China Immunotherapy Competition

By: Saniel Chandrawat

Senior Investment Analyst – Healthcare, Energy, Utilities

China’s PD(-L)1(programmed cell death protein 1) sales are expected to grow at 36% compound annual growth rate (CAGR) 2020-25e to RMB 62 billion (vs 2020e is expected to be RMB13 billion). This rapid growth will be mainly be driven by (i) significant medical demand to address a large patient population; (ii) favorable regulatory reforms to drive faster launches, with bigger/wider indication coverages; and (iii) reimbursement expansion, bridging the gap between demand and supply. Lung cancer, stomach cancer, Oesophagus cancer, and liver cancer, in total, represent about 55% of new cancer cases in China.

In China, there are 142 PD-(L)1/ PDL1 (programmed death-ligand 1) inhibitor-related later-stage clinical trials ongoing, targeting cancer sites with higher incidence and frontline/(neo) adjuvant treatment, compared to only a handful that has been approved so far, that too for only a small number of indications. These clinical trials are aiming for wider patient coverage. We are positive on PD-(L)1’s efficacy in the frontline treatment of major cancer types as well as in adjuvant settings. We think the leading domestic players are well placed relative to the competition.

Considering the various combo therapies in different cancer indications, we believe that the PD-(L)1 inhibitor as an immune modulator would likely play a basic role in carrying various other innovative drugs for oncology treatment.

Companies that can consistently develop newer treatment modalities, provide low-cost, high-quality drugs, and have strong academic-based sales team should be able to capture market share.

Four leading domestic companies are leading the way in approvals as well as in key large indications.

As we can see from this table, while multinational companies were initially leading, four domestic companies have got approval for their PD1 molecule.

We detail below two key large indications (lung and stomach) and discuss progress among Chinese companies.

Lung cancer has the highest incidence worldwide and is well-studied by MNCs(multi-national companies). It is getting competitive in China, but MNCs have taken the lead so far.

Hengrui, Innovent and BeiGene are the Tier 1 domestic players, with indications approved or filed already. We believe, once these domestic companies get approved and included in reimbursement, they will be able to penetrate into tier 2/3 cities before the second wave of approvals come in, thereby creating a strong entry barrier.

In this table, we can see that domestic companies are catching up to multinational companies.

Phase III clinical trial status in NSCLC and SCLC – Leading domestic companies ahead of others in development for NSCLC indication (NSCLC – non-small cell lung cancer, SCLC – small cell lung cancer)

Stomach cancer is the second most prevalent cancer type in China, and new cases comprise 50% of the total incidence worldwide. (UBS Research, 13 Jan 2021).

This table again highlights the fast pace at which domestic companies progressing their PD1 molecules in China.

Research &Devleopment (R&D) capability is the key driver for the development and successful launch of innovative medicines. By 1H2020, BeiGene had the largest R&D team (400+ in research and 1,350+ in clinical development), while the R&D teams at Innovent and Junshi are also growing. (1H2020 is the date) In terms of R&D expenditure, BeiGene, Innovent, and Junshi spent Rmb6.4billion, Rmb1.3billion, and Rmb0.9billion, respectively, in 2019.

As we can see in these charts, the three domestic companies have progressed well in strengthening their R&D efforts as well as developing commercial sales team.

In summary, we continue to be impressed with the pace at which domestic Chinese companies have progressed on developing immunotherapy pipeline, including PD1 molecules as well as combination therapies.