China has rapidly evolved from traditional medicine and low-cost generics producer to credible originator, developing first-in-class medicines. But how successful might China end up being, and what does it mean for the rest of the industry?
For the last 200 hundred years, the principal originators of breakthroughs in modern medicine have come from Europe, North America, and Japan. There are signs there is a changing of the guard. Companies from emerging markets are increasingly bringing forward innovations of their own and are now featuring in our Pharmaceutical Innovation and Invention Indexes. Among these markets is China, which many market analysts predict will be an overall market leader in the next decade.
China is the fastest emerging market in our sector. With that growth, we have seen a marked shift in focus from process and systems innovation to product and service innovation. Beijing’s policy has shifted to stimulate homegrown companies and provide them with all the resources they need to innovate and compete domestically and internationally. As part of its “Made in China 2025” industrial vision, its ultimate goal for its pharmaceutical industry is to move the game on and create national champion pharma companies that can outperform in the domestic market and challenge for superior market share abroad.
However, that’s not easy, especially from scratch. Originating and commercialising novel pharmaceuticals is a high-stakes, long-term game that requires vast sums of capital. With such high investment requirements, most Chinese-owned companies have been unable to afford to enter it. The Chinese state has anticipated this by hiking up expenditure on healthcare in GDP terms to approach that of EU5 markets. Billions of yuan have been poured into building an entirely new ecosystem for researching and developing new technologies – brand new world-class academic and research institutions, biotech hubs full of incubators and accelerators and for attracting and retaining world-class research talent. The results are tangible: Over 140 new pharma companies appeared between 2010 and 2020; more patent applications being filed than in the US; a swelling pipeline of innovative medicines destined for market.
Market success looks more assured at home. If we look to the IO space, for example, three novel and low-price Chinese PDx assets from Innovent Bio, Junshi and Hengrui have recently entered the domestic market. While those cancer immunotherapies have largely been focused on ‘faster-to-market cancer indications, I expect those companies to rapidly put a lot of additional shots on goals in the form of combination approaches across multiple tumour indications, and many of those shots will register. They will likely make a lot of hay while PDx agents from other multinationals are still held up in NDA review by the NMPA.
How much success Chinese-owned companies will have away from home is a difficult one to answer. Even with good data and low price, I wonder how well novel Chinese drugs will perform in global markets like the US, where there are already many established assets on formularies and across multiple indications. I expect strategic partnerships over the next 3-5 years to play a significant role in helping these companies generate data outside the far east and gain traction in markets outside the home. Recent news tells us this is the direction it’s going in, but ultimately, I don’t think China is just content to turn up. I think it wants to challenge for the outright win overseas. If Beijing follows its typical cross-sector mercantilist economic behaviour, then it’s a reasonable expectation. But I wonder how the industry responds to these forces. Yes, there are defensive strategies that I expect will play out. Still, I hope for a coordinated multi-state response that drives real innovation. We run a lot of scenario planning projects at IDEA, but that sounds like a fun simulation experiment to me.
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