicates that 2 of the top 10 global healthcare VC funds are from China (Hillhouse Capital and Qiming Ventures – ranking as of Q1 2021). Increasingly, China linked funds deploy capital beyond China, to support the emergence of US based innovative start-ups (numerous examples, from Lilly Asia Ventures, to Ally Bridge Group, or Quan Capital). Of note, investments in Europe are more limited to date. A new report by McKinsey “ Innovation hot-spots to stage the next Biotech act in Europe” concludes that China accounted only for 2% of early-stage funding in European biotechs, over the 2018-2020 period. Also, new funding models are emerging. For example, with backing from Orbimed Asia partners, Kinnate Biopharma, a US based biopharma, recently raised $35mn to set up a JV in China for development and commercialization of its lead program in greater China.
● CDMOs and CROs – The cumulative market value of listed players, defined as focused on innovative drug development and listed on HKEX, STAR, or NASDAQ, rose from <$1bn in 2016 to $176bn as of May 2021. China is already a leading provider of services in sub-segments, with a global client base (e.g., in Chemistry). CDMO is rapidly scaling up with examples of China/US tie-ups. For example, Humanigen (US based) recently selected Chime biologics (China based) for the development of its lead pipeline candidate, lenzilumab. Some China originating companies are building global manufacturing networks. Wuxi Biologics is opening facilities in Singapore, Ireland or Worcester, USA, while CARsgen is investing $157 mn to set up a North Carolina based CAR-T Lab/manufacturing facility. On the CRO side, the recent merger of dMed (China based) and Clinipace (US based) provides an illustration of the increasing interdependency or service providers, who need to span US-China to leverage the best capabilities and serve global clients.
● Talent pool – China’s role in the global talent market is rising, with some companies rapidly transitioning from being “China based” to being “globally based”. This involves hiring key CEO-1 talent who come from traditional big pharma players, and play global positions/roles from their home country. As recent examples, BeiGene hired its Senior VP of Global Human resources from Pfizer, and Zai Lab hired its President, head of global development for oncology from Genentech. Both executives are based in the US. Also, several CEOs of Chinese biotechs are former global executive of multinationals (e.g., the CEO of Everest Medicines spent most of his career at Eli Lilly, while the Chairman and CEO of CStone came from Sanofi).
The role and impact of China is already evident across key elements of the value chain:
● Discovery – Initially, local innovation for the China market focused on the immuno-oncology space (~110 NMEs in the clinical development as of May 2021). Acknowledging this hyper-competition, China biopharma’s innovation focus has broadened significantly into all major modalities and disease areas. Our analysis shows that for 9 out of 10 modalities and for 9 out of 13 disease areas, local companies are now leading MNCs in innovation for the domestic China market. A recent publication by the IQVIA institute (“Global oncology trends 2021: Outlook to 2025) estimates that China-headquartered companies are developing 18% of all early stage oncology drugs, up from 6% in 2015. Maybe even more striking, the China share is already 13% for all next-generation oncology biotherapeutics. 2020 marked a turning point with several examples of innovative drugs discovered in China being licensed in by large global biopharmas. The deals between AbbVie/I-Mab for I-Mab’s CD47 or Lilly/Innovent for Innovent’s PD-1 program come to mind. What’s important to note is the speed at which new drug innovation has proliferated in scope and scale. China biopharma is becoming an ever faster fast follower. While we have yet to see much evidence of First in Class discovery out of China – other than a few green shoots – one could reasonably expect this to change in the mid-term.
● Development – China accounts for a large share of development trials for the top 25 global Biopharma companies. On average, China is currently participating in ~21% of ongoing Phase 3 clinical trials from those companies as of June 2021. Access to a large treatment naïve patient pool is attractive, and a growing number of trial centers are reaching international quality standards. One should note however that while centers have grown, the number of centers and PIs with extensive MRCT experience is still low and will continue to constrain China’s development capacity. IQVIA Institute estimates that there are 1,297 trial experienced sites globally for CAR-T therapies, 284 of which are in China. Meanwhile, Chinese originated biopharma/biotechs are ramping up the number of trials conducted abroad, for example in Australia, the US or EU.
● Commercial/access – a few China originating companies have started to build physical presence in the US, including for commercial and access activities. BeiGene and Hutch-Med are both ramping up their US presence, with new molecules launched/launching soon. The same is starting to happen in Europe. Some US based companies are starting to emerge with the idea of licensing innovative molecules from China and launching them in the US. EQRx for example has a licensing deal with Hansoh Pharma for aumolertinib, an EGFR TKI indicated for treatment of NSCLC. The stated strategy aims at disrupting the current price/volume status quo.
China is clearly already an important and integral part of the global biopharma industry, not a separate ecosystem that co-exists and interacts with the global one. This is driven both by the nature of the industry – global in its potential to impact patients – and by the regulatory reforms undertaken the last 5 years (e.g., China joining ICH in 2017).
There is a clear, potent trend of a rising China biopharma. We invite global executives to consider a series of 8 potential implications that could play out over the next decade:
1. Impact of China scale and speed of innovation on the biopharma value chain: Can China leverage its core advantages, scale and speed of innovation, the way it has across many other industries (e.g., solar panels, high speed trains)? Could this help drive down the cost of discovery for all players globally? Could innovative medicines advance faster from labs to clinics and to patients, saving cost and lives? Could China large scale manufacturing and volume potential leads to fundamentally different choices on pricing of mAbs?
2. Alternative source of capital: Will China – through VCs/PEs and stock exchanges (HKEX and Shanghai Star board) emerge as a credible source of capital alternative for EU based biotech companies, who can benefit from additional funding to unlock their strong research and discovery potential?
3. Application of AI to large datasets: Can China’s lead in AI translate in the biopharma space and foster the emergence of new discovery and delivery models for healthcare? Given the very large patient datasets available in China, and the number of companies popping up to mine the data, can we expect faster development in that space than in the US/EU?
4. Maturation of China discovery capabilities: Will China’s discovery capabilities mature rapidly enough to yield innovative molecules, with new mechanisms and a range of indications broader than what we typically see in the Western world? What will then be the “new bar” for R&D productivity once China biopharma innovations have entered global markets at scale?
5. Relevance of “affordable innovation” concept outside of China: Will China’s concept of affordable innovation (i.e., fast followers or “me better” drugs priced at a discount to originator), translate overseas? Can China help accelerate the development of largely underserved innovation regions, such as South East Asia or Africa?
6. Emergence of a new generation of global biopharmas: Can China’s ecosystem give birth to a new generation of global biopharmas, with a different footprint and approach (i.e., “best of both worlds”). Following in the footsteps of Japan’s leaders, only much faster.
7. Impact on competitive level of innovation: In light of rising competition from China, what is the right balance in global innovation portfolios between modalities and disease areas that are comparatively well understood vs. those that carry higher degrees of novelty and breakthrough potential?
8. Hypercompetitive status of the China market: What will it take to prevail as an MNC in China’s hypercompetitive local market for biopharma innovation? Are current innovation pipelines, investment levels and “metabolic rates” for China commensurate with the growth projections and speed of evolution of the market?
We are at the beginning on a key industry wide trend that will be felt globally. The 8 questions listed above only illustrate the range of implications one would need to think about. I welcome your thoughts and feedback.
Note from Franck Le Deu: I’m a Senior Partner with McKinsey & Company, based in China since 2005 (Shanghai, then Hong Kong). I co-lead our BioPharma and MedTech Practice in Asia Pacific. Please reach out to connect or follow me here on LinkedIn. I’m also on Twitter@fle864.