SUZHOU, China - The global biotech market continues to look promising and Chinese companies are taking notice as they lay the foundation for new advances.
The U.S. remains the key driver of growth, with accelerated review programs and capital markets seeing robust IPO activity, said intelligence and banking specialists at the China Biomed Innovation and Investment Conference in Suzhou.
To begin with, 2018 was a remarkable year with the FDA approving 59 new molecular entities, the highest number in eight years, according to Travis Hu, senior director, head of life sciences, greater China at Clarivate Analytics. That's about six times as many approvals as China had and represents an upward trend that has continued since 2014.
"Over 50% of these new drug approvals are related to rare diseases. The priority review for orphan drugs is one explanation for this," he said.
Out of these 59 new drugs, 43 entered at least one expedited review program, such as priority review, accelerated approval, fast track and breakthrough therapy.
These expedited review programs have played a significant role in pushing up NDA numbers. In 2017, around 40% of approved drugs were granted accelerated approval. Last year, around 68% of approved drugs received priority review.
These expedited review programs have helped slash the time needed to develop a drug by 37% since 2013, even while drug R&D is getting more complicated, as reflected by the soaring cost per approval from $1.9 billion in 2014 to $3.2 billion in 2017, according to some estimates.
China also saw a 75% increase in new drug approvals in 2018 from two years ago thanks to its priority review program and the acceptance of overseas data.
Another trend to note is that the role of pharma giants in new drug approvals is diminishing. The number of NDAs filed by big pharma companies has been declining steadily since 2013, while small and medium-sized players are more active in R&D.
"We think there are two major reasons for this," Hu explained. "First, capital has helped smaller players advance their drugs to the NDA stage. Second, expedited review programs contribute to a higher success rate of NDAs for these players."
Meanwhile, Hu said the development of precision medicine created two new trends. First, the market will see fewer blockbusters. Less than 20% of the 59 new drugs approved this year are projected to generate more than $1 billion in the next five years. Second, the number of patients addressed per approved indication is dropping.
"Precision medicine allows us to develop drugs and therapies that treat a specific group of patients more effectively. It is interesting because while R&D gets more challenging and requires more input, the number of targeted patients is actually lower," Hu said.
For the most popular targets, small-molecule developers look at Bruton's tyrosine kinase, bromodomain-containing protein 4, indoleamine 2, 3-dioxygenase, retinoic acid receptor-related orphan receptor gamma t and histone deacetylase-6 modulator, while biologics innovators are targeting TIGIT, ZIKV and Sialic acid-binding Ig-like lectin 7.
In China, drug innovators are getting more sophisticated in developing small molecular targeted drugs and antibodies. However, their pipelines often consist of assets that are more developed in other countries. It remains to be seen if more Chinese companies can discover new targets and develop their own first-in-class drugs.
With that said, drug innovators are now developing projects in the areas of T-cell immunotherapy, bispecific antibodies and antibody-drug conjugates. But Chinese regulators have yet to approve any of these products.
Oncology and rare disease are the focus
Meanwhile, global drug R&D will continue to focus on oncology and rare disease, along with infectious disease, and central nervous system and respiratory disease indications, Hu said.
In the U.S., as in China, most investment went to oncology, followed by neurology and platforms investment. But globally, orphan drugs will remain a focus. More companies will be encouraged to develop them due to favorable policies and the lack of effective treatments.
Diffuse large B-cell lymphoma and nonalcoholic steatohepatitis also remain areas of intense focus, followed by triple-negative breast cancer.
John Whittaker, managing director of J.P. Morgan Healthcare Investment Banking, also said oncology and rare diseases continue to be the focus of biopharma M&A activity.
Oncology and rare disease have seen 42 and 27 deals worth more than $1 billion since 2013, far outstripping other segments. Total transaction value of the deals was $238 billion and $187 billion for the segments, respectively.
HKEX on the radar
Ever since the Hong Kong Stock Exchange (HKEX) reformed its listing regime last year to welcome pre-revenue biotech companies, it has been an important focus for health care investors and analysts.
HKEX chief Charles Li said Hong Kong became the world's second-biggest funding hub for biotech over the past 12 months. To date, eight pre-revenue biotech companies have reaped almost $4 billion from the Hong Kong market.
Whittaker said while a majority of the European companies are looking to list in the U.S., Chinese players are having "a very healthy discussion" about Nasdaq vs. the HKEX.
The banker, like the others, also spent time comparing both listing destinations. This year, the U.S. has recorded 27 biopharma IPOs so far, while Hong Kong has hosted only six.
But the average proceeds raised per IPO were significantly lower in the U.S., $135 million compared to $368 million in Hong Kong. The average post-money market cap at IPO in the U.S. was also lower, at $561 million compared to $2.53 billion in Hong Kong.
The favorable regulatory environment has provided robust funding for biotech companies in Hong Kong, yet post-pricing performance has trailed U.S. listings. Whittaker also said most of the recently HKEX-listed biotech companies will not be EBITDA positive for the next two to three years.
Still, over the past five years, there has been a significant increase in IPOs by biotech companies, which in 2018 raised the most capital since 2009, Clarivate's Hu said.