China’s drug innovation – Is it at a tipping point?

Print 16 November 2015
Shannon Ellis / BioWorld

SHANGHAI – Chinese innovation has long been a fraught topic: Does China have it? If so, what is it? When will it be globally relevant? And, if you want to really get people going just ask if China can innovate at all. Some are optimistic that China is on the right path to become a true global innovation participant. McKinsey & Co. decided it was time to tackle this hot topic in its own fashion with a survey of industry leaders who have one foot in China and the other abroad.

The survey was conducted in conjunction with Bay Helix, a nonprofit group actively embedded into China’s innovation ecosystem.

“What we intended to do was instead of us having that debate based on a hunch or instinct, was to put more assessment or rigor into that discussion. So that is how we decided to start on the China Drug Innovation Index (CDII) survey in collaboration with Bay Helix,” McKinsey partner and survey architect Fangning Zhang told BioWorld Today.

This is their first go-round in what is intended to be an annual exercise that also includes objective research and statistic review.

So how does one assess innovation when so little of it is tangible?

China’s Nobel-winning antimalarial medicine, artemisinin, aside (a drug that was discovered in the 1960s), China has not delivered a commercially relevant new drug to the world. When there is little innovation output, the challenge then becomes how to assess the ingredients, or inputs, that are known to be necessary to make innovation possible.

“The U.S. has been going through the process of building up its innovation ecosystem over several decades and has a sufficient track record showing they are the innovation leader,” explained Zhang. “China is five to 10 years into its journey. The challenge for pharma innovation is it takes a long time, from discovery to patient can take about 10 years. To get a sense of the momentum of China pharma innovation, we looked at not just the outputs, but the inputs, in terms of what is feeding the R&D pipeline.”

From the headlines, it certainly feels like the momentum for China’s innovation has accelerated.

The year kicked off with a bang when Shenzhen-based Chipscreen Biosciences Ltd. launched Epidaza, a selective HDAC inhibitor. And sizable deals between big pharma and local companies have become ever more regular occurrences: Innovent Biologics Inc., of Suzhou, and Eli Lilly and Co., of Indianapolis, signed two biologic partnership agreements for close to $1.4 billion. Zai Lab Ltd., of Shanghai, secured four assets with three different multinational companies (Bristol-Myers Squibb Co., Sanofi SA and UCB SA). And, Jiangsu Hengrui Medicine Co. Ltd., of Shanghai, out-licensed a PD-1 to Incyte Corp. for a record-breaking $750 million, the largest such deal for a single asset.

The McKinsey CDII survey affirmed the pace of dealmaking. According to those surveyed, 90 percent replied that China drug innovation accelerated last year, with 50 percent stating it had significantly accelerated. The majority of R&D leaders stated that China could become a top contributor or a solid second-tier player in global drug innovation by 2025.

Drilling down deeper, the survey assessed innovation inputs covering policy, funding, capabilities, local innovation and integration with global. These were assessed on a scale from one to 10, with the U.S. pegged as a reference at eight. In that light, China’s innovation looks less exciting: The overall average score for China was 4.2 out of 10.

THE LOW SCORES

For Zhang, who presented the survey under the title, “Is the next decade a golden era for China drug innovation,” the issue is not about where China is today, but the accelerated pace of change that will let it catch up on decades of experience.

The two input areas where respondents gave China the lowest marks were for policy, (3.1), and integration with global (3.6), but showcase how factoring in the rate of change is instrumental to seeing a more nuanced big picture.

For instance, although policy ranked the lowest, the good news is that the CFDA is planning unprecedented reforms to speed up regulatory approvals and support innovation. These were announced near the end of the survey, and much of this good news still needs to be fleshed out.

But the reforms fail to cover who will pay for innovation – those high-priced drugs that can break budgets, which remains a key a challenge, or what Zhang calls the “elephant in the room” nobody wants to talk about.

One unnamed respondent quoted in the survey said, “It is very challenging for pharmacos to recoup R&D investment if innovative drugs cannot be listed on the National Drug Reimbursement List (NRDL). One of our cancer drugs is still not listed on the NRDL eight years after launch.”

The low score for global integration, seen in part as participation in cross-border clinical trials, is also a fast-changing regulatory issue. CFDA reforms this past year had thrown many multi-regional clinical trials plans into a tailspin – but the latest wave of reforms looks set to strongly encourage China participation in global trials.

THE BETTER SCORES

Where China fared a bit better, and where there is more room for optimism is in its capabilities (scoring 4.0) and on local innovation (scoring 4.7).

China is blessed with students in the thousands who have been trained in science, both abroad and also at home. The respondents were asked to rate the quality of R&D talent available in China today, across discovery, clinical development and chemistry manufacturing controls. A hurdle these well-trained scientists face is often real world experience. Of the three, clinical development ranked 4.6, while CMC (Chemistry, Manufacturing and Controls) ranked 5.

In terms of local innovation, the survey found the novelty and quality of innovation in China is still lagging. The survey points out that China’s levels of patent and investigational new drug (IND) applications are still a fraction of those emerging in the U.S. (17 percent and 22 percent in 2014, respectively); however, the growth trajectory of both has been strong.

China patent filings are growing at 18 percent a year, while IND applications are growing at 33 percent. U.S. growth is in the single digits.

The survey quoted an unnamed investor as stating, “Today the majority of Chinese companies are focusing on “me-too” and “me-better” targets in drug R&D with few exceptions, such phenomenon is probably driven by the fact that pharmacos need to establish credibility and demonstrate progress on innovation. Going forward I hope these companies will also invest in new MOAs and first-in-class as they build up R&D scale and capabilities.”

THE HIGHEST SCORE: FUNDING

The highest ranking overall was for funding (5.4), demonstrating access to cash was viewed as less of an issue.

Chinese start-ups ranked ease of obtaining government funding the highest followed by private capital. Obtaining debt financing was ranked at the very bottom.

The survey also pointed out that funding raised by Chinese innovation companies has been growing in past 12 months. Firms have been raising large amounts of venture capital with Beigene Co. Ltd., of Beijing, attracting $172 million over two rounds, and Innovent brought in $100 million. The first wave of IPOs are also expected: last month Beigene and Hutchison China Meditech Ltd. each filed for Nasdaq listings to raise $100 million.

So while China is not where it wants to be on the global stage yet, with clear gaps that have to be bridged, the elements are all in place for even more accelerated momentum, said Zhang. “Pharma companies, both MNCs and local, have significant opportunity to contribute and strengthen the ecosystem in next decade.”

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