In China, when the going gets tough, the tough go local

Print 30 September 2016
Shannon Ellis / BioWorld

SHANGHAI – Increasingly in China, innovation is meant to be a local game to create local champions, and foreign firms are lining up to find ways to be a part of the action, both big and small.

Gone are the days of double-digit growth, when multinational corporations (MNCs) in China could rake in relatively easy profits. Yet there remains optimism that the drug market in China will enjoy steady 7 percent growth over the next few years due, in part, to an expected twofold increase in household income in the next decade, and an aging population where 278 million will be over the age of 65 by 2020.

With health care spend expected to hit $1 trillion by 2020 – by comparison, the U.S. spent $3 trillion on health care in 2014 – tapping into that sizable growth opportunity increasingly means foreign drugmakers need to be more creative about which products they decide to launch and how they do it.

According to McKinsey and Co.'s Gaobo Zhou, who spoke at the recent Biopartnering APAC event in Shanghai, China, faces an innovation imperative as it transitions to a "new normal." He said he sees the China health care innovation ecosystem entering a phase of accelerated development, providing pharma a significant opportunity to help cultivate a stronger ecosystem while tapping into the burgeoning innovation.

That means it is no longer business as usual for foreign firms who have been going it alone, selling off-patent generics and imported drugs. For one, regulatory approvals have historically been two to four years slower for applications from MNCs when compared to Chinese firms – and even slower for less well-connected foreign biotechs, especially if they lack an on-the-ground presence in China.

"Although there is no rule that says [regulators] prefer local companies, in practice there is more flexibility and better communication with local companies; things move faster than it does for a MNC or foreign biotech," said Jimmy Zhang, managing director at CL Investment Group and speaker at 2016 Healthcare Capital and Connections Summit in Shanghai, co-organized by the Silicon Valley Bank and Vivo Capital.

Zhang suggested foreign biotechs look for local partners, explaining that "if you license the foreign IP [to a local partner] it is treated as a local asset." By way of illustration, he pointed to local biotech Ascletis Inc.'s success at getting its Roche Holdings AG-partnered hepatitis C candidates so far and so fast into the clinic in China, while the global leader in hepatitis C, Gilead Sciences Inc., remains behind.

The innovation imperative as it relates to biotech has been set out in policy blueprints like the 13th Five Year Plan and President Xi Jinping's Healthy China 2030 plan, announced in August; it's the first health plan to come down from the highest levels of the central government (the previous Healthy China 2020 plan was a MoH initiative). True to form, those government plans set out specific targets for China's innovation: five national biopharma champions and 25 to 30 innovative products. Those figures were shared in a presentation given by Xianghong Shao, business development director at Pfizer Inc.

And Pfizer, the market-leading MNC pharma in China, is listening. The firm is getting ready to roll out a new approach to partnership called iChina. Still in a soft launch phase, Shao said it will be an indigenous innovation platform that integrates international capabilities, systems and cultures into the local R&D system. Pfizer execs make no bones about looking to benefit from "insider status" to gain a "first mover" advantage that will accelerate the speed with which Pfizer's assets can reach patients via the CFDA green channel. They also hope to shape and evolve a sustainable regulatory environment and increase access to new drugs, given that getting paid for innovative products remains an ongoing challenge.

In return, it is intended that China will benefit from an accelerated transition to an innovative ecosystem. Efforts are aimed at catalyzing an upgrade in local R&D capabilities, addressing high unmet medical needs and creating a world-class R&D ecosystem for China and the global market.

Most crucially, Pfizer would transfer certain aspects of IP and would manufacture locally, while commercial rights would remain flexible. Such concessions are music to the government's ears, and the intended consequences of the CFDA regulatory reforms that came through last year.

But for Pfizer to succeed the big pharma will need to think outside the box. It is not the first big pharma trying to partner with entrepreneurs or to branch into open innovation in China.

MARKET IS IN THE WEST

In China, innovation is more about iterative improvements and creative tactics, not about what gets pharma really excited: new targets. A former employee from J&J Innovation Labs in Shanghai shared that it was such a challenge to find first-in-class projects that meet the standards of big pharma. J&J ended up forming a startup incubator with Wuxi Apptec. (See BioWorld Today, June 17, 2015.)

President and CEO of Acea Biosciences Inc., Xiao Xu, backed that up. "First in class is not coming from China anytime soon, but there are other ways to define innovation."

Instead, he said, it is more about "how to utilize China resources to facilitate or translate early innovation to develop a new drug for the market; speed is most important. The key point is not, where does the idea come from? It comes from abroad. But if you work with world leaders, you can use China resources in early and late-stage development to have a significant benefit."

Acea has offices in both Hangzhou and San Diego. Like some of China's leading biopharmas – Jiangsu Hengrui Medicine Co. Ltd. and Beigene Co. Ltd. – it also aims to be local in the U.S., setting up teams to shepherd the firm's best assets through the FDA system.

When asked whether execs invest money in China or the West, Lianshan Zhang, vice president, R&D from Shanghai Hengrui Pharmaceutical Co. Ltd. replied, "Our dream is to get approval from FDA for an innovative drug. We have a large number of patients in China, but the market is in the West."

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