Far from generic

Breakthroughs in China’s biotech sector are leading to IPOs


Johnson & Johnson: making new bets on cancer cures in China

One of China’s major breakthroughs in mainstream medical cures happened in the early 1970s, when Ningbo-born scientist Tu Youyou came up with a drug for treating malaria called Artemisinin.

Derived from sweet wormwood, it was meant to assist the North Vietnamese in their fight against the Americans in the malarial jungles. Studies as early as one in 1979 had already found that Artemisinin was superior to Mefloquine, the American equivalent, that came with side effects such as nightmares and paranoia.

However, Artemisinin was popularised only after the Swiss pharmaceutical company Novartis bought its patent, and sold it under the auspices of the World Health Organisation – at a price close to its cost – around two decades ago.

But a more recent breakthrough by Chinese medical researchers – in the much-contested cancer treatment area – is winning more instant credit. Instead of being the unsung hero of the piece, the treatment has already attracted patients from abroad to trial its efficacy, with much success. The Financial Times reported earlier this month that Craig Chase, a 57 year-old American, with a typically fatal multiple myeloma, was successfully treated at a public hospital in Nanjing, the capital of Jiangsu province, thanks to a one-time procedure called CAR-T, short for chimeric antigen receptor cell therapy.

It involves the extraction of a patient’s T-cells, a type of immune cell from the blood; then a modification process that adds a new gene with a protein that can help detect and kill cancer cells. The engineered T-cells are massively multiplied and then infused back into the patient for the cancer fight.

Although the original methodology was primarily developed in the US, a Chinese company called Nanjing Legend Biotech managed to produce unparalleled positive data in its own early-phase clinical trials, reported the FT.

At the last meeting of the American Society of Clinical Oncology (ASCO) in June, Nanjing Legend said 33 of its 35 patients achieved clinical remission within two months of treatment (prior to this attempt their cancer had repeatedly returned after more mainstream treatments had failed). The ‘objective response rate’ – defined as the proportion of patients with tumour size reduction of a predefined amount and for a minimum time period – was 100%.

In December the positive results prompted Johnson & Johnson to pour $350 million into the hitherto obscure company, a subsidiary of Hong Kong-listed Genscript Biotech. Some researchers believe the gene-editing product is better than rivals produced by US-based Bluebird and Celgene, reports the FT. Johnson & Johnson’s investment was also seen as a response to Swiss player Novartis and California-based Gilead Sciences, which got their CAR-T treatments for leukaemia and lymphoma approved by the US regulator last year.

According to Chongqing-based broker Southwest Securities, the global market for blood cancer related CAR-T treatment will be worth $30 billion by 2027, and China will account for a third.

There were 158 CAR-T clinical trials by Chinese companies (registered in the US) as of early April versus 166 by American firms. Many of these pharmaceutical firms want to produce off-the-shelf, or mass market, products that source T-cells from healthy donors instead of the patients themselves.

The boom in Chinese clinical trials is attributable to Beijing’s master plan to make biotechnology a key industry under the “Made in China 2025” blueprint. One of the goals is to establish up to 20 comprehensive life-science parks for biomedicine by 2020.

Regulatory changes since August 2015 have also helped: China makes it easier for patients to switch from existing treatments and instead sign up to trial riskier new drug therapies; and unlike the lengthy approval times for human trials in the US (involving federal bodies) a Chinese hospital only needs to get the sign-off from its in-house ethics committee, reports the Wall Street Journal (see WiC396).

Another boost: the Thousand Talents Plan established by the central government in 2008 has successfully lured international experts and haigui (i.e. overseas returnees) to bolster homegrown research.

Some haigui are drawn by the rich resources on offer. “The funds are chasing us, instead of us having to spend numerous hours convincing investors,” Joan Shen, head of medicine at Shanghai-based I-Mab Biopharma, told the New York Times. Shen worked in the US for 20 years with Eli Lilly and Pfizer previously. Raymond Stevens, who leads a biochemistry lab at the University of Southern California and is also now a founding director of the iHuman Institute under the ShanghaiTech University, told the science journal Nature that he is also encouraged by China’s emphasis on higher-risk research versus the low-risk research that he says largely gets funded by the US National Institutes of Health.

More than $100 billion has already been invested in the life-sciences sector by various levels of the Chinese government, and over $12 billion by venture capitalists as of July 2017, according to Shanghai-based consultancy ChinaBio. Pharmaceutical research and development by local Chinese firms grew over 44 times between 2000 and 2016 to $7.2 billion, according to the Brookings Institute.

While the market potential and relatively more relaxed regulatory environment in China has drawn investors from abroad, local venture capital funds are also keen on the potential synergies between Chinese and US biotech firms. They ploughed $1.4 billion into US biotech companies in the first quarter, representing 40% of the sector’s total funds raised, Bloomberg reported.

Aside from research and development, these funds are encouraging mergers to beef up product portfolios.

But these dynamics might soon fall foul of the ongoing trade spat between the US and China. “Sino-US trade relations in the Age of Trump are growing ever more acrimonious, which must significantly discomfort Chinese biotech firms,” Brock Silvers from Kaiyuan Capital, a Shanghai-based multi-asset advisory firm, told WiC. He also predicted that promising Chinese biotech companies would increasingly favour Hong Kong over New York when it comes to overseas listings.

The Hong Kong Stock Exchange announced on April 24 that it would allow pre-profit biotech companies to list on its main bourse and ease requirements for companies that are seeking secondary listings in Hong Kong.

Charles Li, HKEx chief executive, has said that the number of potential candidates set to IPO in the city is “in the dozens”.

Suzhou-based anti-tumour drug researcher Ascentage Pharma, Tianjin-based Tasly Pharmaceutical Group’s biopharma unit, and Hua Medicine, a drug developer backed by Alibaba founders, Ping An Insurance’s investment arm and Singapore’s GIC, are widely tipped to take advantage of HKEx’s rule revamp. Others are anticipating Beijing-based BeiGene and Hutchison China MediTech – which both went public on Nasdaq in 2016 – to seek secondary listings in Hong Kong too.

That said, some investors are wary of the lofty valuations of some of the biotech stocks.

“This is a notoriously risky sector, and in China there will certainly be a high failure rate,” commented Silvers. “Valuations don’t seem to reflect this reality, and if you add trade and regulatory risks to the equation, there’s plenty of cause for circumspection.”

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