News & Insights Biotech breakthroughs bring opportunities and risks

Biotech breakthroughs bring opportunities and risks
One of the industries named in the ‘Made in China 2025’ blueprint, biotech is already attracting growing levels of investment. The adoption of international standards for clinical applications and quicker approval times for new drugs will create plenty of opportunities but will also place pressure on the valuation of Chinese firms as they face increasing competition from multinational companies. 

There’s certainly been no shortage of opportunities or desire to invest in the biotech sphere in 2018. For a start, Chinese venture capital firms invested a total of US$5.1 billion in US biotech companies during the first six months of the year, surpassing the US$4 billion raised in the whole of 2017, according to Seattle-based data provider PitchBook. And a recent survey carried out by Credit Suisse showed that global investors were bullish on the outlook for biotech. Meanwhile, the Hong Kong Stock Exchange welcomed the first listing from a pre-revenue and pre-profit biotech company in August.

About Dr. Jimmy Zhang

Dr. Jimmy Zhang is a biotech investment veteran who has been investing in biotech since 2003, well positioned to identify those risks. He is also a Venture Partner at specialist healthcare and life sciences fund Lilly Asia Ventures in Shanghai. 

Opening the door to innovative drugs

For example, one of the most important catalysts for China’s biotech industry was the acceptance of the China Food and Drug Administration (CFDA) as a member of the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (ICH) in 20171. The membership means China should have greater and quicker access to innovative drugs (the first-in-class or best-in-class drugs) as the approval process to licence and create new treatments in China is shortened.

“Unlike the US, which has a well-developed market for innovative drugs, it took ex-China-originated innovative drugs 4-6 years, even 10 years to access the Chinese market before the country joined ICH, and some never entered the Chinese market. It has been hard for patients in China to receive the best treatment due to a market dominated by generic drugs and the unavailability of latest new medicine,” says Dr. Zhang.

And China has been quick to act. At the beginning of August, the Centre for Drug Evaluation (CDE) announced a policy on its website to provide an approval shortcut for 48 drugs from multinational companies. The list covers drugs approved overseas but not in China and that are for urgent unmet clinical needs.

However, as most healthcare costs are borne by patients due to the lack of medical insurance in China, Dr. Zhang says the question for drug developers is, even if they receive approval in China for a new treatment, can Chinese patients afford it?  

Investment focus will gradually shift towards innovative drugs. However, significant risks, huge capital investments and the long R&D time associated with innovative drugs require investors to have extensive expertise in the field.

Rethinking biotech investment

The introduction of new drugs will of course have an impact on investment strategies. In the past, the focus of investments in early-stage biotech in China has been to capitalise on delays in innovative drugs gaining China market access. However as more innovative drugs are allowed into China quickly, patients will show a growing preference for them over generics.

“Investment focus will gradually shift towards innovative drugs. However, significant risks, huge capital investments and the long R&D time associated with innovative drugs require investors to have extensive expertise in the field,” argues Dr. Zhang.

And it’s not just investors that will need to prove their credentials. Dr. Zhang, who has also held senior roles at Johnson & Johnson Innovation, Merck & Co and Synergenics, says the new system will present new challenges for the whole value chain from biotech companies to hospitals in China.

“Does the company have an experienced research and development (R&D) team with world-class capabilities in innovative drug R&D? Does it have the ability to identify a powerful drug based on the new mechanism and target, develop a sound clinical trial plan, and assemble a group of suitable patients for clinical trial? Are the doctors and hospitals experienced with clinical R&D? These are the areas that should be questioned,” he says.

New treatments, new prospects

So for investors looking to take the plunge, where are the opportunities? One area Dr. Zhang expects to attract strong capital inflows is the breakthrough in cancer immunotherapy. In addition, rare diseases have been receiving greater attention from the government alongside increased public awareness. This development was further supported in May when the government released its first official list of rare diseases.

Another area of focus for Dr. Zhang is CNS (central nervous system) drugs – medication that treats diseases such as Alzheimer’s Diseases, Parkinson’s Diseases.

“Due to limited scientific knowledge, there hasn't been any effective drug globally. There are quite a number of small companies in Europe and the US dedicated to CNS drug R&D and they have attracted substantial investments recently. However, the risk is prominent. Breakthrough in the area in China and participation of venture capitals may facilitate the efforts on a global scale,” he says.  


1. Acruit Medical Communications, All You Need to Know about CFDA Joining ICH, 2017