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.

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