China slowdown? Life sciences remains steadfastly immune

Print 02 November 2015
Shannon Ellis / BioWorld

SHANGHAI – Another year, another Shanghai October packed with conferences. But this time around, the angst of regulatory and reimbursement challenges has been replaced with a growing realization that the momentum of change is accelerating, even if there is considerable unease around how to make the most of it.

In Changshu, a town two hours outside of Shanghai, known for its teahouses and lakes as well as its biomanufacturing, such voices could be heard at the 8th annual ChinaBio Leadership Retreat. An invitation-only event sponsored by the local government and organized by the ChinaBio group, it offers a unique opportunity for returnee entrepreneurs in local biotechs to hobnob with pharma executives, medical device and diagnostic companies, venture capital financiers as well as lawyers and other industry professionals.

Greg Scott, the founder of ChinaBio, a consulting firm based in Shanghai and San Diego, opened the retreat with a state-of-the-industry talk packed with the year's numbers in several dealmaking categories. Many of those he described as explosive, seemingly impervious to the onslaught of bad news and the Chinese economy's overall GDP slowdown.

While China is looking at 6.9 percent GDP growth, the worst since 2009, few on the ground here forget that is still a far higher growth rate than anywhere else in the world. China has moved up the ladder swiftly, trading in its slot as the ninth biggest pharmaceutical market in 2007 to become second largest in 2014.

And Scott predicted China will make it to the top by 2020.

The life sciences sector in China is thought to be growing somewhere between 10 percent to 15 percent annually. While it is tough to be accurate, ChinaBio predicts $100 billion was invested in life sciences last year, with about 80 percent coming from a multitude of government sources. By 2020, it is likely the continued government support will get the level of investment in the life sciences to more than $1 trillion.

The aging of the country is a major driver, with the elderly expected to account for a third of the population – thus it is no surprise that chronic disease is growing by 20 percent to 30 percent per year and there are significant incidence rates for diabetes (10 percent and higher), chronic obstructive pulmonary disease (10 percent) and hypertension (25 percent).

On the other end of the spectrum, China's 300 million members of the middle class are booming and demanding high-quality health care, said Scott. Getting richer, along with an expanding aging population with unmet medical needs makes the opportunities in China still highly attractive.

And venture capital has not failed to take note. In China, the life sciences sector saw a 70 percent increase in venture capital investment in 2014, to reach $1.7 billion. As of last quarter, total VC investment – for announced deals – is coming close to toppling last year's record, already at $1.5 billion with still three months to go.

Two notable beneficiaries of VC support, Innovent Biologics Inc. and Beigene Co. Ltd., each received $100 million in venture financing this year. However, those were dwarfed by investments in other areas of life sciences: Guahao.com in the digital health space received $394 million and Mevion Medical, in medical equipment, took on $200 million in investment.

DEALMAKING ON THE RISE

Labeling it explosive, ChinaBio reported that the partnering deal total for the sector overall has jumped from $1.8 billion to $3.2 billion in less than a year. With a far smaller number of deal transactions in 2015, the average deal size has gone from $50 million to $143 million. The most interesting deals in that category have been PD-1 deals for ex-China rights: Jiangsu Hengrui Medicine Co. Ltd.'s deal for one asset with Incyte Corp. for $795 million and Innovent's two-program deal with Eli Lilly and Co. for $1 billion. (See BioWorld Today, Sept. 3, 2015, and Sept. 4, 2015.)

In-licensing remains by far the favorite deal type, with 41 percent of the partnering deals taking that route. In second place are co-development deals, constituting 23 percent of the total.

Cross-border partnering made up 90 percent of the deals and, Scott said, are driven by companies seeking Western technology; 30 percent of the deals are for biologics.

The regulators saw an overwhelming 17 percent rise in investigational new drug applications (INDs) and new drug applications last year – a figure that was already growing by 7.5 percent per annum in previous years. The extra thousand applications put the total number at 8,900 received last year – creating a 21,000 application backlog. Out of the thousands, 454 were biologic applications while 521 were filed as traditional Chinese medicine (TCM).

That has not stopped drug developers from adding China to their multicenter regional trials (MRCTs) –11 percent of trials in China are MRCTs – and the number of MRCTs conducted in China has quadrupled in short order, going from 194 trials in 2010 to whopping 809 studies in 2014.

Even with a considerable backlog of 21,000 applications, some managed to get IND approval in 2014. While 84 percent of those that did receive the IND green light were chemical drugs, 11.8 percent were biologics. In the chemical 1.1 category for truly innovative compounds, 68 were approved, or 8 percent of the total.

While the imported drug pathway and much of the backlog look set to be distant memories within the next two to three years given the pending regulatory overhaul, it will undoubtedly impact the major players. In China, about a third of the IND applicants are using the imported drug pathway. While five multinational corporations represent 57 percent of all IND approvals: Novartis AG, Bayer AG, Pfizer Inc., Astrazeneca plc and Merck & Co. Inc. unit MSD.

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