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The development of China's pharmaceutical industry is analyzed from the differences in biotech commercialization models between China and the United States

 Last Update: 2022-10-25
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Policy Research Center, China Association for the Promotion of Pharmaceutical Innovation

Author: Zhang Yangyang, assistant researcher zhangyy@phirda.
com

On October 10, Harbour Bio Pharmaceuticals (02142.
HK) announced that it will license the bartolimab (Greater China interest) previously introduced from HanAII Biopharma to Embip (a subsidiary of CSPC Group), which has been promoted from Harbour Biopharma to phase III clinical stage, which was once regarded as a transformation point
for the commercialization of Harbour Biopharma.

Coincidentally, in August this year, Genting Sun Yao (01952.
HK) sold to Immunomedics the gosatuzumab it had previously introduced from Immunomedics (now a wholly-owned subsidiary of Gilead), which was launched
in China in June this year.

On the one hand, Biotech needs to withdraw funds to cope with the "capital winter" in the case of continuous losses, on the other hand, the difficult situation of innovative drugs in domestic commercialization may also be a main reason, and even the current biotech commercialization dilemma itself may be one of the factors that trigger the
"capital winter".

Comparison of biotech commercialization models in China and the United States

First, the commercialization stage of innovative drugs also faces high investment and high risks

As we all know, innovative drugs have the attributes of high investment, high risk and long cycle, and pharmaceutical companies need to commercialize drugs after marketing to meet patient accessibility and obtain sustainable R&D returns
.
It can be seen that the approval of the market is not the end point of an innovative drug, and its post-marketing commercialization also requires huge investment, including sales team building and academic promotion
.
Even the world's top pharmaceutical companies with mature sales teams still have to spend 20%~30% of their sales on drug sales and promotion
every year.
Domestically, although the "imitation to innovation" enterprises represented by Hengrui and Hausen can achieve a close proportion of sales and promotion expenses to the international level, the contribution of innovative drugs in the sales of such enterprises only accounts for a part of the proportion
.

For Biotech, which focuses on innovative drugs, its sales and promotion expenses will account for a higher
proportion.
BeiGene and Cinda, which are approaching maturity, still need about 60% of their sales for post-launch promotion, while Biotech companies with shorter commercialization time need to spend more on building sales teams and academic promotion, which often exceed sales or even reach more than
twice sales.
Under the premise that it is difficult for Biotech companies to ensure the successful development of innovative drugs, excessive commercial investment means that the risk of capital chain breakage is higher
.

Figure 1 The proportion of sales and promotion expenses of different enterprises in 2021

Data source: annual reports of listed companies, collated by the Drug Promotion Council

Second, the temporal trend of independent commercial profit demand of biotech in the United States

The development of biomedical innovation in the United States is relatively early, and many biotechs have achieved successful commercialization and grown into biopharma, and their development rules and successful experiences have certain reference significance
for Chinese biotech enterprises.

In order to better reflect whether enterprises can form stable profits through drug sales, the author sorted out the US pharmaceutical companies that have been independently commercialized in the past 30 years from 1991 to 2020 through public reports, and took the simulated net profit (drug sales - production costs - commercialization promotion expenses - research and development expenses) as an evaluation index, and selected 51 companies by screening all biotech companies listed in the United States (screening criteria: mainly innovative drugs, independent commercialization and the highest annual sales of more than 100 million US dollars).
So far, there are 25
companies that have successfully commercialized (i.
e.
simulated net profit is positive).
Among them, 36% of the companies have been stable and long-term for more than 30 years, and 68%
have successfully transformed for more than 20 years.

Simulated net profit (drug sales - production costs - commercialization promotion expenses - research and development expenses)

With the advancement of time, the average time and median time required for the successful independent commercialization of biotech enterprises have shown a trend of shortening, especially in the past 10 years, the average time of independent commercialization of biotech enterprises in the United States has been shortened to 2.
39 years
.
The reasons for this trend are diverse, including the optimization of pharmaceutical policy in the United States and the world's largest innovative drug market created by the booming commercial insurance in the
United States.

In particular, in the past 10 years, the average time for the independent commercialization of American biotech companies has been shortened to 2.
39 years
.

Fig.
2 Biotech statistics of successful independent commercialization in the United States in the past 30 years

Data source: Compiled by the Drug Promotion Council, the success or failure of overseas biotech commercialization

Third, the comparison of simulated net profit trends of typical enterprises in China and the United States

01 The temporal trend of independent commercialization profit demand for biotech in the United States

Distinguished by the trend of simulated net profit change curve, the successful biotech commercialization in the United States is mainly divided into two types, one can be called "stable", commercial investment increases year by year, steady and steady, simulated net profit hovers around 0 for several years to form stable profits, but the simulated net profit of such enterprises tends to grow relatively slowly in the early stage; The other can be called "radical", increasing commercialization investment after the drug is marketed, which will lead to a trend of simulated net profit falling first and then rising, and an inflection point will occur on average after 3 years of commercialization, and the simulated net profit of most companies in this type can continue to maintain rapid growth
in the later stage.

Figure 3 Two types of net profit simulated by a typical self-commercialized biotech in the United States

Data source: Compiled by the Drug Promotion Council, the success or failure of overseas biotech commercialization

02 Commercialization status of typical biotech enterprises in China

Since 2018, China's biotech has gradually entered the stage of commercial transformation, and typical companies are BeiGene, Innovent and Junshi
with PD-1 monoclonal antibodies.

Through the calculation of its simulated net profit and trend observation, it is found that the current trend of the three companies is similar to the "radical" of biotech in the United States, and the simulated net profit in the early stage of commercialization has shown a rapid downward trend, and even BeiGene, which has already obtained FDA approval for marketing, has only slowed down in the third year of commercialization, and the inflection point has not yet appeared
.

Fig.
4 Typical Biotech simulated net profit trend in China

Remarks: BeiGene corresponds to US$100 million, and Cinda and Junshi correspond to RMB100 million Source: Annual reports of listed companies, compiled by the Drug Promotion Council

Compared with the average profit demand time of biotech in the United States in the past ten years, and the average three-year commercial inflection point in the past three decades, typical biotech companies in China are still in a trend of rapid decline in simulated profits, and the emergence of the inflection point seems to be far away, and the reasons are worth pondering
.

Analysis of the reasons for the inconsistency in the commercialization process of biotech enterprises in China and the United States

First, from the perspective of product characteristics, there is a certain gap between Sino-US biotech companies

One

01 Biotech products with commercial achievements in the United States are highly innovative

Further information mining of the eight US biotech companies that have been commercialized and successful in the past decade (2011-2020) in Figure 2 shows that the time required to simulate profitability is also gradually decreasing
over time.

At the same time, the main contribution of sales of 8 companies comes from their representative varieties, and the characteristics of their representative varieties are analyzed, and it is found that the first reason for the commercialization success of these companies may be that the market competitiveness of their listed products itself is greater, among the 8 products, the proportion of first in class drugs reaches 25%, and only 1 similar competitor product accounts for 38% at the time of listing, in addition to multi-target broad-spectrum anticancer drugs and rare disease drugs and other differentiated varieties with high market competitiveness
。

Table 1 Statistics of successful enterprises that started independent commercialization in the United States from 2011 to 2020

Data source: Yaodu Data, [Medical Garden Guanyuan] The success or failure of overseas biotech commercialization, compiled by the Drug Promotion Council

02.
Domestic innovative drugs are mostly Me too and have not achieved fast follow

02、

In contrast, almost all of the more than 100 domestic innovative drugs marketed in China since 2015 are Me too drugs, and the vast majority of Me too drugs have a long time difference with the corresponding First in class drugs, and the market competitiveness of the drugs themselves is poor
.

Taking the field of oncology as an example, the 25 domestic innovative oncology drugs listed from 2015 to 2021 are all Me too drugs, and the variety with the corresponding First in class drug with a market time difference of more than 5 years accounts for 68%, with an average time of 6.
8 years
.

Fig.
5 Number of drugs corresponding to the global time difference between domestic tumor Metoo drugs and original drugs

Source: Yaodu Data

Third, from the perspective of potential market space, China and the United States are quite different

Three

01 The US innovative drug market is much larger than China, and the competition space for drugs is greater

In addition to the difference in the market competitiveness of the product itself, the different innovative drug markets in China and the United States are also another major reason
.
First of all, in terms of volume, even if China's pharmaceutical innovation industry has developed rapidly in recent years, the global proportion of China's innovative drug market in 2021 will only be about
3%.

At present, only BeiGene has taken international steps for China's biotech companies, and other companies still regard China as a market player, which is bound to make it difficult for these companies to achieve stable profitability
through drug sales.

Figure 6 Share of global innovative drug sales in 2021, by region

Source: BCG report, "Overall Trends and Challenges of Chinese Pharmaceutical Companies' Innovative Drugs Going Global"

02 The price difference of the same type of innovative drugs affects the overall profit space of drugs

And in the small domestic market, the commercialization of innovative drugs still faces many problems
.
In the case of immature clinical use of innovative drugs, hospitals are bound to become the main use scenario, but high-priced innovative drugs often need to be included in medical insurance to reduce the drug burden of patients before they are widely used in hospitals, which makes it a problem
that domestic innovative drugs have to face through negotiation and price reduction.

The existence of the "basic" attribute of medical insurance makes it inevitable
that the price of innovative drugs will be greatly reduced.
Taking PD-1 as an example, the actual average price of imported innovator drugs in China is only about 15% of the price in the United States, while domestic new drugs in the same field will continue to decline by about
50% on this basis.

In the face of a sharp drop in prices, even if drugs can reach the peak of drug sales faster through the inclusion of medical insurance, their sales peak will decline in equal proportion to the price, resulting in a serious shrinkage of the overall profit space of drugs, and it will be difficult for enterprises to achieve stable profits
through drug sales.

Fig.
7 Comparison of annual treatment costs of PD-1 monoclonal antibody in China and the United States (US$10,000)

Data source: Yaozhi "2022 Medical Insurance Negotiation, 3 Figure Forecast"

Feasibility study to solve the current dilemma

1.
Refine the evaluation to improve drug innovation and market competitiveness

One

Under the reform of the drug approval system since 2015, China's innovative drugs have achieved leapfrog development, the needs of patients have been further met, the task of domestic substitution has been basically completed, and China's pharmaceutical innovation has entered the development stage
of "2.
0".

In the face of the need for the continued development of pharmaceutical innovation, the current approval and review system needs to be further reformed, focusing on the core needs of clinical patients to guide the direction of research and development, so that it can change from "domestic substitution" as the demand of Metoo drugs to "clinical value-oriented" Fast follow or even first in class
.

Guide the research and development process of First in class drugs and further optimize the evaluation criteria; For Metoo drugs, according to the market time difference or whether the indications can be differentiated from the corresponding original drugs, different review standards and accelerated channel inclusion criteria are established, and an innovative drug evaluation system
with patient needs as the goal and clinical value-oriented is established.

Second, look at the world and target the global market

Two

At present, there is still a gap between the overall level of China's pharmaceutical innovation and the world's first echelon, and the people's growing clinical needs need to be met by
more and better domestic innovative drugs.

"High risk, high investment, long-term" innovative drugs need "high return" to match in order to stimulate the innovation momentum of enterprises, but the development of the domestic innovative drug market is still not mature enough, the market space is limited, and domestic innovative drugs are needed to go to the world to obtain a broader market
.

At the same time, for individual enterprises, only when products go to the world can they expand market space, increase return expectations, and form the sustainable development
of innovative pharmaceutical companies.
Looking at the fact that most of the world's well-known multinational pharmaceutical companies take the international market as the main body of their sales revenue, relatively speaking, the international income ratio of most pharmaceutical companies in China has a significant
gap.

Fig.
8 Distribution of sales revenue of typical enterprises in China and abroad

Source: BCG report, "Overall Trends and Challenges of Chinese Pharmaceutical Companies' Innovative Drugs Going Global"

Third, optimize policies to cultivate China's local innovative drug market

Three

While expanding outward, China's local innovative drug market also needs to continue to grow through policy adjustment and optimization, especially at a time when international relations are gradually tense, and industrial upgrading is urgently needed to face the possible technological blockade
of developed countries in the future.

In medical insurance, it is necessary to establish a friendly payment system for innovative drugs, and change the price of drugs to the formulation of payment standards
for innovative drugs.
As a result, more innovative drugs with clinical value can be included in medical insurance without causing greater pressure on the medical insurance fund, benefiting more patients
.
At the same time, market competition outside the medical insurance payment standard also creates space
for the development of commercial insurance.

In addition to medical insurance, promote the supplementary role of commercial health insurance in the national medical security system, and establish and improve a multi-level and diversified medical security system
.
Through policy macro-control, standardizing industry standards, expanding the insurance population and other methods, the personal payment part of the drug market is gradually transformed into commercial insurance payment
.

epilogue

Pharmaceutical innovation is a requirement of the national strategy, and the 14th Five-Year Plan has raised innovation-driven development and scientific and technological self-reliance to a new height, and put the protection of people's health in a strategic position
of priority development.
In the current historical process, it is more necessary to develop innovation, which is not only a problem of a certain enterprise and industry, but also the needs of the majority of patients and the development of
the country.

Review and proofreader: Zhang Zhijuan, Liu Fapeng

Center for Policy Studies

Gather domestic and foreign research elites in the field of pharmaceutical policy and pharmaceutical industry, and build a domestic first-class and internationally renowned third-party think tank
.
It mainly studies and discusses hot issues related to China's pharmaceutical policy and pharmaceutical industry development, in order to provide suggestions and suggestions for the government and its relevant departments, and provide strategic consultation
for the development of the industry.

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