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Chinese biotech groups are on target to raise about $10bn this year from venture capital funding, initial public offerings and licensing deals with overseas pharma companies, in what is partly a bet that Chinese-developed drugs can compete globally.
China contributes about 4 per cent of global drug innovation, compared with 50 per cent from the US, according to Chinese pharmaceutical associations. That mirrors the country’s 4 per cent share of the $157bn that market research group EvaluatePharma estimates was spent globally last year on drug R&D.
But that share is set to increase as scientists returning from overseas launch start-ups and domestic companies spend more on R&D, with about 800 new molecules currently under development in China — up from 240 in 2012 — about 80 of which are in phase III clinical trials, according to consultancy McKinsey.
Most Chinese innovation consists of “me-too” products that are similar to existing medicines and aimed at the domestic market — the world’s second-largest after the US with $117bn in annual pharmaceutical sales.
However, a number of start-ups are looking to develop innovative products while a quarter of the trials are taking place outside China, McKinsey adds, underlining the increasing global ambitions of Chinese groups.
But most of the drug trials completed by Chinese drugmakers in the US are early-stage, meaning it will be years before the products reach the market. Furthest ahead in the US is Shanghai-based Zensun’s heart failure drug Neucardin, which is preparing for phase III trials, according to consultancy Pharma Intelligence. (Zensun raised $76m in a funding round this month).
Nasdaq-listed Chinese biotech company BeiGene in September sold overseas rights to a cancer medication to US drugmaker Celgene for $263m, with a further $980m tied to future sales — the biggest overseas licensing deal yet for a Chinese-developed drug. (Celgene also took a $150m equity stake in BeiGene.)
BeiGene launched in 2010 and is conducting trials for two cancer drugs, and another for an anaemia treatment in the US and Australia, as it eyes the international market.
Mark Alles, Celgene chief executive, is upbeat about the prospects for pharma R&D in China. “True innovation is happening here in China, and multinational companies have to throw away the bias about where to go and how to think about where innovation is happening,” he says.
Meanwhile, shares in London-listed Chinese group Chi-Med have more than doubled in value this year after its cancer treatment Savolitinib showed progress in trials run with AstraZeneca, while its bowel cancer medicine Fruquintinib has entered phase III trials in China.
Chinese biotech companies have raised $2.8bn from market listings in the past 12 months, according to McKinsey. WuXi Biologics, which in August sold rights to a drug developed with another Chinese group to US company Arcus Biosciences for $816m, raised $586m in an initial public offering in Hong Kong in June. Zai Lab, which launched in 2013 and specialises in cancer drugs, raised $172m in a Nasdaq IPO in October.
Alongside Chinese pharma’s global push, the domestic market offers huge potential for sales as the burden of chronic disease in China grows — 4.3m cancer cases are diagnosed each year and the number is expected to rise. Investors have put record sums of money into China’s biotech start-ups amounting to $3bn in the first half of 2017, according to ChinaBio, a consultancy.
Venture capital and private equity funds focused on China life sciences are on track to close $30bn in funding this year, adds ChinaBio, including foreign investors such as Fidelity International, which launched a $250m China healthcare fund in September.
“More and more venture capitalists are willing to invest in the [Chinese] biotech industry. We have so many local funds wanting to invest in innovative companies,” says Jinzi Wu, chief executive of cancer and hepatitis drug developer Ascletis, which raised $100m this year from investors including US bank Goldman Sachs.
Investment has been encouraged by Beijing’s sweeping reforms of its drug approval process since 2015, which have cut approval times for clinical trials to 22 months from 37 in 2014, with 110 such approvals made this year, according to McKinsey.
“Speeding up the process to shorten the timeframe to be more or less close to the US is very important for innovation, because timing is everything,” says Wu Chengbin, founder of Epimab, an oncology-focused start-up which raised $25m in a funding round this year.
Analysts say that partnerships with western drugmakers such as the BeiGgene and Celgene tie-up are not based purely on the promise of a Chinese company’s drug. “Celgene is not a leading multinational like Pfizer . . . and this deal can help it expand its business in China,” says John Lin, a partner at consultancy Roland Berger.
Most Chinese biotechs remain focused on serving the rapidly growing Chinese-market with “me-too” variations of existing drugs, limiting their global potential.
For instance, Zai Labs’ most promising drugs are mainly molecules bought from multinationals to be developed for use in China. As a result, some investors are wary of inflated valuations.
“Most of the innovative drugs being developed in China are in the me-too category,” says Lin Liang, of Eli Lilly’s Asian venture capital arm, which has poured nearly $500m into mostly Chinese start-ups since 2008.
“The valuations for innovative pharma companies in China are much higher than before, which is a concern.”
Additional reporting by Sherry Ju in Beijing