What’s next for pharma innovation in China
Three
prominent Chinese executives discuss the progress of local companies in drug
innovation and the evolving regulatory environment.
China has stepped up investment in drug innovation in recent years, both in basic
research and in industry research and development. China’s pharmaceutical
market is the second largest worldwide, after that of the United States,
reaching $115 billion in sales in 2015. Further growth is on the way. China faces
mounting medical needs—for example, it has 114 million diabetic patients and
more than 700,000 new cases of lung cancer diagnosed each year. At the same
time, the ongoing reform of the China Food and Drug Administration (CFDA) aims
to accelerate the pace of pharmaceutical development in the country.
To get a sense of what
lies ahead for innovation in Chinese pharma, McKinsey’s Fangning Zhang and
Josie Zhou spoke with Li Chen, the CEO of Hua Medicine and former chief
scientific officer and head of research at the Roche R&D Center in China;
Frank Jiang, the CEO of CStone Pharmaceuticals; and Ling Su, a venture partner
at Lilly Asia Ventures and former head of development for Novartis in Greater
China. They were interviewed separately, and their perspectives were compiled
into the following format for our Biopharma Frontiers series on how the pharmaceutical
industry is evolving and how leaders can adapt.
McKinsey: Where does China stand today
in pharmaceutical innovation?
Li Chen: China pharmaceutical R&D
has picked up speed over the past few years, spurred by several factors. For
example, there are rising global contract research organizations, such as WuXi
AppTec, that offer integrated, end-to-end services and open-innovation
platforms to support pharmaceutical R&D and manufacturing for both small
and large molecules.
Another force is that
some leading Chinese pharma companies that historically focused on generics
have started building capabilities and making investments in innovative drugs.
Their intent is to draw on Chinese patient needs while capitalizing on
knowledge from other markets. Last, there is a group of innovative biotech
companies founded over the past five years that focus on addressing global
unmet medical needs.
Ling Su: One observation is that
innovation is increasingly coming from biotech start-ups established by the
alumni of multinational companies (MNCs). Second, some of the leading Chinese
pharma companies are now expanding from a manufacturing focus to investing more
in innovative portfolios, but the number is still small.
McKinsey: What are the most important
drivers of pharma innovation in China?
Frank Jiang: First, I would like to
highlight the encouraging progress in government policies, especially the CFDA
reforms initiated less than two years ago. The regulatory changes these reforms
have brought are going to catalyze the pharmaceutical industry in China, if
their ambitions are realized.
Second is R&D
infrastructure. I have seen some promising examples in “innovating the way we
do R&D” in China. For example, the Beijing Genomics Institute has developed
a desktop sequencing machine that can be more easily used in hospitals, which
is critical for the development of precision medicine.
Last, local pharma
companies are beginning to innovate. We have seen rapid growth of new drugs in
the pipeline; for example, the number of applications of local innovative drugs
entering clinical trials in China has grown from 21 in 2011 to 88 in 2016, a
compound annual growth rate of 33 percent. But few Chinese companies have
out-licensed their innovative molecules. The exceptions include Hengrui
Therapeutics out-licensing a PD-1 asset to the US biotech company Incyte in
September 2015, Innovent Biologics contributing three assets to its partnership
with Eli Lilly and Company in October 2015, and Akeso Biopharma out-licensing
an oncology molecule to Merck Sharp & Dohme in December 2015.1However, how many are first in
class or best in class, versus me-too or me-better, is another question.
McKinsey: MNCs sometimes are critical
of China’s regulatory environment, saying that it slows down pharmaceutical
innovation. Has the latest round of CFDA reform improved the situation?
Ling Su: China’s regulatory policy and
process have been questioned for many years on numerous fronts—for example,
lengthy review timelines, lack of transparency in communications, and
inconsistent and unclear criteria for priority reviews. But we are seeing that
the agency is committed to debottlenecking the process and ultimately creating
a regulatory environment that encourages innovation.
Since the CFDA reform
kicked off about 20 months ago, the agency has released more than 100 policies
and opinions aimed at improving the regulatory system. For example, the
application backlog has been reduced from 22,000 in mid-2015 to about 8,000 by
the end of 2016. Most recently, we have seen accelerated approval of innovative
drugs from both locals and MNCs.
However, it could take
two to three years or even longer for these policies to be fine-tuned and
finalized into an overall framework.
McKinsey: What is your vision for China
pharma innovation in 2020 and 2025?
Frank Jiang: By 2020, innovation in
mainstream Chinese biotech and biopharma will enter a new phase. First, more
innovative medicines are poised to reach Chinese patients. Second, we are
seeing promising progress in tackling many of the most prevalent illnesses in
China, such as liver diseases and gastric cancer. Third, the injection of seasoned
pharmaceutical leaders into new biotech companies could help elevate the
capabilities of China’s biotech companies as some march onto the global stage.
By 2025, we could see
the emergence of a cluster of homegrown innovative biotech companies, mostly
focusing on best-in-class assets, with a few tackling first in class. Second,
private insurance providing supplementary coverage for innovative, currently
uncovered, drugs could become available. Last, there will be consolidation of
local players as a result of a Quality Consistency Evaluation of generics and
other healthcare-reform measures.
Ling Su: By 2020, we will probably see
more me-too or even me-better products (those with a known mechanism of action)
and maybe, in limited cases, a few first-in-class molecules from China. We’ll
also see more partnerships between midsize to smaller-size MNCs and Chinese
companies to develop products specifically for the domestic market. And perhaps
there will be real breakthrough therapies from China that will move into the
development stage.
By 2025, we will
probably see quite a few breakthrough drugs, maybe even first-in-class
innovations from China. We might also see more local companies with global
ambitions, licensing the rights of their products to other companies to be
developed overseas.
Li Chen: By 2020, I see innovative
medicines from several biotech companies emerging in China that could redefine
the path for developing innovative medicines.
In 2025, I think
different types of innovation platforms will also emerge, including better
tested and therefore better understood personalized-medicine concepts and an
integrated-care solution that applies the learnings and innovations China has
achieved from other sectors, such as e-commerce.
McKinsey: What will it take for China
pharma to make the innovation leap? For example, what role will academia play?
Li Chen: If you analyze the hot spots
in academic research, especially in life sciences, the exciting research is
emerging not only from the major universities but also from major medical
institutions. On one hand, China’s basic research capability is improving, and
scientists are publishing in leading journals such as Cell, Nature,
or Science, although these publications are mostly about nonhuman
basic research.
On the other hand, I
believe there’s a big gap in clinical research between China and developed
markets such as Europe and the United States, evidenced by limited
China-authored publications in the Lancet or the New
England Journal of Medicine. To combat human disease and improve health, we
need to better understand human science. I believe we will see some clear
improvements in this area in the next five years.
Frank Jiang: China is pretty good at
filing patents and getting publications, but we fall short in technology
transfer and commercialization. Two major improvements must happen for academia
to spur pharma innovation. One is to improve the quality and the integrity of
academic research, and this has become acute given some recent fraud scandals.
The other is to increase the transfer of knowledge from academia to downstream
commercialization.
To improve the quality
and integrity of academic research, we must first encourage the right mind-set
and behavior among researchers and establish mechanisms to increase
transparency. Second, structural changes must happen in academia to separate
administration and research to prevent corruption. For example, grant reviews
should be conducted by a joint committee comprised of a panel of experts rather
than grant administrators. Last, we need changes in evaluation methodology to
ensure appropriate measurements and encourage the right conduct; key
performance indicators should assess the quality of research and the likelihood
of it being translated into real medical impact.
There are several other
gaps that prevent translation from upstream research to downstream
commercialization, including an ineffective evaluation and incentive system,
incomplete regulatory support, and lack of infrastructure. The current
evaluation system for academic researchers favors publications over
patent—rarely are researchers promoted based on a fantastic life-changing
patent. Second, on-duty invention and the resulting intellectual property were,
until recently, considered state assets or university property, which minimized
financial incentives for researchers to commercialize discoveries.
Also, Chinese
universities and private research institutes lack the infrastructure to
effectively manage and transfer research from the lab to downstream. Finally,
there’s the absence of an effective intermediary (or enabling system), such as
a dedicated technology-transfer or patent office, to facilitate the leap from
upstream to downstream. Many top universities are starting to build
tech-transfer offices, but they are in no way as common as in Western
universities.
McKinsey: What are the biggest hurdles
for drug discovery and clinical development in China?
Ling Su: On the drug-discovery side,
we are still followers, especially in terms of drug or disease targets. It will
take some time for our basic and medical researchers to move to the frontier.
The fundamental reason
is that if you have only a few top research centers, that’s not going to create
a powerhouse system with the ability to foster innovative ideas at scale. The
number must grow first. Look at the US biotech hubs in Boston and the San
Francisco Bay area: they attract and retain talented researchers. And that’s a
system—it’s not something you can do with just one or two top universities.
Li Chen: To greatly improve our
innovative capabilities, there are four aspects we need to focus on in the
discovery and clinical-development stages. One involves enabling a
clinical-research system and environment. For example, we don’t have an
independent ethical committee (IEC) or institutional review board in China,
which means if you want to run a Phase II, proof-of-concept study using 20 or
more clinical centers, you have to go to all 20 clinical centers to get
individual hospital-based IEC approval. The system and process will need to be
streamlined in the future.
Second is a shortage of
research hospitals and clinical researchers. Our major hospitals are equipped
with the right technical infrastructure and experienced clinicians. In many
areas, they are comparable to their global peers. However, they do not have
time for clinical research because of the heavy workload associated with
inpatient and outpatient care. We need to have research hospitals and research
physicians propel clinical development in China.
The third part is
support from the CFDA to accelerate regulatory timelines. In the next few
years, it is critical for the agency to improve regulations so we can
effectively evaluate innovative medicines and get them approved quickly, and we
have seen major progress in the last few months.
The last part is the
quality of the clinical trials. With the CFDA putting more emphasis on the
quality control of clinical trials and pharmaceutical manufacturing, I think
the environment is going to improve significantly.
McKinsey: How would you rate the
quality of R&D talent in China’s pharma industry?
Li Chen: I would divide R&D talent
into three distinct pools. One is technical talent; China has a great pool
there. This group’s learning ability and implementation are superb. The second
pool is the “leaders,” and it is rather shallow. One source of those leaders is
returnees from overseas in clinical-research development, regulatory, and
business development. The other source is homegrown, that is, scientists or physicians
with a Chinese educational background who have gained experience working in
MNCs. The third pool is CEOs. We have little CEO talent in the biotech and
pharmaceutical environment, which reflects the relatively short history of the
industry in China compared with the United States.
Frank Jiang: It’s a mixed talent pool in
China. If you look at the raw talent pool, meaning the fresh graduates from
universities and medical schools, it is huge. Take medical school—50,000
students graduate each year. This group is probably very good at execution and
technical skills, and costs less. However, the majority of these graduates lack
problem-solving, strategic-thinking, communication, cross-functional teamwork,
and leadership skills. I would say maybe a small fraction of that pool is
competent with respect to a comprehensive skill set.
The other source of
talent is the returnees, with global experience and knowledge. Not only are
these people sound technically, but they are also more loyal to the company
once they join, because they choose their jobs carefully. They are also
probably more expensive and might have some culture-fit issues with a local
company.
Then you have
executives from multinational companies in China. We are seeing many of those,
especially in the last year or two, making career changes from MNCs to become
leaders of new biotech companies. This group has international experience and
has been in China for many years, so the individuals know the local system well
and have proven communication skills, strategic-thinking ability, and deep
expertise.
By Fangning Zhang and Josie Zhou September 2017
https://www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/whats-next-for-pharma-innovation-in-china?cid=other-eml-alt-mip-mck-oth-1710&hlkid=7c63407c9d134d0889c3acf8f3b25591&hctky=1627601&hdpid=001a5388-2ecf-4f39-b534-6fdd99bc7190
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