China's biotech 'coming out party' masks long road ahead
Investors are betting on China's potential to feed the global pharmaceutical pipeline, putting a multi-billion-dollar price tag on a handful of stocks, even as the country struggles to close a huge research and development (R&D) gap with the West.
Shares in firms such as Chi-Med, Beigene and Zai Lab have soared on international markets this year, fuelled by hopes for their drugs and recent reforms to China's regulatory system that should speed up approvals.
"It's almost a coming out party for China biotech," said Christian Hogg, chief executive of Hutchison China MediTech or Chi-Med, which presented promising data at a global medical congress this week on a lung cancer drug it discovered in China and is developing with AstraZeneca.
"China is in vogue because of the positive moves on the regulatory side, as well as advances at companies. It's a big, big change versus 10 years ago and it is accelerating."
Importantly, national and provincial authorities are also moving faster to agree payments for innovative drugs, albeit after negotiating price discounts in many cases.
Yet, amid the euphoria, it is easy to lose sight of the fact China still has far to go. It contributes just 4pc of global drug innovation - as measured by the number of products in development and recent launches - against 50pc from the United States, according to an October 2016 report from four Chinese pharmaceutical associations.
"It is very apparent they are trying to transition to being more of a novel drug development environment and bring in more innovative research," said Scott Gottlieb, head of the US Food and Drug Administration (FDA). "I think it's going to be a long transition... we built up an ecosystem in this country over decades and decades."
China's traditional strengths lie in generic drugs and the bulk production of active pharmaceutical ingredients that are found in pills in pharmacies worldwide.
The shift in focus to original research is a change in mindset, although it builds on the success of contract research and manufacturing company WuXi Biologics, which does much of the legwork for China's budding biotechs.
Bi Jingquan, the reformist bureaucrat who has led China's drugs watchdog the CFDA since 2015, views innovative - and affordable - drugs as the key to meeting the country's growing clinical demands.
China is now the world's second-biggest drugs market after the United States.
But the CFDA head lamented in a recent speech that Chinese domestic drug industry R&D investment was only 42 billion yuan (€5.3bn) last year, a small slice of the €133bn spent worldwide by drug companies in 2016, according to market intelligence group EvaluatePharma.
Not helping is an under-developed academic ecosystem in China and the fact most big local drugmakers are deeply rooted in generics, despite outward talk of innovation.
"It's easy to say I want to do new drug development, but then it's harder to see yourself spending $100m and then fail," said Samantha Du, chief executive of Zai Lab. (Reuters)