National 13th Five-Year Plan Key Research and Development Plan "Modernization of Traditional Chinese Medicine" Special Plan Project Signing

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    In 2016, my country's drug regulatory agency formally proposed the concept of "innovative drugs" for the first time, which is defined as "drugs that are not listed in China and abroad", and the scope has changed from "China New" to "Global New". The expansion of the demand side of the domestic market has also stimulated innovative drugs to enter a new development climax.

In recent years, China's support for medical innovation at the policy level has been increasing. In 2012, the State Council issued the "Opinions on Deepening the Reform of the Science and Technology System and Accelerating the Construction of the National Innovation System", which clearly pointed out that it supports pharmaceutical innovation and takes the biomedical industry as a key strategic emerging industry. In October 2017, the Central Committee of China and the State Council issued the Opinions on Deepening the Reform of the Review and Approval System and Encouraging Innovation in Pharmaceutical and Medical Devices. In addition, the outline of the National medium-and long-term Science and Technology Development Plan (2006-2020) also lists the creation of major new drugs as one of the 16 major special projects.

Prior to this, R & D customers released a "Blue Book on the Development of China's Biomedical Industry". The blue book analyzes the current situation and development of China's biomedical industry from the perspective of capital market, and puts forward the following views:

1. Technological innovation and promotion have always been one of the most basic driving forces for the development of the industry. In recent years, biomedical companies have increased their investment in research and development, and new technologies related to cancer treatment have long occupied the top spot in research and development;

2. From a global perspective, the biomedical industry may enter a period of adjustment in the open market in the future. High-quality companies will still be favored, but companies that lack really good products will struggle;

3. At present, China's biomedical industry as a whole still belongs to follow-up, imitation innovation, there is a "swarm" phenomenon. The state and local governments at all levels need to pay attention to this phenomenon, and need to use administrative and financial means to guide enterprises to pay attention to clinical needs and find products that the market really needs.

The contents of the innovative drugs in the blue book are collated and interpreted for the reference of the industry.

Innovation-driven New Journey of Chinese Medicine

According to Guangzhou Punctuation Pharmaceutical Information Co., Ltd. (PICO) data, in 2018, my country's three major terminals and six major markets drug sales reached 1713.1 billion billion yuan, a year-on-year increase of 6.3 percent, making it the world's second largest pharmaceutical market after the United States. However, the R & D investment of Chinese pharmaceutical enterprises only accounts for 6% of the world, which is far from the United States. This is due to the fact that for a long time, the drugs of Chinese pharmaceutical companies are mainly generic drugs, and there are very few innovative drugs.

At this stage, the encouragement of national policies has triggered an upsurge in the development of innovative drugs. The number of new drug applications is increasing rapidly every year. my country is evolving from a "generic country" to a "innovative drug country. In the future, with a series of national and local policy incentives, capital support and demand guidance to encourage innovation, more and more enterprises developing innovative drugs will stand out.

(Clinical declaration of 1.1 new drugs in China; Source: Huaxia Cornerstone)

On the whole, the time for my country's pharmaceutical companies to deploy innovative drugs is not long. The development models of innovative drug companies can be roughly divided into three categories: from imitation to innovation, independent innovation, and authorized introduction.

"From imitation to innovation" refers to the gradual transformation of traditional generic drug manufacturers with a certain scale to develop innovative drugs. Many of these companies are large pharmaceutical companies with certain technical strength and financial security, as well as a good market layout, transforming to innovative drugs to meet new market needs and achieve higher profit margins and sales. Representative companies are: Hengrui Pharmaceuticals, Green Leaf Pharmaceuticals, etc.

"Independent innovation" refers to enterprises established specifically for the research and development of innovative drugs. Such enterprises are usually relatively young. They are founded by overseas returnees or technical talents from the R & D centers of former multinational companies, and rely on capital investment for the development of innovative drugs. At present, most of these emerging innovative pharmaceutical companies have not yet listed their products, but they have begun to take shape, and many companies have been successfully listed. Representative enterprises are: Baiji Shenzhou, Junshi Biology, Cinda Biology, etc.

"Authorized introduction" means that an enterprise's research product line is mainly through authorized cooperative transactions or mergers and acquisitions with overseas companies or research institutes to obtain domestic or global development and commercialization rights and interests of drugs, rather than self-development. Such companies usually have clinical development talent and conduct transactions through capital financing to quickly enrich their R & D pipelines and accelerate R & D. This type of new drug development model is also known as the VIC model, which combines venture capital (Venture Capital), intellectual property (Intellectual Property) and contract research and development organization (Contract Research Organization). Representative enterprises are: Re-Ding Pharmaceuticals, Hualing Pharmaceuticals, etc.

Capital focus on the field of innovative drugs.

In recent years, as more and more companies with high innovation capabilities continue to appear, the field of innovative drugs is becoming a hot spot of investment in the capital market. According to the "2018 China Innovative Drug Industry Investment Research Report" by Qingke Research Center, from 2013 to the first half of 2018, the amount and quantity of investment in the field of innovative drugs in my country increased rapidly. The cumulative disclosed investment amount reached 48.6 billion billion yuan, and the number of investments reached 297 Since.

(Investment in China's innovative pharmaceutical sector from 2013 to the first half of 2018; Source: Private Equity)

The main reason why the field of innovative drugs has become a hot spot in the capital market is the promotion of policies, technological innovation and market demand. From a policy perspective, the state and local governments have issued a series of policies to encourage innovation, and provided corresponding support and preferential measures to encourage overseas talents to start their own businesses. In addition, the speed of review and the simplification of the process have objectively promoted the development of innovative drugs and investment in this field. In recent years, international technological breakthroughs in the field of medicine, especially in the field of chemical targeted drugs and biological drugs, have provided a solid foundation for the research and development of innovative drugs.

On the other hand, with the aging of the population, the incidence of malignant tumors and many other diseases has increased, and the number of patients has increased, and the market demand for innovative drugs has grown rapidly. In turn, the investment in R & D-driven enterprises has been recognized and has become the object of pursuit by various investment institutions.

Judging from the overall investment situation, investment in the field of innovative drugs in China began to explode in 2014, with the amount of investment in that year reaching 8.56 billion yuan, 4.2 times that of the previous year, and the number of investments was 35, an increase of 84.2 per cent. Although the amount of investment fell in 2015, but always maintain a certain increase. By 2018, the market broke out again, and the amount of investment in the first half of the year alone exceeded the total for the previous year.

Innovative drugs take a long time to develop and spend a lot of money, but once successful, the returns are generous. In recent years, some representative outstanding innovative pharmaceutical companies have been favored by investment institutions and received multiple rounds of investment to support their new drug research and development.

In the investment of innovative pharmaceutical companies, the capital side generally favors relatively mature companies, that is, companies that have entered the late stage of drug research and development or are about to go public. At present, going public market (IPO) is the most important exit method for the capital side. HKEx and NASDAQ accept the listing of innovative pharmaceutical companies that have not yet made a profit and have a deterministic return in the future, thus becoming an important choice for the IPO of innovative pharmaceutical companies in China. In addition, the recent hot board has also attracted many pharmaceutical companies to embark on the IPO road.

Two factors promote the rapid development of China's biomedical industry

In the future, China's biomedical industry will be driven by both external and internal factors and continue to develop at a high speed.

From the perspective of external factors, as my country enters an aging society, the prevalence rate and the number of patients continue to increase, and the medical demand also increases. According to the data of China Statistical Yearbook, since 1999, the population over 60 years old in China has exceeded 10%, and continues to increase. Correspondingly, the medical expenditure in China's household consumption is also increasing.

At the same time, with the improvement of people's living standards and economic conditions, the demand for medical services has increased significantly. The proportion of medical and health care expenditure in per capita expenditure of Chinese residents has increased from 6.9 per cent in 2013 to 7.9 per cent in 2017, and it is still increasing.

In terms of internal factors, with the development of generic drug consistency evaluation and centralized procurement of drugs at all levels, China's requirements for drug quality are becoming more and more stringent, while volume procurement has depressed the price of drugs, making the profit margin of drugs compressed, forcing traditional enterprises to transform to innovative drugs.

In addition, the release of a series of national policies to encourage drug innovation and a group of overseas talents returning to China to start their own businesses have spawned a large number of start-ups specializing in the development of innovative drugs. The review and approval reform of drugs and medical devices that began in 2015, and the dynamic adjustment of the national medical insurance catalog that began in 2017, have also further promoted the development of innovative products, accelerated the entry of innovative pharmaceutical products into the market, and promoted the rapid development of the biomedical industry.