The EconomistSeptember 28th 2019 Business 632 being developed by BeiGene.
The industry’s makeover was set off by
growing alignment of China’s drug regula-
tion with international standards. Speedi-
er drug-approval processes rolled out in
2015 are modelled on America’s. Regulatory
oversight of clinical trials is converging
with Western norms. About 3,000 applica-
tions for me-too drug approvals were with-
drawn when the government announced
the new rules, winnowing out many flaky
firms. Starting in 2017 medicines have been
able to get approved in China on the
strength of clinical trials abroad.
At the same time, consolidation of drug
procurement by state hospitals that began
in 2015 squeezed the bloated prices of ge-
neric drugs. By one estimate, this freed up
$30bn a year for pricier medicines such as
the newest cancer drugs. Some 400m Chi-
nese now have health-insurance plans that
cover these.
Chinese drug companies are pouring
money into research—and researchers.
China’s legions of science graduates, in-
cluding returnees from top foreign univer-
sities and Big Pharma labs, where they dis-
cern a glass ceiling, are sharpening its edge
in medical innovation. Around 250,000
Chinese returnees who have come back
since 2013 work in life sciences.
A drug-fuelled high
The booming domestic market for high-
end drugs has created a similarly frothy
one for their makers. Franck Le Deu of
McKinsey, a consulting firm, calls it a
“Cambrian explosion”. In 2018 venture-
capital and private-equity investments in
China’s biotechnology firms reached
$17bn, according to ChinaBio, a consultan-
cy. Most of it came from local sources. The
medical zone of Shanghai’s Zhangjiang Hi-
tech Park, one of China’s biggest, houses
more than 1,000 companies—about ten
times the number a decade ago.
China’s biotech sector is just 12% of its
overall drug market, half the global average
of 25%. Most Chinese firms are young, and
yet to turn a profit. But they are growing
fast. Five of the world’s ten biggest biotech
initial public offerings in the first half of
this year were of Chinese companies,
which collectively raised $1.6bn. To lure
star startups away from New York and Lon-
don listings, last year Hong Kong’s stock ex-
change relaxed its rules to allow pre-rev-
enue biotech firms to go public there.
Although they often started out licens-
ing foreign drugs, either approved or in
late-stage development, for the domestic
market, Chinese firms soon set up their
own drug-discovery programmes. These
days they have global ambitions from the
start, says Mr Le Deu—with eyes on the lu-
crative American market. Several are run-
ning late-stage clinical trials there and in
Europe. In 2018 Chinese companies started26 multiregional clinical trials, up from
four in 2013. BeiGene is running over 60 in-
ternational ones. China’s first home-grown
cancer drug, discovered by Chi-Med, is in
clinical trials in America. In 2017 China
overtook America in clinical trials of novel
treatments that reprogramme patients’ im-
mune cells to fight cancer.
For now, most high-end drugs germi-
nating in China are “me too” or “me better”
ones that mimic existing therapies. Break-
throughs that yield drugs with a novel
mechanism of action remain sporadic.
Translating Chinese basic science into
treatments at university research laborato-
ries—the incubators for biotech start-ups
in Western countries—is in its infancy,
says Shan He from Sanford C. Bernstein, a
research firm. But it is only a matter of time
before China begins to rival America and
Europe in this area. Chang Lee of Parexel,
an American clinical-research contractor,
reckons it could happen before 2030.
Chinese drug innovation may put pres-
sure on the exorbitant prices of new medi-
cines in the West. Some biotech firms sell
advanced drugs for 70% less than Western
equivalents. Marc Funk, chief executive of
Lonza, a Swiss contract manufacturer of
drugs which is opening a new facility in
Shanghai, insists this is happening “with-
out compromising quality”.
President Xi Jinping wants the overhaul
of Chinese pharma to proceed apace. It is
part of his “Made in China 2025” strategy
for global leadership. One drugs executive
in China says that the government’s main
motive for overhaul, as with many reforms,
is to preserve social stability as more pa-
tients ask why highly effective drugs for
their illnesses that are used in America are
not available in China. Two weeks after the
release last year of “Dying to Survive”, a hit
movie inspired by the real-life story of aleukaemia patient, China’s prime minister,
Li Keqiang, urged regulators to get cheaper
cancer drugs on sale more quickly.
Progress may hit several obstacles. One
worry is the sheer number of Chinese bio-
tech firms that have piled into cancer treat-
ments. A shakeout is imminent once they
start releasing results from late-stage
trials. Some drugs will flop once they start
selling, as happens in a competitive mar-
ket. The big worry is that Chinese investors
may flee biotech altogether when things go
awry for one or two firms. They still have a
lot to learn about how the biotech business
works, says Nisa Leung of Qiming Venture
Partners, a big investor in Chinese health-
care. They overvalued some of the first bio-
tech startups that went public in Hong
Kong—only to see their share prices fall.
Leading Chinese firms like Chi-Med and
Zai Lab, as well as BeiGene, have listed their
shares in New York or London, with their
veteran biotech investors. But not all firms
have that option.Pills and spills
The second big risk is China’s fragile drug-
making infrastructure. Although many
clinical-trial sites are up to global stan-
dards, some are not. Immunotherapies are
more difficult to make than the small-mol-
ecule compounds in traditional pills and
injections, so the risk of faulty batches is
greater. Political pressure like that from Mr
Xi or Mr Li could make companies and reg-
ulators cut corners. Unlike in mature West-
ern markets, a single quality scandal could
shatter the credibility of the country’s en-
tire biotech industry, says Mr Le Deu.
Such teething pains are unavoidable in
a complex industry taking hold in a devel-
oping economy. If their makers can with-
stand them, drugs will move from being
“Made in China” to being invented there. 7Bright prospects