SHANGHAI – As Chinese biotech companies talk more about innovation, one question is whether they are ready to move into first-in-class drugs from me-too and fast follow-up drugs. Biotech executives said China still lacks the comprehensive ecosystem to support such time-consuming and high-risk R&D, but it is time to do so and they must go ahead.

To biotech executives, the China first approval for Fibrogen Inc.'s roxadustat, a first-in-class small molecule for amenorrhea, is a wake-up call. It signals that more innovative drugmakers are targeting China in their global strategy.

"There will be more cases like that," said Yuli Xie, CEO of Wigen Biomedicine Technology (Shanghai) Co. Ltd. "It puts pressure on the local biotech companies that are mostly still focusing on me-too drugs."

Companies without global value will have to remain in the domestic market, which is homogenized, with many projects of similar clinical value. The mature generics market has been overhauled by a recent government policy that aims to cut prices aggressively. Xie warned the same could happen to the me-too drug market, and the returns won't be enough to compensate the high development costs.

"I'm not sure if we are ready to develop our own first-in-class drugs, but the time has come. We must go ahead," Xie added.

Today, China is putting more efforts in transforming itself from a generic maker to an innovation power. The recent regulatory reform, intended to give faster clearance to novel drugs, is widely welcome by the industry.

The year 2018 marked a milestone in Chinese biotech innovation. Eight homegrown innovative drugs won marketing approval in China, including two PD-1 agents. The Hong Kong Stock Exchange also opened its doors to early stage biotech startups. Industry insiders hailed the year as the beginning of "real biotech innovation in China."

Yet, despite the favorable policies and abundant capital, Chinese biotechs are still in the very initial stages of breakthrough innovation. In many ways, Chinese biotech companies lack the experience to push ahead first-in-class clinical programs.

With no predecessor or well-worn clinical and regulatory path to follow, preclinical work will be very tough and investigators must be more meticulous in the proof-of-concept stage to move the program forward, said Jason Yang, chief medical officer at Cstone Pharmaceuticals Ltd.

When it comes to proof of concept before clinical trials, biomarkers and companion diagnostic kits, China still has to play catch up. Wigen's Xie suggested the Chinese biotechs learn from their Western counterparts to gain experience.

Risk and reimbursement issues

Besides issues on the technical front, conditions are also not ripe yet for the development of China's biotech ecosystem, which consists of innovators, investors, regulators and buyers.

To begin with, risk aversion is still high in China's biotech industry.

"Even if you recruit the best team from global pharma companies, the success rate to develop a first-in-class asset is less than 10 percent. Mentality is the problem," said Xie, implying that Chinese biotech executives are reluctant to add extra resources to such high-risk drug development.

The same happens on the capital front, Cstone Pharma's Yang pointed out.

"There are thousands of biotech companies in the West and the venture capitalists are willing to inject capital in them. This is one social input that China still lacks at the moment. Investors are reluctant to invest in new targets or therapeutic areas," he explained.

Another issue is that the Chinese regulatory agency is still immature.

Before Ning Li took helm of Shanghai Junshi Biosciences Ltd., he worked at the U.S. FDA. Li said the FDA regulators have more experience in handling innovative products, thus better risk control.

"They have seen a lot and understand well the risks. When there is an innovative, high-risk drug candidate, they feel more comfortable and willing to let biotech companies work on it," he said. "But the NMPA has a shorter history. Regulators are more cautious and their risk-taking is lower," Li added.

When Junshi won the first approval for a China-made PD-1 antibody, it was the NMPA's first on-site inspection for a homegrown antibody. "The scale of the regulatory reform is so big that the NMPA do not have the right people yet to execute it," he said.

Last but not least is the less-developed reimbursement system in China. It costs billions of dollars to develop a life-saving innovative drug, but it is not yet clear who will pay for that in China.

"China's private insurance market is still in the initial stage," said Helen Jiang, chief medical officer at Jiangxi Qingfeng Pharmaceutical Trade Co. Ltd. "Government health care spending is also limited and focuses on basic coverage."

Now that six PD-1 drugs have been approved in China, and some of them are rumored to be added to China's national reimbursement drug list updated this month, it remains to be seen how much the country is paying for these novel drugs to incentivize innovation.

"We will know the returns for innovative drugs by the end of this year," Jiang said.

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