China Emerges as Powerhouse for Biotech DrugsSUZHOU, China—A new cancer drug licensed by Eli Lilly & Co. was discovered by a six-year-old startup on the outskirts of Shanghai, and derived from the ovary cells of Chinese hamsters. Lilly now is planning to test it on Americans.
The world’s biggest drug companies have taken notice.
Merck sent executives to scour scores of Chinese startups, and set up a dedicated innovation center in Shanghai in 2015. Johnson & Johnson opened a similar center in Shanghai in 2014 to identify scientific breakthroughs in China. In the past two years, Lilly, Merck, Tesaro Inc. and Incyte Co. have signed multimilliondollar deals to sell China-discovered biotech drugs overseas.
The tie-ups are a boost for China’s ambition to shake off a history of scandals, such as a 2008 incident when a blood thinner called heparin—made with Chinese ingredients—killed dozens of people in the U.S. alone. China is working to overcome a reputation for poor quality to become an innovator and global producer of complex products.
Will China transform “overnight? The answer is definitely no,” said Olivier Charmeil, Sanofi SA’s head of emerging markets. But “when a direction has been set, it’s clear that things happen,” he added, noting that China is devoting resources to ramp up quality.
However, Chinese factories supplying chemical-drug ingredients around the world continue to fail U.S. regulatory inspections. Last year, the U.S. Food and Drug Administration barred ingredients from a Chinese supplier that counts Sanofi, Pfizer Inc. and Novartis AG as its customers.
Biologic drugs differ from chemical medicines and have revolutionized treatment of diseases including cancer and diabetes. They were developed by Western drugmakers in their own laboratories for decades and are highly profitable—accounting for eight out of the world’s top 10 best-selling drugs—according to consultancy Frost & Sullivan. But the drugs require more than $1 billion each to develop and can take more than a decade to bring to market, according to Pharmaceutical Research and Manufacturers of America,a trade group.
Under pressure from a string of expensive failures and a shrinking pool of patent-protected biotech drugs, global drugmakers are increasingly turning outward to find new breakthroughs.
Enter China. As part of a push to transform the homegrown drug industry, Beijing has thrown money and incentives at Chinese drug manufacturers: One program lured back Chinese scientists working overseas, billions of dollars were poured into technology parks dedicated to biotech startups, and drug-testing approvals for new biotech discoveries were speeded up.
Most Chinese startups began by making copies or tweaked versions of existing biotech drugs, but some are advancing to the riskier business of creating biologics that haven’t been tested on humans before.
Innovent Biologics Inc., the six-year-old startup near Shanghai, struck the biggest deal to date for a Chinese drug firm in 2015, when Lilly paid it $56 million to co-develop three cancer drugs, including two discovered by Innovent. Innovent stands to earn more than $1.4 billion over the next decade if the drugs meet targets.
Michael Yu, founder of Chinese startup Innovent Biologics PHOTO: INNOVENT BIOLOGICS
Inside a small Innovent lab in the industrial town of Suzhou, dozens of cylindrical glass vessels called bioreactors brim with cells derived from Chinese hamsters, rodents commonly used in global medical research. The drug being designed, part of the Lilly deal, is meant to block a gene hindering the body’s ability to fight cancer.
The process begins by genetically modifying hamster ovary cells so that they produce an antibody—or protein—needed to block the gene. The cells are then placed inside these bioreactors, multiplying into billions of new cells over two weeks. The resulting amber-colored liquid contains large quantities of the antibody, the main ingredient in Innovent’s drug.
One recent afternoon, researchers were running tests to check the antibody for purity, color and consistency. “You have to get every step right,” said Innovent’s founder, Michael Yu, inspecting results on a screen. Finally, the antibody is packed into hundreds of tiny vials and ready to be injected into patients.
Innovent has begun testing the drug on patients in China, while Lilly is preparing an application to begin its own clinical trial in the U.S. Once the drug is approved,Lilly says it plans to sell it across the globe, except in China, where it holds joint marketing rights with Innovent.
Clinical trials—which involve testing the drug on hundreds of patients over three phases—can last over a decade in the U.S., and it is only after promising results that companies seek regulatory approval.
Gaining drug approval in the U.S. makes it easier for companies to sell products in several other countries without having to conduct separate tests in each market. China requires its own tests, though trials here are typically shorter and require fewer patients than in the U.S., according to ChinaBio, a Shanghai-based consultancy.
To be sure, not everyone is looking to license Chinese discoveries. Amgen Inc. and MedImmune Inc., AstraZeneca PLC’s biotech arm, have formed joint ventures with local companies to bring their own discoveries to China. Pfizer is building a plant to sell copies of biotech drugs in China.
Nevertheless, China’s biotech boom has attracted venture capitalists, contributing to a record $5.3 billion being invested in the country’s life sciences sector last year, a nearly 10-fold increase from five years ago, according to ChinaBio.
Lilly set up a venture-capital arm for Asia in 2008 and almost all of its $500 million in investment since has gone to Chinese biotech startups.
“China wasn't even on the radar 10 years ago,” said Judith Li, a partner at the fund. “Now it's impossible to ignore.”