China’s biotech climate is improving rapidly, with CFDA regulations revamped to speed development, and investors eager to fund companies. Nearly USD 40 billion was raised for life sciences in 2017. Recently, partneringNEWS interviewed Jonathan J. Wang, Senior Managing Director of healthcare fund manager OrbiMed Asia, about the Chinese biotech environment.
pN: What is the current pace of change in China, and what are the macro implications for the biotech industry?
JW: It is difficult to precisely describe the speed, but a friend likes to say, “It is changing in dog years.” In the past three years or so, China has emerged as a young innovation center, fueled by the CFDA reform, strong governmental support, overwhelming investment interest, and the continuous influx of returnees from Western countries.
China’s biotech industry is transforming from that of a “copier,” which depended on such old, inexpensive generic products as interferon, growth hormone, and EPO, to a young innovator that is creating proprietary “me-too” and “me-better” products. With that change, the industry is expanding its target market from mostly China to the world. With a large and growing market that is ranked #2 in the world and relatively less expensive resources, China is entering the global stage as a strong competitor and potential partner.
pN: Are innovations from China ready for global markets today? Why/why not?
JW: Yes, some innovations from China are ready for global markets. For example, Chidamide created by ChipScreen, Volitinib by Hutchinson and the PD-1 antibodies by BeiGene and Gloria/WuXi Biologics are good examples of China innovations which have gone abroad. Many companies are conducting clinical trials with China-created drug candidates in the US, Australia, and other regulated markets. Some are not ready, mainly because of a lack of IP rights, competitiveness, differentiation, or data quality. That said, the percentage of world-class innovations developed in China is increasing rapidly.
OrbiMed Asia has incubated a company, CBT Pharmaceuticals, to specifically take China-created IO drug candidates to the global market. “Created in China, for the world” is an emerging, rapidly growing trend. Many companies are conducting clinical trials with China-created drug candidates in the US, Australia, and other regulated markets. From my office in Shanghai, I see a growing number of drug candidates in China’s pipeline that have global rights. Interest in collaboration is very high.
pN: What are the major challenges that may hinder China's growing stature on the international stage?
JW: China’s biotech industry has a few challenges. Notably:
- Lack of “hardcore” innovation. China has started to innovate but is by no means an expert yet. China’s drug pipeline is largely me-too/me-better drugs. First-in-class drugs are rare, so Chinese companies’ products are often not competitive or differentiated enough on a global competitive landscape.
- IP barriers from more mature foreign companies. Chinese companies often experience freedom-to-operate issues when trying to become global players. As a result, some are forced to operate only in China.
- Lack of international business talent. In China, it is difficult to find managers with a global vision and cross-border business development skills. Language and cultural barriers sometimes hinder Chinese companies’ overseas plans.
- Lack of clinical development expertise. Many Chinese drug developers have strong science and discovery backgrounds but lack clinical development expertise. Some view an IND as the end of the journey when, in fact, it is only the beginning. Good Chief Medical Officers (CMOs) who understand the global standard are difficult to find in China.
pN: Some new therapies, particularly in oncology (i.e., cell therapies) are very costly. How will the pricing of these therapies affect adoption in China?
JW: Most Chinese are much more price-sensitive than Western populations. To put this in perspective, China’s per capita GDP is less than USD 10,000 and annual healthcare spending is less than USD 600. The medical insurance industry is immature. Overly expensive therapies, therefore, will find it difficult to penetrate the Chinese market, especially in small cities and rural areas. Consequently, many Chinese companies focus on developing me-too therapies that are much cheaper than their Western counterparts. The newer, more expensive therapies will first gain traction in cities, where China’s wealthiest 200 million citizens generally live. This affluent group is much less price-sensitive than the country’s average citizens.
pN: What does your five-year crystal ball prediction for the China biotech market?
JW: I do not have a crystal ball, but I predict:
- The number of innovative drugs from China, including some of the first first-in-class drugs, will increase steadily.
- The first China-based biotech giants—so-called “Chinese Genentechs”—will emerge with market caps of tens of billions of dollars.
- Cross-border M&A, partnering, and licensing activities will continue to grow. Deals will become more frequent and much larger, infusing many billions of dollars into companies.
- Many more Chinese biotech IPOs will be listed on NASDAQ. The Hong Kong Stock Exchange also will become an attractive market for Chinese biotech companies after some initial ups and downs.
- Within five years, there will be a major correction in Chinese companies’ valuations in public and private equity markets.
pN: There have been press stories about China-based pharmaceutical companies acquiring US taxpayer-funded innovations out of the NIH on the cheap. Is this a real issue and part of a deliberate strategy for bringing IP into China?
JW: I have seen the stories, but I do not have enough facts to comment. However, the NIH has done a good job supporting research and generating IP. Its processes and policies to out-license IP have benefited patients around the world. I believe companies from any country, including China, should be allowed to license IP from the NIH.
pN: What are your goals for OrbiMed?
JW: OrbiMed Asia is investing approximately USD 2 billion in Asia healthcare. On the private equity side, we have approximately USD 1.1 billion under management and have invested in nearly 50 companies.
We hope to facilitate the growth of China’s biotech industry in multiple ways:
- We want to attract suitable foreign technology and products to China. With our established network and a global portfolio of more than 450 companies, we already have helped some of our Chinese portfolio companies (such as Credit Pharmaceutical) acquire foreign products and form global partnerships.
- We want to helpChinese companies access foreign markets. For example, our portfolio company InventisBio is conducting clinical trials in the US with a gout drug candidate discovered in China. We want to support more Chinese companies to go abroad.
- We want to help more Chinese companies list their IPOs on reputable foreign stock exchanges, such as NASDAQ, NYSE, and Hong Kong. Two recent successes are Zai (NASDAQ) and AK Medical (Hong Kong).
Stay tuned for the upcoming China Showcase at Biotech Showcase, January 6, 2019, in San Fransisco, CA. The program will feature keynotes, specialized sessions and networking opportunities. Tap into cross-border investment opportunities at China Showcase.