Pharma Markets
Experts caution that despite the rapid growth and expansion of Chinese pharmaceutical companies into the international market, overlooking their financial challenges and profitability issues would threaten their long-term sustainability
Li Ning, vice president of Shanghai-based Junshi Biosciences, said he observed an increase in opportunities for Chinese pharmaceutical companies while attending this year’s J.P. Morgan Healthcare Conference in January.
More than 20 pharmaceutical companies from China presented at the prestigious event held in San Francisco, many of them establishing collaborations with multinational corporations.
Their positive reception at the conference reflects the expanding influence of Chinese-developed pharmaceuticals on the global stage.
According to yaozh.com, a pharmaceutical industry data provider, Chinese companies inked over 50 overseas licensing deals in 2023 totaling
US$43.11 billion, an increase of 56 percent over the previous year.
In 2023, the number of out-licensing deals surpassed the projects introduced into China for the first time. Additionally, the US Food and Drug Administration (FDA) has approved a growing number of new Chinese-developed drugs.
Ding Sheng, founding dean of the School of Pharmaceutical Sciences at Tsinghua University, told Newschina that over the past two years, the number of companies with out-licensing deals increased from around two to 20.
However, this figure represents a fraction of the thousands of pharmaceutical companies in China.
The majority of Chinese companies expanding globally are still focusing on follow-on innovation, which involves minor modifications to pre-existing drugs, highlighting the need for greater emphasis on original innovation, Ding said. This will make sense both for the industry and China’s strategy of building new quality productive forces.
Going Global
Xue Tongtong, founder and CEO of Medilink Therapeutics in Suzhou, Jiangsu Province, maintains a demanding schedule, often extending meetings into the early hours – a new norm since his company began expanding its overseas operations last year.
In October 2023, Medilink secured two significant overseas licensing deals totaling US$2 billion with German company Biontech and Swiss
multinational healthcare company Roche to develop antibody-drug conjugates (ADCS), a class of biopharmaceutical drugs designed for targeted cancer therapies.
Like many biopharmaceutical startup founders, Xue’s background is industry-specific. Following his doctoral degree in developmental biology, he focused on genetic drug research and development. Moving to innovative drugs, Xue joined a leading Chinese company developing ADCS in 2013. In July 2020, he established Medilink to capitalize on the market shift from generics to innovative drugs.
The global ADC race intensified in December 2019 after the FDA approved an ADC drug by Japan’s Daiichi Sankyo. This triggered numerous multibillion-dollar acquisition deals in the field, as the clinical efficacy of ADCS in killing tumor cells has surpassed that of conventional chemotherapy.
By January 12, 2024, Chinese companies had signed more than 10 overseas licensing deals involving ADCS and oligonucleotide drugs (which are used to treat neurodegenerative diseases like ALS), according to data from Menet, a medical and health information platform.
Zhang Lianshan, deputy general manager of Jiangsu Hengrui Pharmaceuticals, told Newschina that research on ADC drugs had long been overlooked by overseas firms, providing Chinese companies with an opportunity to catch up with or even surpass multinational companies as leading forces in ADC research and development.
According to Zhang, there are numerous ADC clinical trials taking place in China, involving many pharmaceutical firms. Additionally, multinationals are acquiring ADC production lines from China, which boasts a complete chemical industrial chain and robust pharmaceutical R&D capabilities.
Licensing deals with multinationals are the preferred route for Chinese pharmaceutical firms to expand globally, as such partnerships are crucial for clinical development and commercializing their products.
Zhou Shuhua, chief analyst of pharmaceutical market platform Citeline, told Newschina that while Chinese companies have been successful in research, capitalizing on it remains a challenge. Even companies with two or three products on the market still report financial losses, leading many to opt for overseas licensing, Zhou said.
In 2023, the FDA approved a record number of drugs for the US market. Data revealed by Topsperity Securities in January shows that between 2019 and 2023, the FDA approved eight Chinese-made drugs. Five were approved in 2023.
Among them was Junshi Biosciences’ Toripalimab, which became the first medicine approved in the US to treat nasopharyngeal carcinoma, a form of throat cancer.
But global markets have high barriers. Li Ning with Junshi Biosciences said it took over 10 years for Toripalimab to get from the R&D to market approval stage. The process of getting approval overseas also involved years of rigorous quality management and extensive personnel training.
In early November 2023, the FDA approved Shanghai Hutchison Pharmaceuticals’ innovative drug Fruquintinib for treating metastatic colorectal cancer. The drug was approved in China five years prior. Su Weiguo, the company’s CEO, said that getting approval in China marked the beginning, as FDA approval is the benchmark for global recognition.
The increasing presence of Chinesemade innovative drugs in European and US markets reflects a remarkable shift in the global pharmaceutical landscape. “It’s something that would have been hard to imagine 10 years ago,” Li Ning said.
New Horizons
The European and US markets were previously the first choice for Chinese innovative drug companies, but their high market thresholds spurred many companies to explore Southeast Asian markets, which boast a population of 650 million but are relatively underdeveloped in terms of pharmaceutical research.
“It’s a new trend that has started in recent years. Before that, Southeast
Asia had been a market for Chinesemade generic drugs,” Li Ning said.
Henlius, an innovative biopharmaceutical company based in Shanghai, is a pioneer in this regard. In 2019, Henlius collaborated with Indonesian company Kgbio to exclusively develop and market its drug Serplulimab in 10 ASEAN countries. By the end of 2023, the novel anti-pd-1 monoclonal antibody was approved for use in Indonesia to treat small cell lung cancer. It has since been licensed in more than 70 countries and regions.
Junshi Biosciences has also embraced Southeast Asia. Although its drug Toripalimab was approved in the US, a significant portion of nasopharyngeal carcinoma cases are concentrated in South China and Southeast Asia. (Research links high rates of nasopharyngeal cancer to populations that consume larger amounts of salt-cured fish and meats.) Moreover, Southeast Asian countries may be more readily accepting of Chinese clinical data for new drugs than European or North American countries.
Many other drug companies in
China, including Innovent and Fosun Pharma, are investing heavily in Southeast Asia. But Zhou Shuhua points out that unlike in European and American markets where supervision is relatively transparent, the varying pharmaceutical
landscapes of Southeast Asia’s 11 countries pose complex challenges for Chinese firms.
To better navigate these markets, seeking local partners has become common practice. In March 2023, Junshi Biosciences established a joint venture with Rxilient Biotech in Singapore, granting the joint entity development rights for Toripalimab in nine Southeast Asian countries.
“The Singaporean partner’s extensive experience in registration and commercialization in many Southeast Asian countries will be a valuable asset for us,” Li Ning said.
Among Southeast Asian nations, Singapore stands out as a favored destination for Chinese pharma. Since 2020, companies such as Sinopharm, Sinovac Biotech Ltd. and Genscript Biotech Corporation have established a presence in Singapore.
Li Ning noted that Singapore’s drug approval process is similar to that of the US, allowing for Fda-approved drugs to enter the Singaporean market swiftly without the need for local partnerships. Moreover, Singapore’s cultural and environmental similarities with China position it as a strategic gateway for Chinese companies venturing into Southeast Asia.
With the influx of Chinese drug companies, the Southeast Asian market is expected to grow, particularly through the advancement of the Belt and Road Initiative. Despite potential challenges to market access, Zhou Shuhua believes that generic and cost-effective innovative drugs from China will be more competitive in Southeast Asia.
Li Ning observed that the majority of local pharmaceutical companies in Southeast Asia focus on generic drug production, while multinationals from Europe and the US primarily offer generic drugs and few innovative drugs. “It’s difficult for multinational firms to break from their global pricing systems, so their drugs are considerably more expensive in Southeast Asia and target affluent patient groups,” Li said.
Prescribed Strategy
The growth of innovative drugs in China is closely tied to government policy. In 2015, China reformed its drug approval system, significantly accelerating the approval process. By joining the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (ICH), a non-profit regulatory body based in Switzerland, in June 2017, China accelerated the alignment of its domestic drug registration requirements with international standards.
In addition, local government policy support, adjustments in medical insurance policies and capital investment have been driving forces in the rapid development of new drug R&D.
Shanghai and nearby Suzhou are major hubs for innovative pharmaceutical companies in China and stand out for their strong policy support. Junshi Biosciences opened two factories in these cities, Li Ning told Newschina, adding that governmental support such as initiatives to attract overseas talent are more crucial to the industry’s growth than financial aid.
Li told Newschina that before the 2015 reforms, companies had to wait one to two years for approval of new drug clinical research. Now the time is shortened to one to three months. Over a decade ago, there were few innovative drug companies, with most focusing on follow-on drugs. Today, production of innovative drugs in China is on par with follow-on drugs.
In 2023, 40 innovative drugs were approved for market launch, nearly double the number approved in 2022, according to the Drug Evaluation Report 2023 released by the
National Medical Products Administration (NMPA) in February. The NMPA received 2,997 clinical trial applications for new drugs, a rise of 33.6 percent over the previous year.
Challenges Ahead
Li Jizong, director of Shanghai Center for Biomedicine Development, noted that the expansion of pharmaceutical products overseas does not mean companies can rest on their laurels. Instead, they need to work harder to stay competitive in the global market.
Competition is also escalating among companies rushing to develop targeted therapies. “Many companies developing ADCS, for example, start with HER2 or Trop2-targeted therapies (for breast, bladder, pancreatic, ovarian and stomach cancers) which are already very mature, making it challenging for them to gain a competitive edge,” Medilink CEO Xue Tongtong said.
Innovative drug R&D is high risk and involves substantial investment.
Chen Yuan, who works for a listed Chinese pharmaceutical company, told Newschina there is a common saying in the industry that developing a new drug “takes a decade of research and US$1 billion in investment but has a clinical trial success rate of 10 percent.”
As an example, he cited the first several companies approved to develop PD-1 inhibitors, which enable the immune system to better target and kill cancer cells, who invested at least 2 billion yuan (US$278M) each in follow-on innovation.
Chen expressed concerns that the fierce competition, reduced medical insurance prices for PD-1 drugs and unfavorable payment policies for innovative drugs in China are hindering development.
The price of domestic innovative drugs in China is notably lower compared to overseas markets, which
strains profit margins.
For example, Junshi Biosciences’ Toripalimab sells for US$8,892 per bottle in the US. In China, it costs US$266.
While companies see global expansion as a necessary step for survival, few are able to do so, Ding Sheng said.
Meanwhile, the decline in investment has become a pressing issue for the industry, said Ding Lieming, chairman and CEO of oncology drug maker Betta Pharmaceutical.
Data from industry data platform Pharmcube shows a significant drop in financing for innovative drugs in the Chinese market from 87.7 billion yuan (US$12.2B) to 30.9 billion yuan (US$4.3B) between 2021 and 2023.
Bi Jingquan, a member of the 14th CPPCC National Committee and executive vice president of the China Center for International Economic Exchanges, noted last December that many of the innovative drugs and overseas licensing projects launched in recent years were the results of venture capital investments made five years ago. At the fifth “Healthy China” forum held in Beijing in January, Bi said that a drop in venture capital investment would result in fewer breakthroughs in innovative drugs, posing significant funding challenges for numerous companies.
Ding Sheng noted that given the cost and time required to develop a new drug, higher returns to pharmaceutical companies are necessary to incentivize drug innovation.
This balancing act between high demand for innovation, substantial R&D investment and constrained profit margins was a focal point during the two sessions, China’s annual parliamentary meetings held in March, where attending industry leaders offered suggestions to tackle the challenge.
CPPCC member Ding Lieming suggested that companies should be granted autonomy to set prices of innovative drugs for a five-year period. He emphasized highlighting the clinical value of innovative drugs in medical insurance negotiations to ensure reasonable pricing, and increasing reimbursements in medical insurance to cover these new drugs.
Wu Depei, a CPPCC member and professor from the First Affiliated Hospital of Soochow University in Suzhou, suggested establishing protections for high-value innovative drugs with independent intellectual property rights, allowing them to be sold at regulated prices during a set period.
The government has taken steps to reform pricing of innovative drugs. In late January, an implementation plan for pilot reforms in Shanghai’s Pudong New Area allows new biopharmaceutical drugs to be priced based on international market comparisons.
Similarly, the National Healthcare Security Administration on February 5 released a draft on establishing a pricing mechanism for newly launched chemical drugs to encourage innovation and solicited feedback from industry associations. The draft proposes granting products with higher innovative value greater freedom in setting their initial prices.
Despite these efforts, several interviewed analysts expressed their concerns about China’s ability to innovate.
They emphasized the need for robust basic research and innovation that aligns with clinical needs. While China is a leader in biopharmaceutical research, its basic research capabilities still need to be strengthened to drive original innovation, Li Ning noted.
Ding Sheng pointed out that the majority of Chinese companies currently focus on follow-on innovation. “Domestic research is still at a stage of winning by quantity. Not every company has differentiated products,” he explained.
It is critical to advance the understanding of the causes of diseases, which depends on the progress of basic research, Ding Sheng said.
With only a few new internationally recognized drugs under its belt, China needs to enhance its capabilities and increase production of innovative drugs to match its scale, Ding Sheng said.