From fever to flight, What happened to China's innovative medicine?

　　In 2000, Lu Xianping, 38, joined the first batch of "technology returnees". The ambition is to make original medicines affordable to the Chinese people. At that time, there were more than 7,000 pharmaceutical companies in China, the largest in the world in terms of quantity and pharmaceutical production capacity. From the perspective of use, China has millions of new cancer cases every year, also ranking first in the world. However, even in such China, there is a blank in the field of innovative drugs, especially in the field of tumor drugs research and development. There is not only no independent innovative drugs, but also the launch of foreign drugs in China takes 5 to 7 years longer than that in neighboring countries and regions.

　　Since there is no countervailing product, foreign drugs are often the most expensive in the world. Hence the story Dying to Survive, in which Gleevec (Imatinib), the archetype of Lenin, is a typical example. At the same time, biotech, an American company, had entered a new phase of explosive growth. Before returning to China, Lu had already founded two biotechnology companies, his first eight years ago selling research projects to well-known pharmaceutical companies.

　　"Our idea is very simple: we want to change the situation of China's original medicine industry and make original Chinese medicine affordable to ordinary people." Lu Xianping said this at a domestic industry conference in 2018.

　　At that time, there were many other overseas scientists who had the same idea as Lu Xianping, including Ding Liaming, Zhang Xiaodong and Wang Yinxiang, who later founded Beida Pharmaceutical, Wang Xiaodong, who later founded Beigea, Li Ge, founder of Ming Kant, a leading CRO in China and even the world, and Yu Dechao, who later founded Xinda Biology.

　　"These people have worked in foreign pharmaceutical factories for many years, accumulated a lot of experience and reached the ceiling of their career. Coming back to start their own business also coincided with the needs of the country. Parks around the country have just started, and there are various talent policies to attract them back.

　　Dr. Zheng Weiyi, chairman of Nanjing Yingnuo Pharmaceutical Technology Co., LTD., recalled the situation at that time and told Huxiang that it was during this period that he left the multinational pharmaceutical company where he had worked for many years and returned to China to start his own business.

　　Over the past 20 years, overseas scientists and entrepreneurs returning to China have promoted the rapid development of China's innovative drug industry with the acceleration of the review and approval of new drugs, the dynamic adjustment of the medical insurance catalogue, the implementation of the national policy of encouraging innovation in pharmaceutical devices, and the opening of the Science and Technology Innovation Board and Hong Kong Stock Exchange 18A to unprofitable enterprises.

　　Ectinib, China's first small-molecule targeted drug with independent intellectual property rights, was approved; China's first "first in class" drug, sidarbenamine, was approved; Domestic PD-1 has been listed and included in medical insurance. Zerbrutinib has achieved the breakthrough of zero innovative drugs in China; The domestic ADC drug was sold to the internationally renowned biopharmaceutical company Seattle Genetics at a high price of $2.6 billion...

　　One milestone after another drives capital crazy.

　　Share prices of listed companies have soared, with multiples in the hundreds or even hundreds of thousands.

　　The change seemed to happen overnight. One day people are celebrating the "fruit" is about to ripen, the next day the foam is bursting and the feathers are all over the ground.

　　Since June 2021, the E Fund China Innovative Drug Industry ETF index has fallen from the high of 1.05 to 0.66, a decline of more than 37%. The overall trend curve from outperforming the market was gradually left behind by the market.

　　The sentiment is also affecting the primary market. "At present, the market of innovative drugs is in a relatively cold state", an innovative drug FA confessed to Huxiang. Investments are also becoming more cautious.

　　Citic Securities Research report shows that in the first quarter of 2022, the total amount of investment and financing in the global pan-medical health field showed a downward trend, among which the total amount of investment and financing in China was 29.997 billion yuan, down 37.46% quarter-on-quarter and about 34% year-on-year, which exceeded the global decline. In the field of biomedicine, according to the statistics of Zheshang Securities, in April 2022, a total of 39 financing events occurred, involving 568 million yuan, down 47% from the previous month.

　　In an interview with Kauri, an industry source predicted that more than 1,000 Biotech companies will disappear by 2022 and a wave of bankruptcies will follow two years later. Zhu Xun, the former vice president of Bethune Medical University and the founding president of the Tongxieyi New Drug Talent Club, is optimistic, also thinks that 20% to 30% will not be able to operate. At 1,500 biotech firms, there are about three or four hundred.

　　Biopharma is a weak cyclical industry. Meng Bayi, former head of intellectual property and deputy general manager of Chongqing Huabang Pharmaceutical, told Tiger that in the past few decades, there have been at least three explosive developments in innovative drugs globally, all when the stock market was depressed. The post-epidemic market inflation is also theoretically an opportunity period for the fourth outbreak of innovative drugs.

　　Why did an innovative drug that was supposed to speed up overtaking suddenly stall?

The consequences of the orgy of capital

　　Innovative drug developers often say that half a step ahead is a pioneer, one step ahead may become a martyr. That means timing is crucial when it comes to innovative drug development -- too early or too late could be disastrous.

　　For a long time after Lu Xianping returned to China, innovative drug research and development lacked both money and technology.

　　Within a year of returning to China in 2001, Lu Xianping had raised $6 million, equivalent to RMB50 million at the time, to start his business. With that money, Lu and a group of scholars who had stayed in the United States and returned to China founded Microbiome in Shenzhen. But that is still a fraction of the $1 billion spent over 10 years to develop new drugs. At the most difficult time, Microbiota almost became a CRO. In order to cope with the crisis, he cut his senior executives' salaries by 60%, including himself, and sold the overseas interests of sidarbenamine. Li Ge, a CRO, almost sold his company once.

　　One reason financing was so difficult was that drug reviews and approvals in China were often chaotic and stagnant. A flood of generic drug approvals has squeezed resources and delayed the launch of new drugs. Lu Xianping revealed in an interview with E drug managers that sidarbenamine had been lying in the drug trial center for 4 years. Another reason is that the Chinese stock market still adheres to the profit line, and innovative drug companies that are still burning cash have no choice but to seek opportunities overseas if they want to list.

　　2015 was the year of the turnaround. On July 22 of this year, the former State Food and Drug Administration issued the "strictest data verification requirements in history", requiring new drug applicants to check their own data, and withdraw the data if it is untrue or incomplete, or the application will not be accepted within three years. The incident, later known in the pharmaceutical industry as the 722 Tragedy, was a prelude to the reform of the drug review and approval system.

　　The backlog of new drug applications has begun to be resolved, new standards and order have begun to be established, and China's clinical trials have begun to be integrated with international standards and mutual recognition.

　　Regulatory dividends are released, and financial markets follow.

　　In April 2018, HKEX added Section 18A to the main Board listing rules, allowing unprofitable biotechnology companies to submit listing applications, breaking the shackle of "unprofitable cannot be listed".

　　At the end of 2019, the Science and Innovation Board of the Shanghai Stock Exchange put forward five sets of differentiated listing criteria, of which the fifth set clearly stated that enterprises can apply for listing as long as they meet the requirements of valuation of 4 billion yuan, "the main business or product needs to be approved by relevant state departments", "the market space is large" and "the pharmaceutical industry enterprises need to obtain at least one phase II clinical trial approval document for a Class I new drug".

　　Tailored for innovative pharmaceutical companies, the standards quickly became the go-to for biotech ipos. According to public data, the 34 biotech companies listed on the Science and Technology Innovation Board in 2021 have outnumbered the 24 listed in Hong Kong.

　　The floodgates opened and capital poured in.

　　According to the statistics of Tianfeng Securities, the financing in the field of innovative medicine surged from more than 20 billion yuan to more than 100 billion yuan by 2021. In the early 2000s, getting 50 million yuan in financing was a big deal. By the beginning of 2021, according to the industry said, "angel round can raise 300 million yuan. Financing is not more than 100 million, are embarrassed to say ".

　　In the secondary market, a large number of biomedicine companies are still in the red, with the market value of billions or tens of billions, and Junshibio, Beigene, Consino and so on have reached the peak of the market value of hundreds of billions.

　　This money has solved the financing problem for entrepreneurs and caused great harm to the industry.

　　The board's valuation limit of 4 billion yuan allowed many investors to see an "opportunity." They "package" companies with innovative drugs, list them at high market values, and then withdraw, making a lot of money easily.

　　In the process, whether a new drug is really valuable, or even approved for sale, is no longer a question. Some investors invest 500 million to 1 billion yuan, recruit a "luxury team", put it into a project, incubate for two or three years to go public, complete the harvest. Innovative drug concepts, talent competition, and eventually become a "capital game."

　　"Investors regard innovative medicine as a tool to make money, entrepreneurs may become the biggest leek!" Zhu Xun told Tiger, once there is a problem, many investors, especially big investors can withdraw at any time, really want to do things entrepreneurs, facing investors, supervision, and public opinion pressure, there is no way out, often fall into a dilemma.

　　In the case of imperfect regulatory and intellectual property systems, some products are lucky enough to be launched, and even though there is no market, they will be regarded as successful investment cases.

　　This also leads to the current situation of me-too, me-worse and pseudo-innovation everywhere in China's innovative drug market to a certain extent. Zhu counted a class of innovative drugs that will hit the market in China in 2020, and found that they will hit the market 11 years later on average than the same target drugs globally. Generics, so to speak; A cluster of approved biosimilars, almost biosimilars.

　　Other investors are purely "fruit pickers", never offering help in the Nick of time and only stepping in when success is imminent.

　　Burdened with capital, these companies are "overstretched for at least the next 10 years". They are "small companies, despite their large market capitalisation". The resulting prosperity is also fake.

　　"There are more than 2,300 health-related industrial parks or incubators in China. If each park (incubator) has 10 companies, there are 23,000 companies in the country. Even if a third of them are biotech companies, there are thousands of them. In 2021, only 39 of the new drugs approved by domestic companies will be chemical and biological drugs. How many will be allocated to each company or each park?" Zhu Xun sighed: "The bubble is too big!"

　　The war for talent, fuelled by excess capital, has also driven up the pay of top talent. Headhunters in the biomedical field told Husniff that the annual salary of chief medical officer (CMO) is generally 2 million to 3 million yuan in cash alone, and some can reach 5 million to 8 million yuan.

　　The average R&D worker should also expect at least a double-digit pay raise each year. Even so, some doctors who lead clinical trials joke that corporate staff changes so often that they are replaced as soon as they become familiar with the process.

　　All these increase the cost of new drug research and development and raise the threshold of innovative drugs. "Many traditional pharmaceutical companies that want to use their operating cash flow to make innovative drugs can hardly compete with biotech companies that use a lot of blood from capital market investors." Zhu Xun concluded to the tiger sniff.

　　Zheng Weiyi, who returned to China to start his own business for many years, also expressed his sympathy to Huxiang: "This will have a great impact on the enterprises that seriously do innovative drugs. The total pool is so big that it's gone to these companies and nobody else has."

　　A glut of entrepreneurial projects is straining limited resources. According to Doctors Daily, Guo Jun, deputy director of Peking University Cancer Hospital, publicly pointed out at an industry event in 2018 that PD-1 production by hundreds of pharmaceutical companies nationwide was not enough for clinical experts and patients.

　　Even the price of an experimental monkey has risen from several thousand yuan to 160,000 yuan, and the price of a modular mouse has also risen to more than 10,000 yuan.

　　All this foreshadowed the subsequent bursting of the innovative drug bubble.

The technical dividend period has come to an end

　　Not long ago, the State Food and Drug Administration released the 2021 Drug Review Report, which summarized the achievements since 2017: a total of 139 innovative drugs were approved for market in the past five years.

　The speed of approval and waiting time at all stages have been greatly shortened. According to the Medicine Cube, the median lag time for imported new drugs to hit the market in China between 2016 and 2020 has fallen to 2.7 years compared with the US, a significant drop from 8.7 years between 2006 and 2010.

　　This is a success of the reform of the drug review and approval system. Combined with the national health care negotiations, Chinese people will finally have access to more affordable life-saving drugs.

　　For the industry, however, the test remains severe.

　　According to the FDA report, the number of clinical applications accepted for innovative drugs has increased from 483 to 1,821 since 2017, of which 1,428 were local innovations; The number of applications increased from 23 to 65, with the vast majority also coming from domestic companies.

　　China's innovative drugs are still in the stage of fast-tracking and incremental innovation, according to an article in Nature by experts from the Review and Evaluation Center (CDE) of the China National Drug Administration and the Department of Pharmacy of Peking University and Peking University First Hospital. And there are problems with research clustering.

　　Oncology is the field with the highest concentration of innovative drugs in China. Among the varieties submitted for clinical trials for the first time, more than 60% are oncology drugs, far surpassing the second place of infectious drugs (12%).

　　The top five targets in the target set are EGFR, CD19, HER2, PD-L1 and PD-1 . Citing statistics, Zhu pointed out that there are more than 100 macromolecular targets in the world, and China's research and development only focuses on the top 12% of the hottest ones. Among the first 100 targets of small molecules, China only focused on the first 40%.

　　This not only leads to homogenized competition, but also leads the industry development into a situation of "drying out the harvest".

　　Zhu Xun told HuSNIFF that in the past six or seven years, at the peak of entrepreneurship, China's innovative pharmaceutical companies have developed the world's best-selling drugs in the past 30 years through fast-follow, licensein and other ways. It also means that this wave of innovative medicine dividends in China is coming to an end.

　　In fact, the rapid development of innovative medicine in China in this round is not only due to the release of domestic policy dividends, but also largely due to the "free ride" of the explosive development of innovative medicine in the world.

　　An analysis of the XBI fund index of 332 small Nasdaq-listed biotech companies from 2010 to 2018 by Harvester Ventures found that there have been three big rallies in the biomedical sector since 2006. Overall, by the peak in early 2021, the gain was 1,000%.

　　There were a few pullbacks, but they recovered and reached new heights within a few months. Behind it, continuous breakthroughs in science and technology are an endless source of power.

　　In the process, more than 80 percent of the global innovative drug market is concentrated in the United States, changing the model of innovative drug research and development, with smaller, more flexible biotech companies becoming the main force of new drug development.

　　Chinese scientists and researchers who have worked in the United States for many years have also returned to China in the hope of perpetuating this myth in China. This has channeled a lot of talent and capital to China's innovative drugs.

　　Today, both the multinational giant and the domestic traditional pharmaceutical company, star biotech, have to face the new situation in the development of innovative drugs -- "the low-hanging fruit has been picked", and the rest is "hard bones". The dividend of global innovative medicine has also reached a juncture.

　　The criteria for measuring innovative drugs are simple and brutal: "Product launch, market share, sales, sales profit". Only the continuous introduction of the annual sales of more than $5 billion, the life cycle of the cumulative sales of more than $500, in order to support the global market confidence.

　　"Pfizer bought Lipitor for $10 billion and made over $160 billion; Abbvie bought tens of billions of Humela and sold $200 billion; Gilead also spent billions on CAR-T, but what happened? What about Pfizer's $11.6 billion takeover of migraine?" Zhu Xun hit the nail on the head in an online event held by "Tongxieyi", a well-known forum organization for biomedicine in China.

　　In addition, cancer vaccine and Alzheimer's drug projects have failed, and nucleic acid drugs such as mRNA have only made breakthroughs in COVID-19 vaccine. Entrepreneurs and investors are confused. What is the future of innovative drugs?

　　As a result, the Nasdaq Biopharmaceutical Index (XBI), a barometer of small biotech companies, has fallen nearly 40% since the start of the year.

A one-foot business model

From the end of the 20th century to the beginning of the 21st century, there have been major breakthroughs in life science and bioengineering technology. DNA double helix, the "law of Life", recombinant DNA technology, hybridoma technology to neutralize antibodies, a full understanding of intracellular signaling, and the introduction of human antibody technology, a large number of newly discovered and validated targets are just suitable for the development of antibody drugs...

　　This has also led to the creation of a host of blockbuster drugs, including Sumerol (adamyzumab), Lipitor (atorvastatin calcium), Polivir (clopidogrel), rituximab (rituximab), Dolmatin (insulin glargine), and PD-1 product K, to name a few.

　　These drugs have not only turned around cures for high blood pressure, coronary heart disease, diabetes, autoimmune diseases and even cancer, but also made huge profits for companies and investors -- more than $50 billion in sales over their lifetimes. Total sales of Humela have exceeded $200 billion.

　　This has made many people full of imagination about the "money path" of innovative drugs, especially after the establishment of the National Medical Insurance Administration in 2018, the dynamic adjustment of the medical insurance catalog, and the focus of new, good and high-priced drugs such as cancer drugs. The hope is that China's innovative drugs, backed by the biggest payers, can be quickly rolled out and made rich.

　　Because of this, the introduction of Hengrui Medical PD-1 into medical insurance at the end of 2020 pushed the capital drought to its peak -- the company's market value soared to more than 600 billion yuan.

　　That turned out to be a huge miscalculation.

　　In April 2022, Hengrui was late to report its annual and first-quarter results -- despite having already received approval for 10 innovative drugs -- and its revenue and net profit both fell sharply. Net profit fell by nearly 30%.

　　Although Hengrui Pharmaceutical is keen to emphasize its 6.2 billion yuan research and development investment, showing the determination of the future layout, but there is no way back.

　A harsh truth has been exposed to the public -- in China, innovative drugs can not bring the high profits that companies imagined.

"Sales of innovative medicines in China account for no more than 3 per cent of the global market for similar products."

　Citing BTK inhibitors and PD-1/PD-L1 as examples, Zhu said, "Beigene's Zebrutinib is the third BTK inhibitor in the world, and sales are also growing rapidly. But last year, it sold about 1.4 billion yuan, while ibrutinib, the best-selling drug of its kind, sold more than 9 billion dollars. "Not to mention PD-1, K-drug has been sold for nearly $20 billion, and seven or eight domestic drugs combined are less than 10 billion yuan."

　　Medical insurance negotiations accelerate the entry of innovative drugs into the medical insurance directory, but further compressed sales and profit space, coupled with the increasingly homogenized competition of innovative drugs, even with 17,000 sales team, sales strength of Hengrui Pharmaceutical, which is overwhelming the majority of start-up companies, in the 2021 annual report can only be forced to write: "The development of the company encountered great pressure of performance and transformation challenges."

　　Startups can do even less. According to the 2021 annual report of Junsil Biology, after its PD-1 product riprilizumab was offered medical insurance with a 60% price reduction, its sales revenue dropped to more than 400 million yuan. The company, which was commercialized in 2019, lost more than 700 million yuan in 2021.

　　In addition to medical insurance, CAR-T cell therapy, which claims to "cure cancer with a single injection", is even colder in China.

　　Fosun Pharma's 2021 annual report announced the use of CAR-T in China -- only about 100 patients entered the treatment process, contributing 120 million yuan to the company's revenue, accounting for 0.31% of Fosun Pharma's revenue in that year. During the same period, Yaoming Juno used even less CAR-T, issuing only 54 prescriptions and earning more than 30 million yuan.

　　Golly Pharmaceuticals, the first to list in Hong Kong, is losing money three years after its own hepatitis C treatment was approved. It is part of the hepatitis C small-molecule drug circuit, which helped Gilead gain a foothold among multinational drug companies and still accounts for more than $1 billion in revenue.

　　Other companies with products on the market, such as Northrop, Zaiding and Corning & Jerry's, also show little sign of a blockbuster drug.

In terms of sales in 2021, there are still solfantinib and other commercialized products with sales volume of over 100 billion yuan. Even the booming bio-antibody conjugate drug (ADC) Videcitumab, which is popular in the industry, only sold 84 million yuan, accounting for less than 1.7% of the global market. Although the absolute sales volume of some products is high, the R&D expenses and sales expenses behind them are also considerable, even far more than the income itself.

Note: Data are from the company's annual report and PDB database. Tiger sniffing mapping.

　　According to the statistics of Meinet and IQVIA, in 2021, China's pharmaceutical market scale is 1774.7 billion yuan, and the top 10 drugs with sales volume are still dominated by original and generic drugs after the patent period, although they have been greatly different from ten years ago.

　　The "technology returnees" who are in a dilemma are sadly aware that there is no room for domestic innovative drugs in the huge Chinese pharmaceutical market.

　　At the same time, multinational giants and overseas biotech companies are facing the same problem.

　　Gilead bought Kite for $11.9 billion in 2017 Pharma, has acquired Yescarta, a CAR-T drug that the company reported sales of $860 million in 2021. Novartis's, the world's first to market, is no better. Sales in 2021 are just $587 million. Arguably, both results fell well short of market expectations.

　　Multinational giants such as Pfizer, Roche and BMS are also in a phase where the dividends of old drugs are running out and new drugs are not succeeding. How to break the game in the future?

Destruction or Nirvana?

"In the current global epidemic, we have reason to believe that the threat to human health is always present, so the medical research targeting human health will continue to develop and deepen, and the proportion of investment should also be constantly increased."

　　The author of "The Story of New Drugs", Dr. Liang Guibai, who worked for many years at the Merck Institute for New Drugs, is confident about the future of innovative drugs.

　　To restore global confidence in innovative drugs, Meng Bayi told Tiger: "How to integrate CAR-T, RNA and AI with pharmaceutical giants, and whether these technologies can be introduced into the track of giant bomb drugs is the key."

　　As for China's innovative medicine, Zhu Xun and other experts in the industry hope to find a way out of China's innovative medicine through efforts.

　After trying a series of operations, such as establishing a biomedical park, starting a business, investing in potential projects and teams, establishing a Tongxyeyi New Drug Talent Club, helping to found Yaodu, Firestone creating a data platform, reorganizing the editorial board of Pharmaceutical Progress, and founding Shell Society to train entrepreneurs, he gradually realized that in China, the disease of innovative medicine, We can't just rely on the innovative drug industry.

"Any innovative drug that does not enter the regulatory market, which is the European and American markets, will not fetch a large price. And if a country or region wants to form a good innovation atmosphere and business model, it cannot do without the regulatory market."

　　Zhu explained that the establishment of a mature innovative drug ecosystem involves three basic elements, one is a scientific, standardized, stable and transparent pharmaceutical supervision system, the second is a strict intellectual property protection system, and the third is a proper medical insurance payment system.

　In China, it will take at least 10-15 years for innovative drugs to achieve great development, and it also needs the joint efforts of all relevant parties. The reason why domestic homogeneous competition in the field of innovative drugs is so serious is related to the immature ecological environment, "at least it can show that the existing intellectual property rights are in vain". The bargaining power of medical insurance payment is more painful for entrepreneurs.

"I'm afraid there won't be any more overseas entrepreneurs coming back." Some people expressed to the tiger Sniff with concern.

　Innovation itself is the superposition and integration of global culture, science, capital and talents, which requires strict patent protection, free market pricing, solid basic research and other conditions. In the world, only the United States can truly do the above three things. Because of this, 80 percent of the world's innovative drug industry is concentrated in the United States.

　For the entrepreneurs who are interested in doing innovative medicine, they should go abroad and compete with the world's best drug hunters and pharmaceutical makers to get the only chance to survive and develop.

　For most of China's innovative drug enterprises, which are encouraged by capital, the reality must be faced is that new drug research and development is not easy. The so-called "big medicine" and "big bullet medicine", that is, the birth of drugs with annual sales of more than 1 billion dollars, cannot be done with money.

"These 'big drugs' are almost invariably the result of breakthroughs in basic life science."

　Liang told the company that breakthroughs in basic scientific research are hard to predict and will attract the attention and investment of the industry once they occur. China's basic research is relatively backward and its investment philosophy is yet to mature, which is also the main reason for the convergence phenomenon of "swarm of bees". In this sense, the country's long-term investment and accumulation of basic life science research is also a necessary condition for China to become a powerful pharmaceutical country.

　In fact, Chinese people are still in desperate need of "life-saving medicine".

　Take cancer as an example. The latest global cancer burden data for 2020 released by the International Agency for Research on Cancer (IARC) of the World Health Organization shows that the number of new cancer cases worldwide in 2020 is about 19.3 million. Among them, the number of new cases in China is 4.57 million, accounting for 23.7 percent of the global total.

　In terms of deaths, 3 million people died in China in 2020, accounting for more than 30% of the global cancer deaths.

　Not to mention, more than 90 percent of rare diseases still have no cure.

　Starting from the development status of China's pharmaceutical industry, it is the top priority for local enterprises to follow new drugs, including me-too and me-better, and improve the quality of generic drugs. "It is urgent to solve the problem of 1.4 billion people self-medicating," Meng said.

　Every crisis has an opportunity. Over the past year, Zhu Xun's investments have increased rather than decreased. "I've been involved with early-stage projects, looking for real value investments."

　New technologies and new varieties will not appear in a vacuum, the trough may be a golden opportunity to incubate the future of innovative medicine in China.