Crouching dragons and hidden tigers: the emergence of China’s life sciences sector
"Our greatest glory is not in never falling, but in rising every time we fall"
China’s life sciences industry is still surprising some people in the West with how rapidly it is developing its technological and innovative capabilities.
Companies and researchers are working in laboratories and biotech parks across China to develop new drugs in a seismic shift in the country’s life sciences sector.
Emerging Chinese companies like 3SBio, Betta Pharmaceuticals, BeiGene, China Biologic Products, Hengrui Therapeutics, Henlius, and Zai Lab are increasingly making a name for themselves in innovative therapies.
Part of this shift is being driven by the dynamics of China’s economy and healthcare systems.
Over the last five years, China’s spending on pharmaceuticals has grown to reach US$ 123 billion, making it the second largest pharmaceutical market in the world after the United States. China is projected to reach US$ 160 billion by 2022, a growth of US$ 37 billion, meaning the country will contribute 13% of the growth in the total global pharmaceutical market. This comes as the Chinese Government is gradually introducing universal health coverage by expanding public healthcare and an insurance system to cover much of the population.
Source: Shawview Consulting analysis of iQVIA data from LEK. 2018. Heading East: Biopharma International Expansion to China and Asia, Special Report, p. 5, https://www.lek.com/insights/biopharma-international-expansion-china-and-asia, (accessed 9/11/2018).
A large part of the Chinese pharmaceutical market has for a long time been in generics and the Chinese industry has largely reflected this focus. But increasingly many established Chinese pharmaceutical companies, together with a growing band of newer Chinese biotech companies, are entering into research deals with Western pharmaceutical companies, like those between Kite and Fosun and Amgen and Betta.
In a further sign of the growth in innovation and technology in China’s life sciences sector, the number of pharmaceutical and biotechnology patents granted to Chinese organisations has grown significantly in recent years.
Source: Shawview Consulting analysis of World Intellectual Property Organization, IP Statistics Data Centre, https://www3.wipo.int/ipstats/, accessed 14/11/2018.
The growth in China’s innovative life sciences sector enjoys significant political support from the government. The government’s ‘Made in China 2025’ strategy includes a significant focus on pharmaceuticals and biotechnology as major contributors to China’s growing industrialisation. This is reflected in comments by the Chinese Premier earlier this year where he explicitly linked China’s shift to stronger intellectual property laws and better regulatory standards with the government’s push for China to develop its economy on the back of innovation and technology. And in a recent speech, the Vice-Premier has said that China will take steps to enhance its efforts to protect intellectual property.
There was genuine surprise in some quarters of the international pharmaceutical industry when China last year announced that it was significantly increasing its intellectual property protection for medicines. This includes
providing patent term extensions of an extra five years on top of the established 20 year patent terms for medicines
introducing data protection periods for clinical trial data of a minimum of six years up to a maximum of 12 years, and
introducing a patent notification or patent linkage system like the United States’ ‘Orange Book’ process that can assist in resolving patent disputes before generics enter the market.
The regulatory system is progressively being streamlined to reduce the time to approve new medicines, benefiting both domestic and foreign companies.
A bit over a year ago China abolished a previous requirement that foreign companies had to repeat clinical trials in China before they could be approved. The country also joined the International Conference on Harmonization (ICH) of Technical Requirements for Registration of Pharmaceuticals for Human Use Standards which sets international regulatory standards for medicines worldwide. China also recently cut its tariffs on a range of medicines to reduce prices for patients and consumers.
As well as improving the regulatory environment and lifting standards for patients, and perhaps giving greater access to foreign firms, in the long run these new standards will improve China’s own life sciences industry. In a classic Michael Porter-style regulatory reform, higher regulatory standards could ultimately lead to a stronger, more consolidated and competitive domestic industry sector.
These are all significant developments.
China is a major market for foreign companies. American, European and Japanese companies have featured in China’s life sciences health and industrial strategies. Last year China imported US$ 55 billion worth of medicines, a figure likely to grow with China’s ageing population.
Only last month, 17 new cancer drugs from a number of international pharmaceutical companies were added to the country’s National Reimbursement Medicines List after some significant negotiations between the government and companies leading to significant price cuts averaging more than 50%.
In a further sign that things are changing, foreign pharmaceutical companies are starting for the first time to seek regulatory approval for new medicines in China before getting approvals in the US and Europe. For example, AstraZeneca is taking a cancer drug to Shanghai and Beijing about a year before it is available in the US and Europe, as is Eli Lilly.
Japanese companies like Takeda and Astellas are also heavily engaged in the Chinese market. For Takeda, for example, China is its second biggest business after the US.
And, finally, China’s regulatory agency has just approved the first domestically developed medicine for colorectal cancer. This medicine was developed through a partnership between Chinese company Chi-Med and US company Eli Lilly. We are now starting to see Chinese-developed and Chinese-commercialised innovative medicines enter the Chinese market. One suspects we will increasingly see these Chinese-developed medicines in other countries soon.
However, the investment flow is not all one way.
More Chinese companies and investors have been appearing at international health investment conferences, such as the annual JP Morgan conference and are investing in biotech companies in places like the US, the UK and Australia. Chinese investors now account for almost 30% of all funding received by US biotech companies this year. R&D collaboration between Chinese and US companies is up 70% this year, with a series of deals being done between emerging Chinese and US biotech companies.
New technologies feature in China’s development. For example, already AstraZeneca is investing in smart diagnostic technologies and artificial intelligence in China, as well as having tie-ups with local companies TenCent and Alibaba. Digital health is growing in the country, the development of gene and cell therapies has continued growing, together with the development of CAR-T technologies for drug therapy and CRISPR gene editing therapies.
There is still more work to be done to lift standards and competitiveness in the sector.
Currently, Chinese pharmaceutical companies spend about 6% of revenue on research and development compared with 20% for US pharmaceutical companies, so there is room to grow here.
In a recent case described by Chinese President, Xi Jinping, as “appalling”, a company supplied a combined vaccine for diphtheria, whooping cough and tetanus to babies as young as three months old that was substandard and ineffective, having previously apparently tried to forge data relating to a rabies vaccine. Lawmakers responded literally a week later with draft legislation to tighten supervision of the medicines value chain and increased penalties.
The Chinese industry generally is developing its ethical codes in line with international standards and a lot of work has gone into this, an example being the recent upgrading the Chinese sector’s consensus framework on ethical behaviour.
In many ways, China’s industrial development strategy for its life sciences sector, with strong interventionist policies to drive investment in innovation and move the pharmaceutical industry up the value chain, mirrors the path taken by other Asian countries in the past. The pattern of developing capability in manufacturing generics, then active ingredients, then biosimilars and now its own innovative new medicines is a common path.
It also reflects a broader strategy that has been a feature of East Asian industrial development at least over the last 60 or 70 years.
It's increasingly likely that in the near future we will see more Chinese pharmaceutical companies achieving international standards and even bringing Chinese-developed new medicines to the global market.
Given past trends, this will probably happen quicker than many people expect.