During a discussion about the future direction of immuno-oncology pharmaceuticals at the Annual ChinaBio® Partnering Meeting held in Suzhou, China, last May, one point of disagreement among the panelists was whether the number of Chinese companies targeting development of a specific group of antibodies (PD-1 & PD-L1) for therapeutic use totaled 50 or 100 companies.
The irony of this discussion is this: less than a decade ago, generics accounted for more than 90 percent of China’s pharmaceutical industry and despite formal economic development programs designed to foster innovation, generics still compose 80 percent of domestic market share.
Lack of proper staff resourcing and prioritization by China’s FDA (CFDA) have resulted in long delays in drug development, which has thwarted attempts by foreign multinational drug companies (MNCs) and research-oriented domestic companies from bringing innovative drugs to Chinese patients. Today, less than 25 percent of newer drugs available to patients in western markets are available in China. While nine out of the top ten drugs sold in the world are biologics, eight injectable, China accounts for very limited use of these blockbusters.
This, however, is changing. Recently enacted changes in CFDA regulatory policy is expediting drug approval pathways and permits research-based companies to defray huge capital expenditures by allowing the outsourcing of manufacturing. Combined with a doubling of CFDA review staff, a plethora of innovative Chinese biotech companies have emerged and are engaged in research to bring biosimilar copies of western biologics and bio-better versions to market.
These developments have not gone unnoticed by the investment community and astute MNCs.
Innovative Chinese biotech startups staffed by “Sea Turtles” – native Chinese professionals who have returned to China after completing years of academic and industry training among western-based global pharmaceutical companies – have received venture, government and institutional funding. Two distinct business models have emerged among these new companies.
First is a biotech model based on phased development of early staged molecules in-licensed from or partnered with major western pharmaceutical companies for clinical development in China. These are best exemplified by Zai Labs, Hua Medicine and US NASDAQ-listed Beigene.
The second approach is more operational and service oriented. It involves establishing biomanufacturing capabilities around a core portfolio of biosimilar/bio-better development projects of leading innovator biologic products. This model is best represented by Innovent Biologics and Taiwan-based JHL Biotech both of which closed major funding deals in recent weeks.
While both models bring a more clinically oriented and technically complex form of innovation to the traditional, small-molecule generics manufacturing that dominates China’s domestic industry, neither has as their primary focus the type of novel, highly-intensive research programs required for pursuing new drug targets with undefined mechanisms of action. This remains, when successful, the money shot of world-class pharmaceutical companies.
There is no monopoly on scientific excellence. Yet arguably, the most difficult aspect of drug development is not the science, but the ability to translate that science into clinically relevant products that meet the efficacy and safety milestones mandated by major regulatory authorities for approval and registration. It took Big Pharma decades to cultivate the human capital and refine the technical and supply chain ecosystems required to execute and support the difficult translational feat. Even with the transferable precedent of having an established industry to emulate and recruit from, it took the few successful Big Biotechs a generation to achieve the same level of competence.
China has demonstrated a level of industrial development unsurpassed in modern history. However, developing the required capabilities to achieve world-class pharmaceutical innovation is not easily replicated* and will take unwavering long-term commitment and patience.
These truths weren’t lost on the Chinese government and explain why the CFDA specified the principal way that a foreign innovative drug could qualify for the new, expanded Fast Track Drug Approval pathway will require transferal of manufacturing capability and/or clinical drug development in China simultaneous with global scale-up and clinical programs, not after the fact.
The quid pro quo for MNCs is simple:
Innovative, cost-effective foreign drugs will receive an expedited regulatory review and access to the largest potential market in the world, if China is given the required expertise for local training and participation in drug development and complex manufacturing.
A case can be made that the two business models spearheaded by western-trained Sea Turtles represent the first phase toward China’s goal of fostering a domestic biopharmaceutical sector capable of world-class biomedical research and development on par with Western MNC innovation. Chinese biotechs following the in-license and development model have established relationships with Western companies. Examples are Zai Labs (Sanofi, BMS, GSK), Hua Medicines (Roche) and Beigene (Merck).
Operational/service-oriented Chinese biotechs have established strategic alliances involving their biosimilar/bio-better portfolios wherein they are responsible for manufacturing, clinical development and registration within China, while the Western alliance partner retains most geographic commercialization rights with possible in-country options.
Together, these approaches, are the best of both worlds for MNCs and Sea Turtle licensee/alliance partners. The Chinese start-up obtains money and/or drug IP and is allowed to execute their development and business plans in China. MNCs have a chance to monetarize IP they had corporately passed on and obtain access to biosimilars/bio-betters, all in the second largest and soon to be largest drug market in the world.
I would state that the strategic driver propelling this early phase of modern pharmaceutical innovation in China is the unspoken back-story.
For many reasons, MNC pharmaceutical executives are reluctant to undertake drug development in China even though they understand the importance China will have in their long-term corporate survival. They have experienced long delays and inconsistencies in attempting to register new drugs in China and, as exhibited by the original “Green” Fast Track Drug Pathway, Chinese companies have historically received priority treatment by the CFDA.
Today, the quality-driven, western-style business approach pursued by Chinese Sea Turtle companies instills confidence in MNC HQ management, offering a direct and alternative route of access to Chinese innovation other than through their Chinese affiliates’ sales-oriented management. They perceive Sea Turtle companies as having tacit approval by the Chinese government since most have some government funding in addition to private Chinese sources.
In general, this first phase of modern Chinese pharmaceutical innovation will allow young Chinese companies to gain experience developing in-licensed drugs, biosimilars and new-and-improved bio-betters, but not the type of cutting edge, completely original new-class innovator therapeutics that make global companies.
Furthermore, while Sea Turtles are intent on following new CFDA guidelines for biosimilars that require phase III demonstrated biosimiliarity and safety comparability, the clear majority of Chinese companies are not. Instead, they are pursuing bio-generics, a sub-category of manufacturing biologic copies of innovator drugs predominately found in developing countries, not highly regulated markets.
At the annual BioCentury/BayHelix Healthcare Summit: The Bridge to Innovation in October, I raised a question to a panel of regulatory experts regarding this very issue:
“How can innovative Chinese biotechs like the Sea Turtles, who undertake all good practices in development and manufacture (GXP) to create and register their biosimilar drugs compete financially if much of China’s domestic industry is not following a similar regulatory path with their clinically undemonstrated bio-generics?”
The panel acknowledged that this IS the question. It remains a critical issue and one that the CFDA is going to have to definitively answer in the very near future.
Comparatively speaking, the Sea Turtles and similar innovation-oriented domestic Chinese companies are NOT imitating, they are innovating and this IS the critical difference that will be required for China’s emerging pharmaceutical sector to move to the next phase of pharmaceutical innovation and toward establishing world-class, research-based pharmaceutical companies.
David Deere is the chief commercial officer for PaizaBio, a U.S.-based contract manufacturing organization (fill-and-finish) with operations in Hangzhou, China.
* China’s biotech revolution ushered in by entrepreneurs, Andrew Ward, March 7, 2016, The Financial Times