Innovative medicine in China: A choice between two paths



Two modes

The growth path of Chinese pharmaceutical enterprises can often be summarized into two types:

For regular biotech, the path is license in + CRO + VC.

This model was pioneered by Zai Ding Medicine - not directly from the laboratory source to find innovative drug products, but to buy outside. With the help of capital, Re Ding used the license in model to quickly introduce the early pipeline, and then used the large-scale patient group and mature CRO companies in China to rapidly promote clinical and commercialization, and then negotiated into medical insurance.

After Tripod medicine, this model to play to the extreme, is OKvision and Genting Xinyao. Within two or three years of their establishment, they were quickly listed on the Hong Kong Stock Exchange.

The follow-up development of this kind of biotech is not difficult to imagine: the high probability is to "sell" to a large drug company, and the best of them will have the opportunity to be promoted to biopharma.

For companies known to the outside world as "generic drugs", the path is different: at the time of innovation, they still insist on doing generic drug preparations, and will choose to focus on one or two large products, with the power of "explosive" curves.

Huiyu Pharmaceutical, Qilu Pharmaceutical is the same. In the "4+7" urban volume procurement pilot in 2018, Huiyu Pharmaceutical's pemetrexed disodium for injection won the bid, thus entering the fast track of development.

And Qilu Pharmaceutical's Ankeda is also a big hit. After entering the medical insurance in 2017, it took just over a year for Ankeda to enter the top ten drug lists in the hundred bed compound, and its sales reached 1.8 billion yuan in 2020.

Do innovative drugs and do generic drug companies, because of the different growth soil, each has its advantages and disadvantages.

A large amount of capital poured into the field of innovative drugs, capital is often impatient, the pursuit of short speed, the license in the price of crazy grab, but the bubble is obvious. Who will clean up the mess after the Great Leap Forward? After the vicious competition will there be a chicken? This will be a problem for many biotech and VC companies for the foreseeable future.

By contrast, doing generic drugs is a solid thing, with a solid "chassis." Low trial and error cost; In the context of collective mining, commercial realization is easy.

In fact, starting from generic drugs has always been a good way to go, most pharmaceutical companies such as Hengrui, Tianqing are also so. The supply-side reform in 2015, not only changed innovative drugs, the addition of ICH and generic drug consistency evaluation are good for the generic drug industry in all dimensions, the quality has come up, but also better go out, there is an improvement in industry concentration.

On the other hand, there has been no patent cliff phenomenon in China for a long time, but the payment side reform led by the Medical Insurance Bureau has introduced a government-led market-oriented competition in a collective way, accelerating the overdue "patent cliff", so that many drugs in China also have a great space for generic drug replacement, and the market ceiling has a qualitative improvement.

Only in the past two years, because of the expectations of collection, compared with innovative drugs, the generic drug industry has been shrouded in a "price reduction" expectation, funds dare not invest, companies are also very careful layout, and the valuation of generic drugs is significantly lower than that of innovative drug companies.

But is there necessarily a clear and unbridgeable line between innovative and generic drugs?

Use imitation to foster creation

On October 26, 2021, Huiyu Pharmaceutical, a cancer drug company that exploded in the first batch of collective mining, officially landed on the science and Technology innovation board, and in this "large generic drug" that everyone thinks, its prospectus disclosed some details of transformation and innovation:

The company's innovative drug team has nearly 100 people, and is still growing at a high speed, including 41 master, 19 doctor, 8 overseas returnees, master and doctoral ratio of more than 60%, and the leader graduated from Cambridge, Harvard, Peking University and other world-renowned institutions.

Huiyu Pharmaceutical, founded in 2010, has been quietly doing innovative drugs, in addition to the above mentioned, but also from overseas industry to dig a lot of cattle, such as SNTA in the United States responsible for a FIC innovative drug team management and drug development senior director Chen Shoujun, and Eli Lilly's chief scientist and senior research consultant Wei Tao.

Unlike many companies that rely on financing to survive, Huiyu's continued investment in innovative drug research and development comes from the success of its generic drugs.

From 2018 to 2020, Huiyu Pharmaceutical's operating income was 54 million yuan, 707 million yuan and 1.364 billion yuan, respectively. In 2020 alone, Huiyu Pharmaceutical's net profit exceeded 340 million yuan. It is reported that when it was not profitable, Huiyu Pharmaceutical invested a large part of its income into innovative drug research and development. This is especially true after profits are made.

The Huiyu pharmaceutical listed in the science and technology board, according to the prospectus revealed that a large part of its financing will also be used to build an innovative drug research institute that covers an area of 60 acres and can accommodate 1,500 people.

It is estimated that in the next year or so, Huiyu Pharmaceutical's innovative drug results will come out one after another. At that time, Huiyu Pharmaceutical is expected to tear off the label of "generic drug companies" in one stroke, and become a benchmark drug company from imitation to imitation.

Perhaps the biggest advantage of imitation is that it is low risk, safe, controllable, can be more leisurely, do not have to bear excessive capital pressure, and do not have to cause deformation of action because of fast.

In fact, Takeda Pharmaceutical, Japan's largest pharmaceutical company, has chosen such a path. Takeda Pharmaceutical, which started from pharmaceutical distribution, began to do generic drugs, followed by imitation innovative drugs, and then new innovative drugs, and eventually became a global innovative drug giant.

Today, China's pharmaceutical industry is in a transition period, and the big trend is from generic drugs to innovative drugs. But how does this transition happen? How are risks controlled? How to reconcile ideal with reality?

It seems to be a good idea to promote creativity and foster creativity with imitation.

Go slow, go far

It is generic drugs, not innovative ones, that determine the basic health of a country.

Because medical insurance needs to control costs, compared with expensive original drugs, cheap domestic generic drugs can reduce the pressure of medical insurance, but also reduce the pressure of ordinary people to see a doctor.

There is no denying the fact that China has achieved significant savings in health care costs through the implementation of volume procurement. As China's population ages and health care costs continue to rise, generic drugs will become increasingly relevant.

In fact, even in the United States, the world leader in drug innovation, generics account for more than half of the market. According to the American Association of Universal Medicine's (AAM) 2020 Generics and Biosimilars Access and Savings Report, in 2019, a total of 4 billion prescriptions in the United States were issued for generics, accounting for 90%, but they only accounted for 20% of all drug spending. Ninety-two percent of generic prescriptions cost $20 or less.

According to the 2020 annual report of the Office of Generic Drugs in the FDA's Center for Drug Evaluation and Research, generic drugs have saved the healthcare system $2.2 trillion over the past decade.

In the European Drug Strategy published by the European Commission at the end of 2020, the European Commission mentioned that it will consider targeted policies to support stronger generic and biosimilar competition.

In fact, similar to the centralized procurement of drugs vigorously promoted in China in the past two years, countries will use administrative means to intervene in generic drugs and innovative drugs, encourage pharmaceutical companies to imitate drugs listed for a period of time, accelerate market competition, thereby bringing down drug prices. Because if everyone takes innovative medicines, no economy can afford them.

Therefore, in fact, we can conclude that generic drugs are the basic plate of health, and innovative drugs are the ocean of stars.

China needs companies like Zaiding, and it needs companies like Huiyu. The former manoeuvres and dances with the long sleeves of capital; The latter, from the beginning of birth, has embarked on a down-to-earth road, which is slow, but it is likely to go far.

One is looking at the stars, the other is down to earth, they have their own advantages. Of course, there are their own shortcomings.

But in the past two years, there were so many people looking up at the stars that they didn't bother to look down at the road, and even stepped on each other; And the down-to-earth people are few and far between, but these people are walking steadily.

In this regard, it may still need a top-down guidance, because the health of the Chinese people, after all, needs the Chinese people to tightly grasp their own hands.

The proportion of medical GDP in the United States has reached 17%, which is basically the country with the highest medical and medical costs in the mainstream economy. Therefore, the innovative drug research and development industry is a paradise in the real sense, but not every American can see a doctor normally, in fact, the American medical system is eroding the whole society a little bit, and medical reform is also a card that every presidential election will take out.

Innovative drugs can have a higher treatment service experience in the current treatment guidelines, but for the masses, innovative drugs are not accessible to everyone, so generic drug companies like Sandoz, Mylan, and India Sun Pharmaceutical are, to a large extent, the true sense of the American people's "medicine God".

Solve the basic treatment needs of the majority of patients, further reduce accessibility, so that all kinds of serious diseases, serious diseases become a "chronic disease" that everyone can treat, and then bigger, stronger, transformation and innovation. Takeda has gone through this road and has also gone very successfully, and it is also applicable to China, where 1.4 billion people and the incidence of cancer are increasing.