PT – Page 3 – shiqiv.com

Series B-2: Number of schools in Chinese K-12 system

According to China’s Ministry of Education (MOE) statistics for 2017,

	Number of schools
Pre-school Education[1]	254,950
Primary Schools[2]	167,009
Junior Secondary Schools[3]	51,894
Regular Senior Secondary Schools[4]	13,555
Secondary Vocational Schools[5]	8,181

[1] http://www.moe.gov.cn/s78/A03/moe_560/jytjsj_2017/qg/201808/t20180808_344728.html

[2] http://www.moe.gov.cn/s78/A03/moe_560/jytjsj_2017/qg/201808/t20180808_344722.html

[3] http://www.moe.gov.cn/s78/A03/moe_560/jytjsj_2017/qg/201808/t20180808_344763.html

[4] http://www.moe.gov.cn/s78/A03/moe_560/jytjsj_2017/qg/201808/t20180808_344797.html

[5] http://www.moe.gov.cn/s78/A03/moe_560/jytjsj_2017/qg/201808/t20180808_344778.html

Series B-1: Number of students in Chinese K-12 system

According to China’s Ministry of Education (MOE) statistics for 2017,

	Entrants	Enrolment	Graduates
Pre-school Education[1]	19,379,530	46,001,393	16,526,663
Primary Schools[2]	17,665,544	100,936,980	15,658,999
Junior Secondary Schools[3]	15,472,209	44,420,630	13,974,699
Regular Senior Secondary Schools[4]	8,000,548	23,745,484	7,757,292
Secondary Vocational Schools[5]	4,515,235	12,542,893	4,063,981

[1] http://www.moe.gov.cn/s78/A03/moe_560/jytjsj_2017/qg/201808/t20180808_344717.html

[2] http://www.moe.gov.cn/s78/A03/moe_560/jytjsj_2017/qg/201808/t20180808_344720.html

[3] http://www.moe.gov.cn/s78/A03/moe_560/jytjsj_2017/qg/201808/t20180808_344762.html

[4] http://www.moe.gov.cn/s78/A03/moe_560/jytjsj_2017/qg/201808/t20180808_344796.html

[5] http://www.moe.gov.cn/s78/A03/moe_560/jytjsj_2017/qg/201808/t20180808_344777.html

Series A-5: What problems are these companies facing in hiring talents, conducting trials or launching products?

Talents

The lack of talents has been a well-recognized problem for China’s biotech industry[1]. China lacks seasoned experts with at least 10 years’ industry experience, say insiders. Companies are especially keen on experience in translational medicine, early-stage clinical trials and antibody manufacturing. Start-up biotech firms need experienced managers at every level, from clinical trials to drug manufacturing processes, to help build their companies[2].

This path from multinational drug company to biotech is clearly seen in the bios of many of the more ambitious start-up founders. Returnees with a few years under their belt in China and an ability to effectively navigate the system are far more valuable to employers than new arrivals. It becomes fairly common that multinational biopharma firms are finding themselves battling Chinese biotechnology startups to attract talent^38,[3]. Those startups flush with cash from venture-capital financing are willing to pay top dollar (and upsides with options).

Trials

In terms of conducting trials, a historical lack of clinical research infrastructure in China has led to problems adhering to Good Clinical Practice, the international gold standard for maintaining ethical and quality standards in clinical trials. As an example, nearly all clinical research sites in China are hospitals, as there are no private practices. Because of that, clinical trial participants are treated exactly the same way as regular patients. That’s a problem because study staff — who are regular hospital employees — don’t have experience complying with Good Clinical Practice, putting the trial’s integrity, not to mention patient protection, at risk[4]^,[5].

Meanwhile, the rapid growth of Wuxi AppTex (and its affiliated Wuxi Biologics) has made itself one of the largest CRO/CMO players in the world[6], helping to facilitate drug discovery/development/manufacturing globally.

Launches

As most Chinese biotech startups are still in the r&d stage, only a few were approved recently. The most relevant example here might be the PD-1/PD-L1 space.

CFDA has long been seen as “slow” in terms of new drug approvals. A 2016 discussion quoted that usually a new drug needs 5-10 years for approval[7].

However, for the recent domestic PD-1 drugs for cancer, the approval speed was amazingly fast. Junshi won the first made-in-China PD-1 drug approval by NMPA (formerly CFDA) in December 2018[8]. Ten days later, the second PD-1 drug by Innovent was approved[9]. Each took 284 and 255 days respectively[10].

Two foreign PD-1 drugs, Merck’s Keytruda and Bristol-Myers Squibb’s Opdivo, were approved earlier in 2018. During 18Q3, Keytrude and Opdivo recorded ¥150 and ¥190 million in sales respectively[11].

Junshi started its sales in February 2019 and recorded nearly ¥80 million in the first quarter[12]. Innovent’s PD-1 launched its sales in March 2019 and finished the first quarter with $9.9 million in revenue, both of which are deemed as successful in media reports[13].

[1] https://www.kornferry.com/institute/download/download/id/17053/aid/219

[2] https://www.huamedicine.com/upload/down/5870180130135508.pdf

[3] https://www.ft.com/content/d3a2de0e-6fbb-11e8-92d3-6c13e5c92914

[4] https://www.statnews.com/2018/08/03/china-clinical-trials-infrastructure-transparency/

[5] http://www.appliedclinicaltrialsonline.com/running-clinical-research-china

[6] https://explorebiotech.com/top-cros-usa-contract-research-organization/

[7] http://journal.healthpolicy.cn/html/20160304.htm

[8] https://endpts.com/junshi-wins-the-race-for-first-made-in-china-pd-1-approval-as-execs-reap-394m-ipo-harvest/

[9] https://endpts.com/china-greenlights-second-homegrown-pd-1-in-10-days-as-innovent-celebrates-its-first-drug-ok-with-eli-lilly/

[10] https://www.bjcancer.org/Html/News/Articles/9321.html

[11] https://www.yicai.com/news/100135300.html

[12] https://xueqiu.com/8965749698/125984469

[13] https://finance.sina.com.cn/roll/2019-05-06/doc-ihvhiews0153982.shtml

Series A-4: Are companies building drugs for the Chinese market or the western/US market?

Mostly Chinese.

According to IMS, China’s spending in medicine has been growing fast, reaching $137 billion in 2018[1].

Another research database shows that in 2018, China’ exports in medicine was $17.4 billion[2] and imports was $29.6 billion[3].

Although they might use different sources/measures, we could roughly estimate that in 2018, non-import medicine consumption was 137-29.6 = 107.4 billion and domestic medicine production was 107.4+17.4 = 124.8 billion.

Therefore, 86% of Chinese drug companies’ production was for the domestic market while 14% was for exports in 2018.

For the more modern (or newly funded) innovative biotech/drug companies in China, they are targeting the global markets. Usually they will divide the commercial rights by regions and retain the greater china rights while sell the rest (another source of funding). Some innovative drug candidates’ global rights ex china have already been licensed/acquired by western/US pharmaceutical companies. Most Chinese biotech companies don’t have the capability to develop/commercialize outside the greater china area.

[1] https://www.iqvia.com/institute/reports/the-global-use-of-medicine-in-2019-and-outlook-to-2023

[2] http://s.askci.com/news/maoyi/20190624/1150071148256.shtml

[3] http://s.askci.com/news/maoyi/20190625/1430421148825.shtml

Series A-3: What is the IP regime in China and how does it affect innovation?

According to a 2017 research “Evaluation of China’s intellectual property regime for innovation: Summary Report”[1]:

1) China’s IP laws and regulations have improved significantly over the years, and currently are generally in line with international standards.

2) Despite the surge in the quantity of patents in China in recent years, patent quality has not risen proportionately. Proliferation of low-quality patents can restrain China’s ability to

transition towards an innovation-based economy.

3) Based upon our quantitative and qualitative research, we find that, generally speaking, the courts in China handling IP disputes are more efficient and effective today than in the past. Despite these positive developments in IP enforcement in China, the effectiveness of judicial IP enforcement remains undermined by the low damages traditionally awarded in IP cases

In terms of IP regime for the pharmaceutical industry in China, several improvements have been made recently:

Patent Term Extension

Generally, the patent term in China is 20 years, similar to that in the US. But China didn’t provide other protections such as Patent Term Extension for drugs.

For drugs, which require years of premarket development and marketing approval before they can be commercialized, additional protections are usually available. In the US, a pharmaceutical patent may be extended by up to 5 years to compensate for any clinical trials and FDA regulatory time. However, the amount of time that a manufacturer has both patent and regulatory exclusivity cannot exceed 14 years. A study for 170 top-selling drugs that had a generic approved from 2000 to 2012 shows that nearly half (49%) of those drugs received a patent term extension, with a median extension of 2.75 years resulting in a total exclusivity period of 13.75 years[2]^,[3].

The State Council in China announced its intention to extend patent protection (and other improvements) in October 2017 《关于深化审评审批制度改革鼓励药品医疗器械创新的意见》.[4]

On April 12 2018, the State Council meeting said that 5-year patent term extension will be available for innovative drugs which apply for commercialization on domestic and oversea markets simultaneously[5].

In December 2018, the patent term extension was part of the fourth amendment (draft) of China’s IP Law[6].

Data exclusivity

Also an important protection for drug innovation, data exclusivity is newly structured in April 2018, following the October 2017 opinion[7].

The protection (6 years) was in place before, but can be applied only in limited circumstances[8].

Innovative drugs that are approved to enter the domestic market will be entitled to enjoy a data protection period of six years, doubled to 12 years for innovative biological products for curative uses, which is comparable to that of the United States and exceeds the ten-year protection period in the European Union

The exclusivity protection may be reduced or revoked under any of the following circumstances[9].:

when a drug application uses data from an international multi-center clinical trial in China and the drug application filed in China is later than those outside of China, the exclusivity period is one to five years, depending on the delay, and if the delay is more than six years, there is no data exclusivity;
if the drug application uses data from clinical trials conducted outside of China without involving any Chinese patients, the data exclusivity period is 25% of the foregoing;
if the drug application is supplemented with clinical trial data in China, the data exclusivity period is 50% of the foregoing; and
if a company fails to launch an approved drug into the market within one year of obtaining regulatory approval, the data exclusivity will be revoked.

Generally speaking, the recent reforms are pretty much playing a “catch-up” with the drug protection/exclusivity in the US. They serve both as a way to protect multinational drug companies and a way to promote domestic innovation. China’s own pharmaceutical industry has long been seen as a market filled with generic drug makers. But it is expected that more innovative drugs/therapies will be developed in China.

Another thing worth noting – China joined ICH in 2017. The ICH Assembly approved the CFDA as a new Regulatory Member in June 2017[10]^,[11]. China’s signing of the International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use now exposes Chinese companies to litigation if registered patents are not honored¹⁹. This will make Chinese drug makers operating higher standard stand out and raise the play field for all the companies.

[1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3118079

[2] https://www.uspharmacist.com/article/patent-and-regulatory-exclusivities-the-two-keys-driving-generic-and-followon-market-availability

[3] https://www.raps.org/news-and-articles/news-articles/2019/2/study-patent-term-restoration-extends-drug-patent

[4] http://www.gov.cn/zhengce/2017-10/08/content_5230105.htm

[5] http://www.gov.cn/guowuyuan/gwycwhy/20180412c06/index.htm

[6] http://www.phirda.com/artilce_19014.html?cId=1

[7] https://www.yigoonet.com/article/22344782.html

[8] https://www.hankunlaw.com/downloadfile/newsAndInsights/a180eb45f6f6f4a7c3530da2cdd6b463.pdf

[9] http://www.zhonglun.com/Content/2019/04-16/1353562780.html

[10] https://www.fda.gov/media/108538/download

[11] http://www.xinhuanet.com/health/2017-06/19/c_1121171609.htm

Series A-2: What diseases are they working on?

UBS summarized in its China’s biotech report – “Oncology: A driving force for innovation in Chinese biotech”.

An article by Pharmacodia in 2017 said the top 3 therapeutic areas for biologics in China are cancer, rheumatoid arthritis (RA), hepatitis B virus (HBV)[1].

Another bluebook in 2017 outlined the five focus areas for China’s biotechnologies[2]: 1) vaccines, 2) mAb and protein drugs for cancer, cardiovascular, neurodegenerative, diabetes, autoimmune diseases, 3) diagnostics and screening for major diseases, 4) gene therapies, cell therapies, 5) regenerative medicine

China suffers from an unusually high incidence of cancer, which has been the country’s leading cause of death since 2010. Nearly all companies (five out of six) went onto HKSE in 2018 are investing in oncology (except for Hua Medicine focusing on diabetes).

Among all the cancers, lung cancer is the most targeted disease due to the high incidence rate in China.

Globally, oncology is also the No.1 focus for the overall industry, accounting for more than 1/3 of the total pipeline, according to a 2018 report[3].

To develop cancer treatments, biotech companies usually focus on developments in mAbs (monoclonal antibodies), immuno-oncology, CAR-T therapies, etc.

Other breakthrough researches & developments including Qinghaosu (or Artemisinin), discovered by the team led by Youyou Tu to fight malaria.

[1] http://classic.hsmap.com/news_info/4080.html

[2] https://hsmap.com/static/bluebook.pdf

[3] https://pharmaintelligence.informa.com/resources/product-content/sitecore/shell//~/media/informa-shop-window/pharma/files/pdfs/pharma-rd-annual-review-webinar-2018-slides.pdf

Series A-1: How biotech companies in China are funded?

VC/PE funding

VC/PE funds targeting China life science investments are growing fast in recent years. According to ChinaBio, in 2018 those VC/PE funds raised around $43 billion in total and invested around $17 billion in China life science companies, up 36% from 2017[1]^,.

The amount raised by VC/PE funds quickly ramped up during the past several years, with $10.9 billion in 2015, $20.2 billion in 2016, $39.8 billion in 2017[2].

Accordingly, the capital invested soared from $1-1.8 billion annually (2012-2015) to $5.4 billion in 2016, $11.7 billion in 2017 and $17.3 billion in 2018².

[One thing worth noting – many Chinese life sciences companies included/collected in ChinaBio’ research are not purely biotechnology/biopharma companies. For some VC/PE funds, for the purpose of diversification or due to other reasons, they might invest in areas other than biotechnologies.]

IPO and capital markets

Similar to more developed countries like US, IPO is the most common choice for biotech companies and the funds behind them. [Another common exit opportunity is M&A, which is less likely for Chines biotech companies due to the less matured industry and capital market]

However, historically China’s own capital markets won’t accept most biotech companies because they are in their R&D stage with no products. Listing on China’s A-share has many requirements including reaching certain revenue and profit targets, which is very different from listing on NASDAQ. The lack of exit opportunities also (partially) explains the lack of funding in previous years. With the rise of VC/PE investments in Chinese biotech companies, appropriate exit options are needed/expected.

Starting from April 30 2018, Hong Kong Stock Exchange got a much anticipated listing pathway official for pre-revenue biotech companies[3]^,[4].

Five Chinese biotech companies went on HKSE via the new rule in 2018, raising nearly US$2.4 billion – Ascletis Pharma $400 million, BeiGene $903 million, Hua Medicine $114 million, Innovent $485 million, Shanghai Junshi $453 million[5]^,[6].

[The first few biotech companies listed on HKSE using the new rule are those large and “first-tier” startups; I will expect smaller IPOs in the coming years]

Another new board “Kechuang”, or tech board by Shanghai Stock Exchange is also going to welcome pre-revenue biotech companies starting in 2019[7]. No such listing has happened yet.

The capital market in China for biotech companies is still at an early stage. IPO is only one of the techniques. For example, while Nasdaq-listed biotech firms have raised US$3.5 billion from 32 post-IPO “follow-on” share issuances in the period, none has been recorded in Hong Kong yet[8].

Public sector / state funding

Overall scale

Direct funding sources to innovations in life sciences and biotechnologies from Chinese government was said to be over ¥60 billion over the last 5 years, according to Yuanbin Wu, an officer at China’s Minister of Science and Technology, on a conference in October 2018[9].

Another research article published on NEJM in 2014 said China’s public sector R&D expenditure in biomedical was $2 billion in 2012[10].

Structure

A 2011 paper discussed the structure of state sponsored biotech R&D at that time[11].

NSFC = The National Natural Science Foundation of China 国家自然科学基金委员会

MOST = The Ministry of Science and Technology of the People’s Republic of China

There were some consolidations happening, especially for programs within MOST, which are now under one umbrella – National Key R&D Program of China (国家重点研发计划)[12].

And in 2018, China planned to merge NSFC under MOST[13].

NSFC

Direct supporting from NSFC totaled ~¥26 billion in 2018[14], including ¥11.2 billion available in its General Program (with ¥1.8 billion in life sciences and ¥2.5 billion in medical sciences)[15]. NSFC’s major programs are detailed below.

2018 National Natural Science Foundation of China (Jan 1, 2018 – Oct 24, 2018)

NSFC program names	Total (all disciplines) (¥, millions)	Life Sciences (¥, millions)	Medical Sciences (¥, millions)
General Program 面上项目	11,152.89	1,774.7	2,521.20
Young Scientists Fund 青年科学基金项目	4,176.44	582.40	886.80
Fund for Less Developed Regions 地区科学基金	1,103.33	292.60	312.00
Key Program 重点项目	2,054.42	323.00	352.70
National Science Fund for Distinguished Young Scholars杰出青年基金项目	682.85	87.50	84.00
Joint Research Fund for Overseas Chinese, Hong Kong and Macao Young Scholars海外及港澳学者合作研究基金项目	54.00	9.00	9.72
Excellent Young Scientists Fund 优秀青年基金项目	520.00	75.40	65.00
Total	19,743.93	3,144.60	4,231.42

In terms of acceptance rate, for example, NSFC General Program accepted ~20% of projects across all disciplines in 2018 (specifically, life sciences 24% and medical sciences 17%). A history analysis of the fund’s overall acceptance and support is discussed in this article[16].

MOST

According to MOST’s 2018 budget, National Key R&D Program of China (国家重点研发计划) receives a budget of ~¥27.7 billion in 2018. Another program under MOST is National Science and Technology Major Project (国家科技重大专项), which receives a budget of ~43.8 million[17]. (both numbers are for all disciplines; allocation for biotech related projects is not available)

There are other forms of supports from both central and local governments for biotech companies in China, including tax-cut, low-cost infrastructure, etc.[18]

Other corporate involvement

While China doesn’t have many big pharma companies that are financially strong, some giants in tech and insurance (Baidu, Tencent, Alibaba, PingAn, etc.) have provided certain funding to areas they are interested, usually involving digitalization, data or AI, such as genomics, diagnostics and telemedicine[19].

[1] http://www.chinabiotoday.com/articles/China-Life-Science-2018

[2] http://www.chinabiotoday.com/custom/ChinaBio_State_of_Life_Science_2019%20-%20Jan%202019%20-%20China%20Showcase%20-%20DIST(1)%20-%20Copy%201.pdf

[3] https://www.scmp.com/comment/insight-opinion/article/2143267/hkexs-new-listing-rules-will-bring-tech-economy-hong-kong

[4] https://www.hkex.com.hk/-/media/HKEX-Market/Listing/Rules-and-Guidance/Listing-Rules-Contingency/Main-Board-Listing-Rules/Equity-Securities/chapter_18a.pdf?la=en

[5] https://www.hkex.com.hk/-/media/HKEX-Market/Listing/Getting-Started/HKEX-Biotech-Newsletter-Issue-1.pdf

[6] https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/finance/deloitte-cn-mna-medicine-and-biotechnology-industry-driven-by-innovative-drugs-zh-190412.pdf

[7] https://www.spglobal.com/marketintelligence/en/news-insights/trending/amoyKnMDGMXvpAJ-p0aiHA2

[8] https://www.scmp.com/business/investor-relations/ipo-quote-profile/article/3012766/shanghai-tech-board-unlikely

[9] http://www.gov.cn/xinwen/2018-10/29/content_5335500.htm

[10] http://rwjcsp.unc.edu/downloads/news/2014/20140102_NEJM.pdf

[11] https://hal.archives-ouvertes.fr/hal-00592303/document

[12] https://baike.baidu.com/item/%E5%9B%BD%E5%AE%B6%E9%87%8D%E7%82%B9%E7%A0%94%E5%8F%91%E8%AE%A1%E5%88%92/19395314