Growing demand from an aging, middle-class population is fuelling world-class innovation in China’s pharmaceutical sector.
Innovation in pharmaceuticals has become a priority for China, given not only the aging of its population but the healthcare demands of a middle class which is now the world’s biggest. The market for drugs has grown rapidly in the past few years, becoming the second-largest in the world. According to America’s Department of Commerce, it could grow from $108 billion in 2015 to about $167 billion by 2020.
The industry is not only expanding and raising its global profile, but also undergoing significant structural changes. It is highly fragmented, consisting of innumerable small manufacturers and distributors, focused mainly on making cheap, generic medications. Innovation has been hampered by a lack of R&D financing. The World Health Organisation reported in 2016 that less than 5% of sales goes into R&D, and most of this is allocated to research into generics.
Now the government is encouraging consolidation in the sector, mainly by raising quality standards for drugs and improving the regulatory infrastructure. Such measures are expected to make drug development faster and more efficient. The industry has responded with a steep rise in the value of deals: Research firm ChinaBio estimates that over $40 billion in foreign and local investment went into life sciences in China last year.
Life sciences talent is another major force shaping the Chinese pharmaceutical industry, with an influx of talent coming from abroad. This includes Chinese-born executives returning with Western educations, as well as Westerners with experience in multinational pharmaceutical firms, The Economist reports.
Scottish-born Christian Hogg, CEO of Chi-Med, previously headed a division at American consumer goods multinational Procter & Gamble. Founded in 2000, Chi-Med is listed on NASDAQ and the London Stock Exchange, and currently has eight drugs in clinical development. Most notably, following positive results in late-stage trials, Chi-Med is on track to launch the first cancer drug made entirely in China. The drug is also on a path to global commercialisation.
Samantha Du, Chi-Med’s Co-Founder and its first Chief Scientific Officer, was educated in the US and previously an executive at American pharma giant Pfizer. She also headed Chinese healthcare investments for VC firm Sequoia Capital. Du is currently CEO of Zai Lab, which she founded in 2014. The firm licenses late-stage drugs from Western pharmaceutical companies for development and sale in China, in addition to developing its own drugs.
Along with Chi-Med and Zai Lab, there are several rising stars in China’s life sciences sector: BeiGene, an oncology firm, has four clinical-stage drug candidates and raised $158 million in an IPO last year. Chipscreen Biosciences has developed a cancer drug to rival Chi-Med’s. It was approved by China in 2015, and could win the race for approval in America and Japan.
The industry has been fairly slow to consolidate; hence the number of innovative firms like these could remain limited. However the sheer size of the local market could overcome all barriers. Another thing in the industry’s favour is that it remains much more economical to develop drugs in China versus the US or EU, giving China a big competitive advantage on the global market.
