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Depth How to boost the long-term confidence of China's innovative drugs (serial phase 1)

 Last Update: 2023-02-01
 Source: Internet
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About the author

Dr.
Yi Chen

Professor and researcher at the Institute of Hospital Management, Tsinghua University

GBI Principal Consultant

GBI

Dr.
Chen Yi currently serves on the Board of Directors of the International Society for Market Access in Innovative Drugs (IMAS) and has nearly 20 years of executive experience in the multinational and local pharmaceutical industry, including an economist at the World Bank headquarters, a senior economic officer at the U.
S.
Department of Labor, and a research fellow
at the University of Pennsylvania.
His research interests include macro health policy, health economics, payment strategies and models of domestic innovative drugs, biotechnology development, medical insurance, new drug pricing reimbursement and market access
.

Since 2015, the development of innovative drugs in China has entered a rapid runway, and now it has basically formed an ecological chain of innovative drugs, and the competition pattern of the drug market has also risen from domestic generic drugs and foreign-funded imported drugs to three major sectors
: domestic generic drugs, domestic innovative drugs and foreign-funded imported drugs.
In addition, the average growth rate of clinical research and development of new drugs in China is close to 11%, the fastest
growth rate in different countries and regions around the world.
According to BCG's research, there are about 1,600 biotechnology companies in China, of which 60-70 local biotechnology companies have conducted clinical R&D and commercialization in the European and American markets
.
In 2019, the McKinsey report pointed out that China's "number of pre-market clinical R&D trials" and "number of new drugs on the market" contributed 7.
8% and 4.
6% to the global contribution rate respectively, and China rose from the third echelon of global pharmaceutical innovation to the second echelon, ranking with major countries such as the European Union and Japan
.

Although the development of innovative drugs in China is fast, it still has a long way
to go to achieve innovation in the true sense.
Compared with developed countries such as Europe and the United States, which have a history of systematic research on innovative drugs for more than 100 years, the development of innovative drugs in China started late and has a short
history.
More importantly, in the integration of key elements of the establishment of an innovation ecosystem, there is still a big gap
between us and developed countries in Europe and the United States in terms of source innovation, translational medicine, innovation culture, investment philosophy, supervision and payment system, and overall industrial chain structure.
At present, the total sales of innovative drugs in China account for only 3% of the global market, and China is still a large country
of generic drugs.
The proportion of R&D investment of China's innovative drug enterprises is low, the source innovation ability is weak, the investment in new drug R&D hotspots in some fields is excessively concentrated, the track is crowded, and the competition of similar drugs is excessive
.

This substantial gap has been exposed even more pronounced
today after the investment boom since 2018.
Especially due to the impact of the new crown epidemic, drug cost control measures, innovative drug financing challenges, etc.
, coupled with the difficulty of medical insurance payment and the tightening of international supervision, the innovative drug market as a whole has entered a trough of development
.
According to GBI data, in 2022, the total proportion of new product licensing and overseas authorizations has dropped to 50%
of the same period in the first half of 2021.
According to BCG data, the total investment in the biomedical track (PE/VC investment and financing events) also fell by nearly half compared with the same period last year, and many companies' Hong Kong stocks fell by more than 80%.

According to data from the National Bureau of Statistics from January to October 2022, the pharmaceutical manufacturing industry grew by -3.
8% year-on-year, and the pressure of innovative drug financing and continuous innovation is huge
.

GBI

What is the prospect of innovative drugs in the next few years? Are Medicare premiums sustainable in the long term? How to motivate the development of innovative drugs? Where is the core competitiveness of domestic innovative drugs? Can local companies "go overseas" open another door?

In the short term, adjusting business models, securing and increasing cash flow, streamlining R&D pipelines, strengthening collaboration, and reducing R&D and commercialization risks are all emergency solutions
to the current enterprise-level response.
However, the development of the innovative drug industry needs to pay more attention to the long term
.

Objectively look at the positive role played by the development of innovative drugs in China

Objectively speaking, the exploration of innovative drugs in just a few years from 2015 to 2018, although it has experienced twists and turns, has brought positive effects, which is of great
significance to the future development of innovative drugs in China.

01 The development of domestic innovative drugs marks the beginning of a new era of
domestic "import substitution" in China.

In the past 10 years, the national special policy guidance for major new drug creation, the introduction plan for scientific and technological talents, the reform of the drug review and approval system, and the explosive growth of capital investment in biotech (biotechnology) have played an important role
in promoting the development of innovative drugs in China.

From 2015 to 2021, it is the fastest period of the development of innovative drugs in China, and it is also the stage
of exploration of innovative drugs.
Since 2017, the number of new drugs approved by the NMPA each year is close to the number of US FDA and has increased year by year, of which biological preparations account for nearly 30%.

As of 2021, the State Food and Drug Administration has approved nearly 90 domestic Class I new drugs, with an average of 10 new drugs
per year.
The R&D and listing of these domestic innovative drugs has solved the import substitution of some drugs in China to a certain extent, and changed the situation
that China's class I new drugs have been completely blank in the research and development of anti-tumor fields for a long time and are extremely dependent on imported drugs.
For example, in the field of tumor immune PD-1 inhibitor treatment in China, the overall market share of domestic innovative drugs has exceeded that of imported PD-1 (PhIRDA data).

Tumor immunotherapy PD-1 inhibitors are the most widely used new anti-cancer therapies in recent years, and they are mainly immunotherapies
that destroy cancer by activating the host immune system.

The number of new drugs approved by China's NMPA from 2016 to 2021

Source: GBI

GBI

Number of new drugs approved by the US FDA from 2016 to 2021

Source: GBI

GBI

Domestic innovative drugs provide similar new drugs with higher cost performance at lower prices, and gradually realize import substitution in important fields, which is extremely important
for the early development of innovative drugs in China and improving patient accessibility.
The accessibility of innovative drugs is an important reason why
the five-year survival rate of cancer patients in China has increased from 30.
9% in 2010 to 40.
5% in 2020.
The gradual substitution of domestic innovative drugs will become a development trend
in the future.

02 The development of domestic innovative drugs accelerates the integration of China's innovative drug ecology with international standards, and improves the opportunity
for Chinese patients to obtain the latest treatment.

In 2015, China's drug review reform, represented by the issuance of the Opinions on Reforming the Review and Approval System for Drugs and Medical Devices, was launched
.
In the following five years, with the implementation of policies, the innovation of China's pharmaceutical industry flourished, more innovative pharmaceutical companies appeared, more capital flocked to innovative enterprises, more returnee scientists returned to China, and more policies for the service industry to support innovation were introduced
.

The industry unanimously recognized that this policy is the "bell ringer" for China's pharmaceutical industry to truly enter the era of innovation, which has greatly stimulated the innovation vitality
of the pharmaceutical industry.
Subsequently, in 2017, it was in line with ICH standards, the Drug Administration Law was officially promulgated in 2019, and the new version of the Drug Registration Administration Measures was officially promulgated in 2020, which proposed to gradually integrate China's approval system with international standards from the perspective of new regulatory concepts, new methods and new standards, and greatly revitalized innovative elements
such as scientific talents, technology and capital.

In the field of new drugs for cancer and rare diseases, the difference between the time to market of the same drugs between China and the United States has been shortened from an average of 11 years and 9 years later in the past to about
1 year now, respectively.
In terms of early research and development, the clinical time of local innovative drugs was only started after the international market of the original drug with the same target, and now, as domestic innovative drug companies quickly follow the latest international medical technology frontiers, local and international research and development have been almost synchronized
in the research and development of some important drugs.

The time difference between the approval and marketing of the same drugs in China and the United States has been greatly reduced

Source: GBI

GBI

It is worth mentioning that through the rapid development in recent years, China's gene therapy industry chain cluster is also gradually forming
.
In the field of gene and cell therapy research and development, China has 424 projects in different stages of clinical trials, gene and cell technology close to the global technology frontier, only after the United States, ranking second
in the world.

At the medical insurance level, China's medical insurance drug catalogue access process and review standards are gradually approaching the evidence-based value-based international standard approach
.
Due to the introduction of pharmacoeconomic tools and drug negotiation mechanisms, as well as the shortening of the review cycle of the medical insurance drug list, the waiting time for innovative drugs to be included in the national medical insurance list has been shortened from an average of 5 years in the past to an average of 1.
5 years
now.
Since 2017, more than 500 new drugs have been included in the national medical insurance reimbursement catalog, benefiting patients
in a timely manner.

At the industry level, the pace of internationalization of China's innovative pharmaceutical enterprises has accelerated, and international cooperation transactions are increasing
day by day.
First, carry out overseas clinical trials in line with international quality standards; Second, overseas introduction and overseas licensing are rising rapidly, and overseas layout has broadened profit channels; Third, the overseas layout is mainly
based on BD investment.
According to GBI data, in 2021, in terms of the total transaction amount of China's biotech head enterprises, the external license exceeded the license introduction in 2021, with a total amount of US$15.
8 billion, a year-on-year increase of 84%.

This shows the importance of domestic innovative drugs in the global pipeline layout, and the recognition of domestic innovative drugs by international multinational companies has been greatly improved
.

GBI

In terms of translational medicine, compared with the world, China started late but developed rapidly
.
According to the information of the third-party medical development foundation, as of 2021, there are 1,165 drug clinical trial institutions and 130 translational medicine centers in China, including five major national translational medicine scientific and technological infrastructures
.
In terms of the deep integration of production, education and research, China has established 168 national high-tech industrial parks
.
Biobay, Suzhou Biomedical Industrial Park, has attracted nearly 35,000 high-level R&D talents, forming an innovation ecosystem
of exchange and cooperation.

03 The development of domestic innovative drugs promotes competition in the Chinese and foreign drug markets with price advantages and makes them more affordable
for patients.

In terms of import substitution, the development of domestic innovative drugs has made no small contribution
to improving R&D capabilities, reducing clinical development costs and drug prices.
In the past, the average price of China's imported innovative drugs in China was 2-3 times higher than that of neighboring countries, and some were even higher
.
Due to historical reasons, as a compensation for the long access time of China's imported new drugs into the Chinese market, early innovative drugs do not need to be included in the national medical insurance drug list; As a result, a large number of imported drugs not only do not reduce their prices when they enter the medical insurance catalog, but also maintain high prices for a long time, and some drugs have even passed the patent period, and have not been affected by the "patent cliff" due to the "separate pricing" qualification
.
An important reason for this is the lack of competition
in the market for drugs of the same quality.
At that time, the vast majority of generic drugs in China could not PK with imported drugs in terms of quality and efficacy, coupled with the lack of domestic innovative drugs, resulting in the long-term high prices of imported drugs
.

The PD-1 medical insurance drug negotiations in 2019-2020 have attracted widespread attention because Chinese and foreign innovative drugs have competed
on the same stage for the first time in the field of the latest treatment of oncology.
The direct competition of domestic innovative drugs has subverted the long-standing situation that imported drugs have exclusive drug markets and price monopolies in the field of major disease treatment, and reshaped the diversified market pattern
of innovative drugs.
More importantly, the competition of domestic innovative drugs has played a positive role
in curbing the high price of foreign-imported innovative drugs.
For example, according to 2019 data from the RDPAC Industry Association, imported drugs such as K and O drugs (Keytruda) that have been marketed in China are already on the market and Opdivo), the annual treatment cost of a patient is about 500,000-600,000 yuan, and the Chinese price has been greatly reduced considering the ability of Chinese patients to pay, which is about 50% of the price of similar drugs in the US market
.
Due to the competition of domestic innovative drugs, the price of imported PD-1 has been further reduced to about 200,000-300,000 yuan (these drugs currently have patient assistance drug donation programs).

04 The exploration of domestic innovative drugs will help return to rational investment, establish an innovation culture, and focus on clinical differentiation value
.

A common feature of the investment wave in recent years is that most biotech CEOs are scientists or come from clinical R&D backgrounds
.
In the R&D stage, we pay more attention to the R&D products themselves, especially in the R&D track of fast-follow, and spend more time fighting for financing, clinical speed, and speed to market
.
Especially before building a commercial team, there is limited
understanding of the market outlook, patient needs and willingness to pay for health care.
Most people often pay attention to the challenges that may be brought about by subsequent commercialization and market access, and they often start to pay attention to the commercialization stage after the new drug is approved for marketing, without considering the commercialization risks
in advance.

Therefore, there are generally three cognitive shortcomings in capital and enterprise expectations:

First, investment in innovative drugs can bring high profit returns
relatively quickly.
Due to historical reasons, China's long-term drug growth rate has maintained a high market growth rate, huge patient resources and low clinical trial costs, resulting in the industry overestimating the investment advantages
of innovative drugs.

First, investment in innovative drugs can bring high profit returns
relatively quickly.

Second, the threshold for drug supervision is low, and the failure rate of new drugs in clinical trials in China is almost very small
.
The lack of experience of clinical trial failure has led to insufficient understanding of the characteristics, difficulties and risks of new drug research and development, and excessive pursuit of short-term profit goals
.

Second, the threshold for drug supervision is low, and the failure rate of new drugs in clinical trials in China is almost very small
.

The third is the insufficient
understanding of China's unmet clinical needs and willingness to pay medical insurance.
The over-amplified profit expectations lead to the contradiction between excessive premiums in the financing period, excessive valuations, and excessive competition for me-too new drugs and tightening of new medical insurance negotiations
.

The third is the insufficient
understanding of China's unmet clinical needs and willingness to pay medical insurance.

For example, Chinese and foreign PD-1 drugs have just been launched, and the market predicts that China's PD-1 can bring hundreds of billions of sales
.
However, since 2019, medical insurance negotiations under the comprehensive medical insurance fee control policy have led to a continuous sharp reduction in the price of PD-1, and the market has shrunk significantly, and PD-1 has rapidly shrunk from a 100 billion market to a 10 billion market
.
Those biotech startups that are committed to building platforms through self-built factories and commercialization teams in the early stage, the failure of commercialization of new drugs in the early stage directly affects the confidence
of subsequent investment and financing.

Although the current pain will touch innovation confidence, the progress in two major aspects allows us to see that innovation confidence will not be lost, and a new innovation cycle will be on the way
.

1 One is that we are more cognitively mature
.
We recognize that early market expectations have proved to be too optimistic and optimistic
under the New Deal shock.
Future investment will be more objective and rational, and the selection of R&D tracks will pay more attention to clinical differentiation and long-term value; The innovative drug industry is an industry with strict policy supervision, drugs do not have 100% commercialization attributes, policy supervision and intervention is an important policy tool to balance the interests of innovative drugs and the interests of patients, and enterprises grasp the drug policy orientation is a compulsory course for successful innovative drugs ； As in any industry, problems in the development and exploration of innovative drugs are normal
.
Compared with other industries, the innovative drug industry is a more complex, risky and challenging industry
.
Only when the R&D investment concept returns to the new normal can the development of innovative drugs break through
.

One is that we are more cognitively mature
.

2 The second is to return to rational investment
cognitively.
First of all, the development of innovative drugs is a long-cycle, high-risk and high-input, high-tech and capital-intensive industry
.
The law of drug research and development shows that only one of the average 10,000 developed compounds can be successfully marketed, on average, only 3 out of every 10 new drugs on the market can be profitable, and the average cost of new drug research and development is 1 billion to 2 billion US dollars, after 10 years of research and development
.
Secondly, China's new drug research and development, clinical trial and commercialization capabilities, R&D talent training, scientist-turned-entrepreneurs, and grasp of international rules have made great progress, which has also laid a good foundation
for future innovation breakthroughs.

The second is to return to rational investment
cognitively.

3 Third, the development of innovative drugs in China has just started, and it will also experience a trilogy of generic substitution, innovative substitution and innovative breakthrough, that is, the three possible paths in the future mentioned by McKinsey in the "2021 China New Drug Development Outlook" report: affordable innovation innovation), breakthrough innovation and impact innovation innovation）
。 The more innovative the product, the more R&D investment and clinical value focus are required, the more difficult R&D is made, and the regulatory policies are becoming stricter
.

Third, the development of innovative drugs in China has just started, and it will also experience a trilogy of generic substitution, innovative substitution and innovative breakthrough

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