Surpassing at the curve - Chinese way of competing with the west in high-tech
- Claudia Lin
- Jun 28, 2024
- 9 min read
Updated: Jun 30, 2024
In my previous blog post, I outlined the transformative trends that have shaped China's biotechnology sector over the past decade. I also began to explore one of the primary factors contributing to the industry's generally low ROI: the absence of robust incentives for companies to concentrate on their unique competitive strengths, whether in innovative research and development, chemistry, manufacturing and controls (CMC), or clinical studies. Rather, too many companies were founded to do what's "trendy" at the time in order to get government funding and notoriety , thus creating an ecosystem that lacks strong foundation in specialty, and expertise in general. There is a popular term in China that is often used in biotech and other high tech industries called "surpassing at the curve" (弯道超车“); This concept illustrates how Chinese biotech firms strategically position themselves as rapid followers to global industry leaders. By closely observing and learning from the pioneers, these companies aim to accelerate their own progress, potentially matching or even overtaking the frontrunners. This approach allows them to sidestep common pitfalls and obstacles—often referred to as 'the curves'—that typically arise when blazing a new trail in uncharted territory. Essentially, they leverage the hard-earned lessons of others to streamline their own path to success. This is a common approach for all the high tech industries where China doesn't have a foundation of original innovation compared to the west.
The EV Example for "Surpassing at the Curve"
An excellent example of this "surpassing at the curves" is the Chinese electric vehicle (EV) industry. In 2015 when I first returned to China to live and work, there were very few electric vehicles on the road. In the years to come, because of the huge infusion of government subsidiaries (~60 billion USD to date), there were more and more makers of electric vehicles emerging in China but no one major player for a while. Tesla entered China first in 2017, and became a clear leader right away with its advanced technology and brand attraction that were leaps and bounds ahead of the domestic makers. Then, the "curve" came around: just before COVID pandemic, in 2019, Tesla started the first GigaFactory in Shanghai and began to produce cars in China by December that year. The subsequent Pandemic years, despite of and also due to the strict COVID controls in China, Tesla in China was able to move full-steam ahead. It was waived of the joint venture requirement, received large government incentives for the land and buildings, benefitted from local cheap labors, and along with other EV companies, also propelled by a government subsidized charging station infrastructure in China. In 2020, Tesla's Shanghai factory contributed significantly to the company's success, helping it achieve its first annual profit of $721 million. Meanwhile, during the 3 pandemic years, while China was isolated from the rest of the world with a closed border to most foreigners, Chinese EV makers were busy learning and improving their own technical and manufacturing knowledge. They were trying to "surpass at the curve" and the efforts allowed the domestic EV makers to quickly improve their own products during those years. By the end of the pandemic control, in 2023, BYD emerged as the EV maker with the biggest market share in China, and rivaling with Tesla for the top selling EV maker status in the world. The rapid rise of the Chinese EV industry has caught the West by surprise causing a flurry of debates about import taxes recently.
The Mis-Use of "Biotech", "Biologics Drug" Terms in China
Before I return my focus back to biotech, I need to clarify the definition of "biotech" that has been vastly misused in China. For historical reasons, the term "biotech drug" in China is loosely used for all drugs that are NOT generics, including API for chemical drugs, and NOT traditional Chinese medicine. It is therefore commonly used for molecularly targeted drugs, whether they are chemical drugs or biologics. In the West, Biotech, or biotechnology, specifically refers to products derived from biological sources. Biologics, a subset of biotech products, are drugs created from living organisms or their products. These are fundamentally different from drugs produced through chemical synthesis. In China, the term "biotech" has been widely misused. Despite numerous attempts to clarify this definition while in China, the misuse remains pervasive. The term has become deeply ingrained in the local pharmaceutical lexicon as a catch-all for innovative drugs.
For the sake of clarity and accuracy, all my discussions and blog posts will adhere to the proper, internationally recognized definition of biotech. This approach ensures consistency with global standards and promotes a more precise understanding of the field.I
Examples of "Surpassing at the Curve" Efforts by Chinese Biotech Industry
So what have been the "perceived" curves in Chinese biotech in the past decade? And how Chinese biotech companies have attempted to surpass the western at these curves?
My previous blog describes the "waves" that have been passing through Chinese biotech industry in the past ten years. Each of these waves came with challenges known or experienced by the original innovators, and anticipated by the Chinese companies. The anti-PD-1 heat wave was the most notorious example of an overly pursued Western therapeutic concept in China which resulted in massive investment and over heated competition during the 2017-2020 period. At some point, there were over 200 clinical trials on-going in China for anti-PD-1/PD-L1 antibodies. (Table 1). Another example is the bi-specific antibodies. Chinese biotech companies have strategically focused on developing bi-specific antibodies targeting PD-1 and CTLA-4, as well as CD3-based bi-specifics, due to the proven success of monoclonal antibodies against these targets. This approach allows them to leverage existing knowledge and potentially accelerate drug development.Chinese scientists have aimed to create "bio-betters" by incorporating improvements to established drug designs, drawing on publicly available information and expertise gained from their previous working experience at Western innovator companies. This strategy is intended to streamline development timelines and costs while potentially enhancing clinical efficacy. The "surpassing at the curve" approach seeks to capitalize on the lag time for foreign drug approvals in China. By developing similar or even improved therapies more rapidly, Chinese companies aim to secure earlier or concurrent market entry in China, offering domestically produced alternatives at lower price points.
Let's look at how this strategy has done for the Chinese biotech companies so far:
Keytruda, Merck's anti-PD-1 immunotherapy, was first approved in China in 2018 for advanced melanoma. Since then, it has rapidly expanded its indications, including multiple approvals for non-small cell lung cancer (NSCLC). By 2021, Keytruda had become the top-selling PD-1 inhibitor in China, with estimated annual sales of around 3 billion RMB, outperforming both multinational and the 3 top Chinese domestic competitors with approvals around the same time as Keytruda. The success of Keytruda in China exemplifies a broader trend of biologic drugs gaining traction in the market. Another notable example is Roche's Kadcyla, an antibody-drug conjugate (ADC) targeting HER2-positive breast cancer, which received approval in China in early 2019.Following Kadcyla's entry, domestic pharmaceutical companies have also made strides in the ADC space. In June 2021, RemeGen's disitamab vedotin (Aidexi®) became the first domestically developed HER2-ADC to receive conditional approval from China's National Medical Products Administration (NMPA). More recently, in July 2023, Daiichi Sankyo's Enhertu, another HER2-targeted ADC with a novel toxin, gained regulatory approval in China.The introduction of these innovative biologics and ADCs in China's pharmaceutical market sets the stage for an intriguing competitive landscape. As these drugs establish their presence, it will be valuable to monitor and compare their sales performance in the coming years, providing insights into market dynamics and patient access to advanced therapies in China.
"Surpassing at the Curve" Goes Global - "Sailing to Overseas" (出海）
Given the disappointing revenues from these highly invested, highly anticipated domestic biologics drugs in China, it became apparent that the Chinese biotech companies must also pursue drug approvals and gain market shares in the West, especially in the US where biologics could garner much higher prices. Starting from 2021, This strategic pivot, known as "Sailing to Overseas" ("出海"), involves two main approaches:
Seeking direct regulatory approval in Western markets for biologics drugs already approved in China.
Selling ex-China market rights to Western pharmaceutical companies for drugs at various stages of development.
A highly publicized example of 1 is Innovent Biologics' anti-PD-1 antibody, Sintilimab, which was the first Chinese-born anti-PD-1 antibody seeking US FDA BLA approval. Despite partnering with Eli Lilly throughout, Sintilimab was rejected by the U.S. FDA Advisory Meeting for approval in the US. Following Sintilimab, other Chinese anti-PD-1 biologics have also faced hurdles in gaining U.S. approval, with some eventual successes but often with more limited indications and significant delays, reducing their overall commercial values. (Table 1 US FDA approval history of Chinese-born anti-PD-1 biologics drugs.)
These challenges have highlighted the critical needs for Chinese biotech companies to align more closely with international standards and expectations, especially in areas of clinical study designs and GMP manufacturing and quality. These areas proved to be hard to skip ("surpassing at the curve") as knowledge and experiences in these areas require a long time to accumulate, and even harder cultural changes are often required for the Chinese.
The more promising licensing outcomes have been seen from out-licensing drug candidates, both at pre-clinical and early clinical stages from China to the West, and, increasingly, from the West to China. According to the Goodwin's report (ref. 1), there is a consistent trend of increase for out licensing Chinese assets to the West (by 50% from 2021 to 2023). The licensees for these deals are mostly MNCs with an average deal value (for the top ten deals) around 2.3 Billion USD. On the other hand, the top in licensing deals into China are from relatively unknown Western companies with the average deal size at 488 Million USD.
Table 1. US FDA approval history of Chinese-born anti-PD-1 biologics drugs.
Product | Company | Indication | Filed in US | Outcome |
Loqtorzi (toripalimab) | Coherus/ Shanghai Junshi | Nov 2021 (Apr 2022 PDUFA) | May 2022 CRL; new PDUFA Dec 2022 missed because of Covid travel restrictions in China; approved Oct 2023 | |
Tevimbra (tislelizumab) | BeiGene (formerly licensed to Novartis) | Sep 2021 (Jul 2022 PDUFA) | PDUFA missed because of Covid travel restrtictions in China; approved Mar 2024 | |
Sep 2023 (Jul 2024 PDUFA) | TBD | |||
Feb 2024 (Dec 2024 PDUFA) | TBD | |||
Camrelizumab | Jiangsu HengRui/ Elevar (HLB) | Jul 2023 (May 2024 PDUFA) | May 2024 CRL because of manufacturing problems & travel restrictions in Russia/Ukraine | |
Penpulimab | Akeso/ Sino | 3rd-line nasopharyngeal carcinoma (monotherapy) | May 2021 (Nov 2022 PDUFA) | PDUFA missed because of Covid travel restrictions in China; US development deprioritised |
Sintilimab | Innovent (formerly licensed to Lilly) | May 2021 (Mar 2022 PDUFA) | Mar CRL after Feb 2022 adcom vote against approval; US development deprioritised | |
Sugemalimab | CStone (formerly licensed to EQRX) | No | US development deprioritised after sintilimab CRL |
Can Chinese Biotech Achieve Higher ROI by Using "Surpassing at the Curve" Strategy
I will summarize some key observations regarding the current trends of Chinese biotech industry. In its effort to maintain the national goal of modernizing medicine domestically while aspiring to compete globally, they must immediate improve ROI in biotech. Short of drug approvals by the Western markets, Chinese biotechs are increasingly out-licensing early-stage assets to global pharmaceutical companies. This strategy serves multiple purposes:
Capital recovery: With a sharp decline in private equity and venture capital funding since 2020, out-licensing deals provide a crucial source of upfront payments and potential milestone revenues.
Risk mitigation: By partnering with established global players, Chinese companies can share the risks and costs associated with late-stage clinical development and commercialization.
Leveraging strengths: Chinese biotechs are capitalizing on their expertise in early-stage drug discovery, particularly in areas like antibody-drug conjugates (ADCs) and biologics.
The success of this out-licensing strategy remains to be seen. While the deals have generated significant upfront payments and potential milestone values, several factors could impact their long-term success: If we look at the PD-1 story, there were quite some disappointment when the drugs failed to be approved by the FDA as the Western MNCs had paid lucrative upfront payment to their Chinese partners. In fact, most of those deals did not carry out to the full terms. The MNCs would certainly continue to leverage the massive R&D capacities from Chinese biotech companies, but may calibrate the deals better based on more in-depth evaluation of the quality of these assets. This is no easy task given the long time it takes for a drug candidate to go through different stages of clinical development, and eventually get approval. Sometimes, the defect reveals itself much faster.
A recent example is the deal between China based MediLink and BioNTech for a Her-3-ADC: the exciting deal announcement came around October 2023, with a 70 million USD upfront payment, and a potential total milestone payment of 1 Billion USD. The US IND submission was based on pre-clinical and limited clinical data (from the "IIT" route in China, which grants clinical research with unapproved drugs without the drug regulatory agency's approval). However, as soon as June, 2024, FDA ordered a clinical hold to the Phase 1 trial of the ADC drug candidate due to unacceptable safety concerns following the death of 3 trial participants.
Example of a Success Story
The most successful collaboration yet, in my opinion, between a Chinese biotech and a Western MNC is exemplified by Carvikty, the BCMA-CAR-T autologous therapy initially designed and developed by a small Chinese biotech company, Nanjing Legend. Legend co-founder Dr. Fan had designed an innovative bi-specific (by domain) anti-BCMA-CAR-T molecule for autologous T-cell therapy of late stage multiple myeloma. It showed impressive clinical efficacy in a limited IIT study in China. His team presented this in an ASCO meeting, which got the notice from leading MNCs in the emerging cell therapy space. It was J&J that grabbed the opportunity to sign a world-wide deal with Legend to develop this early clinical asset into therapeutic product. The deal was announced in December 2017, and the drug makers from both sides simultaneously started the joint clinical development, CMC and manufacturing efforts both in the US, EU and China. It is perhaps no surprise, in this case, that with the deep drug development and marketing expertise of the J&J team, the partnership successfully launched the CAR-T therapy first in the US, after just 4 years post alliance. Subsequently, they joint team also launched in EU, and received approval for more indications in the US. The China launch is taking longer and likely in 2024. Overall, this East-West biotech collaboration is proving to be a mega success for both.
Conclusion
China's "surpassing at the curve" strategy has underperformed in biologics drug development due to:
The complexity of biologics, requiring deep expertise
Difficulty in replicating or transferring knowledge from other drug types
Chinese biotech firms must:
Establish and build unique strengths patiently
Differentiate from competitors globally
The current strengths of the vast majority of Chinese biotech firms lie in R&D and early development. However, achieving commercial success with biologics blockbusters remains a long-term challenge. Chinese biotech companies and investors need to refine their approach to improve success rates and ROI in this specialized field.
Ref.
INSIGHT MARCH 13, 2024. Major Life Sciences Licensing Deal Trends in China in 2023 An in-depth look at trends involving licensing deals in a year that saw a significant increase in out-licensing and particularly in-licensing activity in China. BY David R. ChenHuiya WuYoko J. BianSummer Brook Lawson
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