China’s Pharma Industry Rises: Taking on Market Giants
“The annual JPM conference is always a prime opportunity for active transactions in the pharmaceutical market, and this year Chinese pharmaceutical companies have more collaboration opportunities than ever before,” said Li Ning.
Li Ning is the Vice Chairman of Junshi Biosciences, a domestic innovative pharma company, and a veteran attendee of the JPM conference for nearly 10 years. The JPM conference, also known as the J.P. Morgan Healthcare Conference, is the most highly anticipated annual event in the pharmaceutical capital market. In January of this year, the 42nd JPM conference was held in San Francisco, USA, with over 20 Chinese innovative pharma companies invited to deliver speeches. Multiple domestic pharmaceutical companies reached collaborative agreements with multinational pharmaceutical companies during the conference.
The excitement at the JPM conference is just a microcosm of the fervor surrounding the global expansion of Chinese innovative drugs. Since last year, multinational pharmaceutical companies have started a “shopping spree” in China. According to incomplete statistics, in 2023, there were over 50 overseas licensing deals for Chinese innovative drugs, with a cumulative transaction amount of approximately $43.11 billion, representing a year-on-year growth of about 56%. The number of projects authorized by Chinese innovative drug companies for foreign licensing has surpassed the number of projects introduced from overseas to China for the first time. At the same time, the number of new drugs approved by the U.S. Food and Drug Administration (FDA) in China last year has also grown rapidly.
Record High Number of Overseas Expansions
Xue Tongtong’s daily schedule is now almost entirely filled with work meetings, sometimes lasting until one or two in the morning. Since his company began expanding its overseas business last year, this has become the norm.
He is the founder, chairman, and CEO of Suzhou Yilian Biopharmaceutical Co., Ltd. (referred to as “Yilian Biopharma” hereafter), an innovative drug company specializing in the research and development of Antibody-drug conjugates (ADCs) since its inception. From October of last year to the present, Yilian Biopharma has successively reached two overseas licensing collaborations with the German pharmaceutical company BioNTech and Roche Pharmaceuticals for its two ADC drugs, YL202 and YL211, with a total transaction amount exceeding $2 billion.
Similar to many founders of startup biopharmaceutical companies, Xue Tongtong has a background in the biopharmaceutical field. He stated that he caught the opportune moment of China’s pharmaceutical industry transitioning from generic drugs to innovative drugs.
In December 2019, when an ADC drug developed by Japanese pharmaceutical company Daiichi Sankyo received FDA approval for market launch, the global ADC drug field became extremely active. In the past year, there have been numerous acquisition deals in the global ADC drug market, some reaching billions of dollars, making these drugs the undisputed “kings” of the industry.
ADC drugs are currently the “hottest commodity” in the pharmaceutical industry, consisting of three components: antibodies, linkers, and small molecule toxin drugs. The design of these drugs requires careful consideration of the composition of these three parts and their rational combination. Competitive ADC drugs also need to have novel drug targets and strong molecular design, making them highly challenging to develop. Depending on the composition and combination, ADC drugs can be used to treat various cancers such as leukemia, breast cancer, and ovarian cancer. Zhang Lianshan, Director and Deputy General Manager of Hengrui Medicine, a domestic innovative drug company, told the journalist that ADC drugs can be seen as a more precise form of targeted chemotherapy, surpassing traditional chemotherapy in clinical efficacy, and reducing its side effects. Therefore, they are also known as “biological missiles.”
Since the first overseas licensing deal for domestically produced ADC drugs was established in 2021 until December of last year, there have been more than 20 instances of overseas licensing deals by domestic companies. Overseas licensing refers to pharmaceutical companies selling part or all of their product or technology platform rights to overseas pharmaceutical companies, also known as “taking advantage of someone else’s strengths to go global.” Zhang Lianshan stated that the long-term neglect of ADC drug development by foreign companies has created many opportunities for Chinese pharmaceutical companies. In the field of ADC drugs, Chinese pharmaceutical companies are currently catching up with and surpassing certain multinational pharmaceutical companies, becoming a highland for ADC drug research and development. There are numerous clinical trials of ADC drugs being conducted in China, involving a wide range of pharmaceutical companies, and multinational pharmaceutical companies frequently acquire ADC pipelines in China. Moreover, China has a complete chemical industry chain and strong capabilities in pharmaceutical research and development, making it naturally suitable for ADC drugs.
Looking at the overall model for domestic innovative drugs going global, overseas licensing has become the preferred choice for domestic pharmaceutical companies. Zhou Shuhua, Chief Analyst at Citeline, stated that going global is a process of resource integration between pharmaceutical companies that leverages each other’s advantages. In recent years, domestic pharmaceutical companies have been producing a series of innovative drug achievements, but they are mostly limited to research progress. Even for biopharmaceutical companies that already have two or three commercialized products, many of them are still in a financial deficit. The clinical development and commercialization expansion of innovative drugs require cooperation with multinational pharmaceutical companies as partners to explore the global market, making overseas licensing an inevitable choice for many companies at the current stage.
In addition to overseas licensing, in 2023, the number of Chinese innovative drugs approved for market launch in the United States also reached a recent peak. According to data disclosed by Debon Securities in January this year, from the end of 2019 to the end of 2023, a total of eight domestic drugs have been approved by the FDA in the United States, with five approvals in 2023. Among them, three pharmaceutical companies, Junshi Biosciences, Hengrui Medicine, and Yifan Pharmaceutical, had their new drugs approved in the second half of last year.
In October of last year, Junshi Biosciences announced that their independently developed PD-1 monoclonal antibody drug, Toripalimab(Tuoyi), received FDA approval in the United States. Tuoyi received approval for two indications, covering the full-course treatment of recurrent and metastatic nasopharyngeal carcinoma, becoming the first drug approved for nasopharyngeal carcinoma treatment in the United States. Around the same time as Junshi Biosciences’ new drug approval, in early November of last year, HutchMed’s original innovative drug, Fruquintinib, received FDA approval for the treatment of adult patients with metastatic colorectal cancer. Fruquintinib belongs to the category of small molecule anti-tumor original innovative drugs. Currently, there are multiple innovative drugs in China waiting to “break through” the European and American markets, and it is expected that more Chinese innovative drugs will be approved for market launch in the United States in the coming years.
Expanding into Southeast Asia
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The European and American markets have always been the preferred destinations for domestic innovative drugs to expand overseas. However, at the same time, on one hand, the high application thresholds for the launch of innovative drugs in the European and American markets exist. On the other hand, with the characteristics of Southeast Asia, including a pharmaceutical market worth billions of dollars, a population of 650 million, and weak pharmaceutical industry infrastructure and independent research and development capabilities, the Southeast Asian region is becoming a new choice for domestic innovative drugs to expand overseas.
Fosun Pharma is one of the pioneers among domestic innovative pharmaceutical companies expanding into Southeast Asia. In 2019, Fosun Pharma partnered with Indonesian company KGbio to grant exclusive development and commercialization rights for its innovative anti-tumor drug, Serplulimab (referred to as “H drug”), for certain indications in ten ASEAN countries. H drug is a self-developed anti-tumor innovative drug by Fosun Pharma. At the end of last year, H drug was approved for marketing in Indonesia for the treatment of extensive-stage small-cell lung cancer. The first batch of shipments to Indonesia was completed on January 25th this year. Currently, H drug has been authorized for use in over 70 countries and regions worldwide.
Junshi Bio is also expanding its presence in Southeast Asia. Its Toripalimab(Tuoyi), which has gained approval for the indication of nasopharyngeal cancer, has opened the door to the US market. According to Li Ning, nasopharyngeal cancer has a relatively strong regional distribution, with the majority of patients concentrated in southern China and Southeast Asia, while the number of patients in the United States is relatively low. It is estimated that there are around 2,000 new cases of nasopharyngeal cancer in the United States each year, compared to a total of approximately 100,000 cases in China and Southeast Asia. Compared to European and American countries, some Southeast Asian countries may have a higher acceptance of clinical data for Chinese drugs due to the absence of racial differences.
In addition to these two pharmaceutical companies, many domestic pharmaceutical companies, including Xinda Bio and Fosun Pharma, are expanding into the Southeast Asian market, investing heavily. However, it is not easy for domestic innovative pharmaceutical companies to tap into the Southeast Asian market. In the view of Zhou Shuhua, the European and American markets are mature pharmaceutical markets with relatively transparent and predictable regulations. The pharmaceutical environment in Southeast Asia is more complex, and domestic pharmaceutical companies are still exploring the Southeast Asian market.
Fragmentation is one of the core characteristics of the Southeast Asian region. This highland targeted by domestic innovative pharmaceutical companies encompasses 11 countries with varying levels of economic development, more than 10 languages spoken, and diverse religious and cultural practices. These fragmented differences result in policy regulations, market thresholds, regulatory rules, pharmaceutical company research and development capabilities, and market payment levels that differ from those in China in various aspects, which can make it challenging for domestic innovative pharmaceutical companies to enter the Southeast Asian market. Even large domestic innovative pharmaceutical companies find it difficult to succeed in the Southeast Asian market solely on their own, and the majority of them choose to find “partnerships” to ride on.
In March of last year, Junshi Bio and Singaporean company Rxilient Medical established a joint venture and granted the joint venture company the development and commercialization rights for Toripalimab(Tuoyi) in nine Southeast Asian countries. “The team from the Singaporean company has rich experience in registration and commercialization in multiple countries in Southeast Asia, which is a significant complement for us,” said Li Ning. Among the 11 Southeast Asian countries, Singapore is highly favored by domestic pharmaceutical companies. Since 2020, domestic pharmaceutical companies such as China National Pharmaceutical Group, Sinovac Biotech, and Kingsley Pharmaceuticals have successively established factories in Singapore.
Source innovation still needs to be strengthened
Alongside domestic innovative drugs, there is also the domestic pharmaceutical innovation ecosystem.
Suzhou and Shanghai are the two major gathering places for domestic innovative pharmaceutical companies, and both cities are at the forefront of policies supporting innovative drugs. “These are the two factories of Jusha Bio, located in Suzhou and Shanghai, for fundamental reasons,” said Li Ning. He mentioned that government support in terms of funding is secondary, and more importantly, policy support, such as the implementation of policies to attract overseas talent, has been of great help to companies. The biopharmaceutical industry relies heavily on talent innovation. Li Jizong, Director of the Shanghai Biopharmaceutical Science and Technology Development Center, told that among the founders or executives of biopharmaceutical innovation companies in Shanghai, there is a relatively high proportion of individuals with overseas study backgrounds.
Li Ning has also clearly felt the changes in the overall environment for domestic innovative drugs. He stated that before the pharmaceutical reform in 2015, it took 1 to 2 years for pharmaceutical companies to apply for investigational new drug (IND) clinical trial approvals. Now, it only takes 1 to 3 months, and the original China Food and Drug Administration also implemented a clinical implied approval system at the end of 2018. This puts domestic innovative pharmaceutical companies on the same starting line as overseas innovative pharmaceutical companies in terms of new drug approvals. In terms of quantity, more than a decade ago, genuine domestic innovative drug companies were rare, mainly focusing on developing me-too drugs (i.e., modifying existing drugs to create imitations). Now, there is a combination of me-too drugs and genuine innovation.
Why has the trend of innovative drugs going overseas become popular? Chen Yuan, a senior executive of a well-known listed pharmaceutical company in China, stated that innovative drug research and development is a high-risk, high-investment field. Taking PD-1 drugs as an example, the research and development investment of the first few approved domestic pharmaceutical companies exceeded 4 billion RMB, with even lower investments exceeding 2 billion RMB. However, this is only considered fast-follow innovation, not true source innovation. But with intensified competition and decreasing pricing in medical insurance coverage for domestic PD-1 drugs, many companies may not even be able to recover their research and development costs. Chen Yuan believes that the current payment policies for innovative drugs are not friendly to companies. At the current stage, China lacks a good soil for the survival of innovative drugs. For innovative drug companies with significant investments, seeking overseas opportunities has become an option.
Ding Sheng’s analysis indicates that due to factors such as centralized procurement and medical insurance negotiations, domestic companies involved in innovative drug development are not actually profitable. Starting from 2022, the trend of domestic innovative drugs going overseas has been on the rise. For companies, this is a survival necessity. However, only a few pharmaceutical companies are able to go overseas, and going overseas is ultimately just a stimulating measure. Domestic prices for innovative drugs are generally at a lower level. After several innovative drugs go overseas, their prices are significantly higher than in domestic markets, with price differences reaching more than 30 times. For example, Jushi Bio’s Toripalimab（Tuoyi）has a wholesale purchase price of $8,892.03 per bottle in the United States, which is approximately equivalent to 62,982 RMB. In China, the same drug of the same specification is priced at 1,912.96 RMB, resulting in a difference of 32 times. HutchMed ‘s fruquintinib is priced 24 times higher in the United States compared to China. In recent years, the government has started to pay attention to the pricing of innovative drugs and has implemented a series of policy measures. To support the development of innovative drugs domestically, companies should be allowed to autonomously price their products based on market behavior.
Only fertile soil can grow good crops. For innovative drugs, “fertile soil” represents rich and extensive basic research as well as innovation based on clinical needs. Technically speaking, China’s biopharmaceutical research and development is already at the forefront globally, but there is still a need to strengthen basic research capabilities.
