China's biotech revolution

The rapid rise of China’s nascent biomedicine capability shows how policy support and regulatory reform can transform an industry and rally the capital necessary to grow it.

02 Aug 2018

China has the world's second-largest drug sector

Consider this: one in four new global cancer cases are now in China, and over 100 million Chinese people have diabetes – the largest diabetic community in the world.

The Chinese government regards the rapid development of biotechnology as critical to tackle the looming challenges facing China’s healthcare system. These include caring for a rapidly ageing population, the rising burden of public and private healthcare spending, and high morbidity from non-communicable diseases. Some of the key initiatives include "Healthy China 2030 Plan," modeled on the health targets of UN Sustainable Development Goal 3.

In addition, China’s exceptionally high incidence of cancer and diabetes make it highly dependent on expensive imported drugs and patents, a dependence the government wants to reduce with homegrown and affordable innovative biomedicine.

Since becoming one of the Chinese government's strategic industries in recent years, the domestic medical biotech sector has enjoyed dynamic growth in a short period of time due to a combination of policy support, industry deregulation and deep pockets from private investors. Frost & Sullivan forecasts China’s biotech market to grow at a five-year growth rate of 16.4% by 2021, making it the world’s fastest.

Source: Frost & Sullivan

China's biotech boom

Source: UBS


China has been fully cognizant that a culture of innovation is required to develop a successful biotech industry. To this end, the government has embarked on a multi-pronged strategy to bring in technology from the outside and foster the right environment for innovation to thrive. One such approach has been to target the large pool of Chinese PhD researchers working at post-graduate research institutes and foreign companies.

Chinese students in the US, for example, currently number 352,000 and make up the largest foreign student group at almost one-third of the foreign student population. Most study chemistry and engineering. Over the last six years, 250,000 of the 2 million returnees, known as “sea turtles” (haigui), are estimated to be working in China’s life sciences industry.

China’s “Thousand Talents Plan,” designed to recruit overseas talent, confers prestige, attractive remuneration and career enhancement opportunities to researchers or employees poached from high-profile overseas R&D institutions and companies.

Chinese students foreign education

Source: UBS, Institute of Internal Education, Open Door Report, November 2017.

Chinese biologics – the world’s fastest-growing biotech market

Biologics (drugs synthesized from biological sources) have become one of the fastest-growing segments, as well as one of the most profitable areas, within the global pharmaceutical industry, with eight out of ten top-selling drugs being biologics. A major reason for such voracious demand is due to their efficacy in treating age-related diseases.

Given China's high incidence of cancer, developing anti-cancer drug research and treatment is the leading driver of innovation within China's biologics drug industry. Unsurprisingly, the country is making important early breakthroughs in therapies derived from advanced treatments for cancer. Predominant examples include advances in monoclonal anti-bodies (mAbs), which are proteins that mimic a body’s immune system to attack foreign objects; immuno-oncology, which leverages the patient’s natural immune system to kill cancer cells; and CAR-T, a type of gene editing of the body’s T-cells to attack cancer cells.

Comparative forecasts for global biologics market growth

CAGR from 2010-2021E, in %

Source: Frost & Sullivan

China's CAR-T success

Isolated cases of real innovation are becoming visible in China's biologics space. One such instance is CAR-T (chimeric antigen receptor) treatment, in which cell-killing T-cells are removed from the body and engineered to recognize the relevant cancer target. CAR-T is a last line of defense against cancer, but can have serious side effects and is prohibitively expensive at a cost of USD 500,000 per treatment in the US.

CAR-T clinical trials have “orphan designation” in China, so companies enjoy streamlined and accelerated clinical trials, which lower costs, as well as tax breaks. The advancement in CAR-T therapy is a significant milestone for China, as it demonstrates that Chinese researchers repatriated from the US can innovate and clinically trial in their home market and then proceed to launch the therapy globally through their overseas networks.

China is emerging as a growing force in CAR-T clinical research

Source: McKinsey and Company, November 2017

Investment implications

Biotech is an industry with high sensitivity to risk appetite and often experiences boom-bust cycles. It is regarded as a high-risk industry for investors due to high failure rates owing to strict regulation in clinical testing, given the repercussions for human health. For instance, in the US, less than 10% of drugs are successful from phase 1 to clinical approval, according to the Biotechnology Industry Association.

Specifically in China, the biggest industry risk for biotech relates to price cuts of biologic drugs. Most companies need to list on the National Reimbursement Drug List (NRDL) to be commercially successful, and the NRDL has considerable pricing power. Another topical risk to China's biotech sector is the violation of drug safety standards due to weak implementation.

Publicly listed equities of Chinese companies engaged in medical biotech offer a direct means to gain exposure to China’s medical biotech boom, in CIO's view. These include legacy listed Chinese generic chemical drug companies that are moving into biologics, as well as the new wave of recent biomedicine listings of both drugs and equipment makers.

Biotech investment is not for the faint-hearted investor.

Charles Li, Chief Executive Officer, Hong Kong Exchanges & Clearing Ltd.

The report also features insights and shared visions of several leading pioneers in China’s biotech sector, many of whom were trained overseas. Download the report to find out more.

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