China's Innovative Drugs: Please Answer 2020

Technological innovation is the engine driving the sustained growth of the pharmaceutical economy, while also safeguarding human life and health. Globally, innovative drugs account for 80% of total pharmaceutical sales, and in the foreseeable future, their value will continue to dominate the global drug market.

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Technological innovation is the engine driving the sustained growth of the pharmaceutical economy, while also safeguarding human life and health. Globally, innovative drugs account for 80% of total pharmaceutical sales, and in the years ahead, their value will continue to dominate the global drug market.

China’s pharmaceutical industry, which has gone through phases of agency, imitation, and catch-up, ushered in a thrilling new era of "innovation" in 2019. Yet just as policymakers, investors, and the market were all anticipating a breakthrough moment, the 2020 pandemic arrived like a torrential downpour.

This "rain" is fiercer than we imagined. In the face of the ongoing global pandemic and uncertain external circumstances, the central government has proposed a "dual-circulation" strategy—balancing domestic and international markets.

Under this kind of tone, China's innovative pharmaceutical sector in 2020 was not only as hot as ever but also faced some growing skepticism.

Did China's innovative drugs enter the global second tier in 2020?

According to a McKinsey report, China's contribution to global pharmaceutical R&D rose to between 4% and 8% in 2018. Chinese pharmaceutical innovation has now entered the second tier.

However, has China's pharmaceutical innovation truly entered the global second tier?

We might as well "reflect on ourselves" through the following questions.

But reflection is all about Becoming Better!

① Looking forward to more Chinese innovative drugs being approved in Europe and America.

In 2019, China achieved a breakthrough by developing its first-ever innovative drug.

On November 21, 2019, BeiGene's newly developed drug Brukinsa (zanubrutinib) — the result of seven years of meticulous refinement — was officially approved by the U.S. FDA for the treatment of relapsed or refractory mantle cell lymphoma. This marks the first-ever innovative medicine in history entirely developed independently by a Chinese company and subsequently approved by the FDA.

On December 20, 2019, Shiyao Group's patented hypertension drug, levamlodipine besylate (Xuanning), became the second Chinese innovative medicine approved by the FDA.

However, as of the end of November 2020, we had not yet seen a third Chinese innovative drug approved by the FDA.

② Can China Break Through in the Race for the World’s Top 100 Innovative Drugs?

According to statistics, the global pharmaceutical market totaled US$1.3245 trillion in 2019, with a compound annual growth rate of +4.4%.

Driven by multiple factors such as growing demand and technological advancements—particularly the surge in the monoclonal antibody market—the biopharmaceutical industry is expected to achieve a robust annual compound growth rate of +9.8%, outpacing the overall growth rate of the pharmaceutical market.

However, as of the first three quarters of 2020, none of China appeared among the world's top 100 innovative drugs (based on global drug sales rankings derived from companies' financial reports).

③ Will China’s innovative drugs accelerate gaining recognition in global mainstream markets?

Gaining global recognition, including product market share in mainstream markets, the release of authoritative clinical data worldwide, and collaboration through licence-out agreements with leading global pharmaceutical companies.

Compared to the past, China's advancement in innovative drugs in 2020 was primarily reflected in the release of clinical data and license-out deals.

Under the severe impact of the global pandemic, China's advantages in clinical trials have become even more prominent.

As companies enhance their R&D capabilities, China's innovative drug Licence-out deals in 2020 showed rapid growth both in volume and value.

According to statistics, China had a total of 19 innovative drug licence-out deals from 2007 to 2017, 9 in 2018, and another 9 in 2019.

By the end of November 2020, China had already seen more than 17 innovative drug licence-out deals, setting a global record with a single transaction amounting to US$3 billion.

▲2020 China Innovative Drug Licence-Out

If the answers to the first two questions are NO, but the third one is accelerating, then China's booming biopharmaceutical innovations still don't yet have "global influence," though their potential is immense. The future development will depend entirely on the "innovative" value they bring to the table.

2020: Will China's Innovative Drugs Dance With the "Bubble"?

Since the new Drug Administration Law was introduced in August 2019, on one hand, a series of national policies aimed at accelerating drug approvals and strengthening pharmaceutical oversight have been implemented; on the other hand, China's innovative pharmaceutical companies have significantly increased their R&D investments. Together, these efforts are propelling China's pharmaceutical industry to accelerate its transition—from generic drugs toward cutting-edge, innovation-driven medicines. Meanwhile, the "Junshi Black Swan" incident has burst the rosy bubble, yet it has also prompted the industry to move forward with greater clarity and resilience!

In the first three quarters of 2019, the NMPA approved a total of 31 innovative drugs, among which only 5 were domestically produced.

As of the first three quarters of 2020, the NMPA has approved 34 innovative drugs, with domestically produced and imported medications evenly split—17 each received approval.

▲ Key Chinese Innovative Drugs Approved in the First Three Quarters of 2020

This kind of growth, on one hand, indirectly highlights the achievements of China's accelerated approval process for new drugs, while on the other hand, it also benefits from the increased R&D investments by Chinese pharmaceutical companies.

According to the semi-annual reports disclosed by various pharmaceutical companies, in the first half of 2020, 120 pharmaceutical firms invested more than 50 million yuan in R&D, with 5 of them exceeding 1 billion yuan (compared to 4 during the same period last year). Despite the impact of the pandemic, nearly 80% of pharmaceutical companies still reported positive growth in their R&D spending.

▲ 2020 H1 China Pharmaceutical Companies' R&D Investment Ranking

Although compared to the global pharmaceutical giants—Roche ($5.787 billion), Pfizer ($3.856 billion), Novartis ($4.501 billion), Johnson & Johnson ($5.287 billion), and BMS ($4.894 billion)—China's overall R&D investment remains relatively small, its growth rate far surpasses theirs.

However, here's the question: Does massive R&D investment by innovative pharmaceutical companies truly equate to real innovation?

To the outside world, there may be a stronger desire to see tangible results. "Profitability" was perhaps the most frequently questioned aspect of these innovative pharmaceutical companies in 2020.

Among the top 15 innovative pharmaceutical companies in terms of R&D investment, BeiGene, Innovent Biologics, Genscript, and Junshi Biosciences are all striving to achieve profitability.

These commercial-stage innovative pharmaceutical companies grew out of biotech firms and have become the current "stars" hotly sought after in China's pharmaceutical industry. Primarily established after 2010, they initially positioned "innovation" as their biggest selling point, attracting substantial capital. With cutting-edge R&D pipelines that set them apart from traditional Chinese pharmaceutical companies, coupled with highly efficient overseas collaborations, these firms have rapidly expanded—earning them the title of "Biopharma."

Biotech generally refers to pharmaceutical and biotechnology companies that have been established relatively recently, focus on cutting-edge targets, possess globally leading innovative R&D pipelines, and have core products with the potential to become BICs or FICs—though these products are currently still in the clinical stage.

Compared to traditional pharmaceutical companies (Big Pharma), Biopharma generally has weaker full-spectrum integration capabilities, typically focusing on R&D and building expertise in niche areas, giving them a competitive edge in the depth of research for specific technologies. As a result, Biopharma currently competes primarily with large, leading enterprises in these specialized segments.

However, Chinese biotech and biopharma companies are currently facing a situation similar to the "great reshuffling" experienced by earlier AI firms:

Homogeneity is quite evident, with about 90% of the core areas focused on oncology and immunology.

“Target congestion”—dozens of PD-1, CAR-T, BTK… are currently in development;

The pipeline layout is extensive yet platform-based, earning a higher valuation from the capital market—but lacks sufficient depth.

Under sustained "burn-rate" pressure, license-in remains the choice for most biotech companies—some have even shifted from independent R&D to "joining" the license-in ranks, thereby diluting their own innovation capabilities.

After the big wave comes, what remains is gold—let’s hope that China’s innovative pharmaceutical companies, willing to dance with the "bubble," can achieve true breakthroughs in innovation.

2020: China's Innovative Pharmaceutical Capital "Rolling Up Its Sleeves"?

Against the backdrop of the pandemic, "healthcare" emerged as the hottest sector in 2020—and also the area where investment firms poured in the most capital.

GBI Health data shows that Chinese biopharmaceutical companies completed a total of 81 financing rounds in 2019, while as of November 1, 2020, they had already secured 133 financing rounds, with total funding exceeding 80 billion RMB (US$12 billion).

Capital "exit" intensifies

According to incomplete statistics, more than 30 pharmaceutical companies went public via IPO in 2020, among which Fudan Zhangjiang, Junshi Biosciences, CanSino, and JD Pharma completed their second listings.

▲ 2020 First Three Quarters of Pharmaceutical Companies' IPOs

From the perspective of listing locations, Hong Kong stocks lead, followed by the STAR Market. A common feature of these two markets is that they allow unprofitable companies to go public, making it easier for biopharmaceutical investment firms to "exit."

Since its launch on July 22, 2019, the STAR Market has quickly become the second-largest global listing platform for biopharmaceutical companies, trailing only NASDAQ.

In the future, driven by multiple factors such as the significant industry-cluster effect of the STAR Market and higher valuation levels, overseas high-quality Chinese stocks in the pharmaceutical sector will likely accelerate their return to A-shares.

On November 16, BeiGene announced that its board of directors has recommended an IPO on the STAR Market, with the listing expected to be completed in the first half of 2021. The company is already listed on the U.S. stock market and Hong Kong stocks; if it successfully lists on the STAR Market as well, it will become the first Chinese pharmaceutical company listed simultaneously across three major markets.

BeiGene, highly favored by capital, also made the largest-ever equity investment in global biopharmaceutical history in 2020—likely reflecting investors' confidence in the company's growth potential following its listing on the STAR Market.

On July 13, BeiGene directly issued $2.08 billion worth of shares via a registered offering to select existing investors, with Hillhouse Capital subscribing to at least $1 billion of that amount.

In 2020, capital began "organizing itself."

Just how tempting is the pie of China's innovative pharmaceuticals? It has even attracted foreign capital to jointly build "pure-blooded, star Chinese biotech companies."

On August 11, LianBio officially announced its establishment, with Dr. Li Bing appointed as CEO. Interestingly, the company was founded by Perceptive Advisors, a veteran U.S. investment firm with over 20 years of expertise in the broader healthcare sector.

On its very first day, LianTuo Bio has already "assembled" a complete pipeline, along with partnerships, funding, and R&D capabilities—plus, its collaborators include some of the world's leading companies.

On August 11, MyoKardia secured FDA Breakthrough Therapy designation for its innovative, heart disease-targeted drug mavacamten, granting exclusive development and commercial rights in China and other Asian regions.

On August 13, BridgeBio granted exclusive priority rights to over 20 pipeline products in China and other Asian regions.

On November 19, a collaboration was established with Pfizer to jointly advance the development and launch of its innovative drugs in Greater China.

Notably, China's top-tier investment firm, Hillhouse Capital, also established its own biotech venture, Overland Pharmaceuticals, at the end of 2020.

Operating from three international offices located in Shanghai and Beijing, China, and Boston, Massachusetts.

Hillhouse Capital will leverage its global network and Asia's biotechnology ecosystem to expand its innovative pipeline.

Like LianTuo Bio, the newly established Linglu Pharmaceutical already has four pipeline projects, all sourced from ADC Therapeutics.

ADC Therapeutics is a Swiss clinical-stage oncology biotech company specializing in antibody-drug conjugates (ADCs), and it was newly invested in by Hillhouse Capital in Q3 2020.

Meanwhile, ADC is currently the hottest trend globally, with major pharmaceutical companies racing to position themselves in this rapidly growing field.

2021 Next Stop: The Market's Test

All innovations must undergo the test of the market, and capital may also prefer to achieve sustainable, positive returns from the market.

As Biotech products gradually enter the market, innovative pharmaceutical companies are ushering in an era of commercialization.

Looking at revenue performance in the first three quarters of 2020, most innovative drugs showed strong growth momentum—particularly several monoclonal antibody products. Among them, sintilimab achieved a remarkable growth rate of 277%, while toripalimab saw an impressive increase of 138%.

Future investors may shift their focus from the pipeline to "pipeline plus top-line revenue" when considering innovative pharmaceutical companies. For biopharma firms, future competitiveness will hinge on a comprehensive set of factors—beyond just product innovation itself—such as pricing strategies, sales capabilities, and expertise in government affairs. Additionally, gaining access to healthcare insurance systems and effectively promoting products at the consumer level will emerge as new battlegrounds.

Who will win in the end? The market will serve as the ultimate test of innovative achievements.

As competition in the biotech industry intensifies, only companies that deliver genuine innovation and possess strong commercialization capabilities will be able to go further and thrive in the future.

China's innovative drug market "isn't short of cash," but compared to money, true innovation remains a "rare currency" for now.

2021, let's cherish each moment as we go!