Chi-Med in ‘prime position’ to take advantage of Chinese growth
The Chinese market has experienced strong growth in the last few years, as regulations have eased foreign investment into the country, and its internal pharma industry becomes increasingly productive.
This expansion has led some in the industry to remind those in the West that the speed of this transformation is not fully recognised by industry.
One company well placed to speak on the changes in the country is Chi-Med, which has operated out of the country for 19 years and became the first company in the country to bring through a ‘home-grown’ medicine.
On the release of its full year financials for 2018, in-PharmaTechnologist (IPT) spoke to Christian Hogg (CH) about the company’s plans for expansion and how it is producing one drug candidate each year, with the aid of its R&D engine.
IPT: Could you give me an overview of the financials Chi-Med just released?
CH: The results we've just announced for 2018 are in line with the guidance that we put out last year. So, no real surprises.
We have two core platforms. We have an innovation platform and we have a commercial platform. The innovation platform is one in which we are investing in to develop our portfolio of small molecule targeted therapies around the world. The total net loss on the innovation platform was $102m on R&D spending of around $144m. We offset some of that spending with revenues that we generate from our partners, AstraZeneca and Eli Lilly, and various other collaborations.
On the commercial side, net profit was $41.4m, which was up 10% compared to 2017 – we had a good year on the commercial side in China. So, everything is on track, increasing investments on the innovation side and continued solid progress in net income growth on our commercial side.
IPT: On the R&D side, Chi-Med has a broad portfolio. Why has the company chosen to pursue several candidates that go against a ‘biotech-approach’?
CH: We're not a small, binary biotech company. We've been operating now for 19 years, building up gradually through those years, and our market capitalisation is about $3.5bn. We've built a large platform of assets that are in clinical development, and we have a scientific team of over 420 people in China. This covers discovery all the way through to clinical research, as well as regulatory aspects and manufacturing.
We have two large-scale factories, with well over 1,000 people in them. We've also built up a large platform that's really a discovery engine. We're producing probably one novel drug candidate a year out of this system – which is why we tend to have a pretty broad portfolio. We became, just last year, the first Chinese company ever to bring a home-grown innovation from discovery all the way through to NMPA [National Medical Products Administration of China] approval and the launch of a synthetic oncology drug.
IPT: In the financials, it was announced that you'd invested in small molecule manufacturing in China, could you outline what work has been done?
CH: When we got our drug, Elunate (fruquintinib) approved last year, under the new priority review process that the Chinese regulatory authorities have put in place, there was a need to manufacture the drug. We chose to do that ourselves under the new regulatory regime, which has been reformed over the last five or six years, so the speed at which companies can bring innovation to market has improved dramatically. We received good manufacturing practice (GMP) certification last year and now we're producing fruquintinib from our own in-house capabilities
IPT: Why did you decide to build in-house manufacturing rather than work with a CMO?
CH: Under the market authorization holder policy in China, innovators can use contract manufacturing organizations (CMOs) to produce their drug if they want but we have a portfolio of drug candidates all going through clinical trials, we just thought it was better from two standpoints to build our own in-house capabilities on the manufacturing side.
Number one is quality control. We felt that the building our own manufacturing operation would allow us to maintain the standards of quality control we felt was necessary. We're producing fruquintinib for the Chinese market, but we're also developing it globally, so we wanted to build a facility in China that could be used to produce the treatment for the global market. So, we had to establish a standard of quality that is global.
The second is cost. I think when you've got one drug candidate or one drug then maybe it's more efficient to use CMOs than to build your own factory. However, we have eight candidates and for the next two, we hope that we will be submitting new drug applications (NDAs) over the next couple of years. And so, with that portfolio of drug candidates coming through to, hopefully, NDA and launch – it just made sense to us to have our own manufacturing facility because cost-wise and energy-wise, the synergies would be immediate.
IPT: What are your global plans, on a broader scale?
CH: Of the drug candidates, we have in clinical trials in China today, we have decided to start global development outside of China – in the US and Europe on five of them.
That's why we've built a clinical regulatory team in New Jersey, US, to guide and to manage clinical development of those five assets outside of China, in the US and Europe. You need people on the ground in the US if you're really going to do a lot of clinical development, and that team is building very rapidly. Our investment, right now, is more on the clinical regulatory side, with regards to the US; we'll cross the bridge later in the context of building out other functional capabilities, such as manufacturing and commercial.
IPT: At the end of last year, you announced changes to the partnership agreement with Lilly – could you explain the rationale behind this decision?
CH: It was a big transaction and big amendment to our agreement with Lilly. Lilly has been a great partner, they work very closely with us now in the commercialization of fruquintinib in China, as well as all aspects of developing the treatment over the past few years. It's our first approved drug and our most important asset in China today.
What's important for us, is to ensure that we're able to expand development into multiple lifecycle indications. Fruquintinib is a VEGFR inhibitor and similar inhibitors are approved in as many as 30 solid tumour settings around the world – so, there's a lot of expansion potential for the treatment. One of the reasons that we renegotiated our deal with Lilly was to allow us to be more aggressive in investing in developing fruquintinib in more indications in more areas. Of course, Lilly has financial resources well, but they also have a lot of other priorities.
For us, we wanted to ensure that we didn't hold fruquintinib back in any way – that we were able to bring our resources to expand development. You know, if we're putting in more money to do that then we needed to get a greater share of the economics. So, Lilly agreed to expand our milestones, to expand our royalty rate in China, and also agreed to carving off 30-40% of China for us to take over commercial rights on.
IPT: How is the Chinese market at present? How has it been developing since the Chi-Med's entered the market?
CH: I think the last few years has seen very rapid growth in China, as well as very rapid increase in both investor interest in China and the flow of money coming into the industry. There are three or four companies that have that have created a lot of value in the last four years, and that's attracting a lot of interest among the global investor universe.
That's happened while the Chinese government has really been reforming the regulatory system in China, making it much more transparent and streamlined. As a result, you've just had, in the four or five years, a real shift in activity, interest and investment into China pharma – we are fortunate to be in prime position to take advantage of this situation.
Christian Hogg has been the CEO of Chi-Med since 2006 and is also a member of the technical committee. He joined the business in 2000, as its first employee, and has since led all aspects of the creation, implementation and management of the Company’s strategy, business and listings.
