Air pollution shot in arm for China lung cancer drug industry
Surge in lung cancer spawns new listings and billion-dollar market values for Chinese companies Betta Pharma and Hutchison China MediTech, writes Li Hui
The thick haze of pollution blanketing northern China this winter is a grim reminder of the nation’s new growth industry: lung cancer drugs.
China logged more than 700,000 new cases of the disease in 2015, the product of a surge in air pollution, high smoking rates and unhealthy lifestyles as China has prospered in recent decades. Lung cancer is now the most common type of cancer in the country. Its spread has spawned new listings as well as billion-dollar market values for Chinese companies such as Betta Pharmaceuticals and Hutchison China MediTech, which are attempting to build blockbuster treatments.
Zhejiang, Hangzhou-based Betta Pharma, which sells just one lung cancer drug, Conmana, shot up to as much as $5.6bn in market value late in 2016 after raising about $110m in a public offering on the Shenzhen exchange in November.
Hutchison China MediTech, whose pipeline of experimental therapies is also heavily focused on lung cancer, also attracted $110m in a new listing on the Nasdaq in March.
While oncology is the most active area for global drug innovation, the focus on cancer "is compounded by China-specific considerations," said Franck Le Deu, a senior partner at McKinsey & Co.
China faces a higher incidence of specific cancers such as gastric, lung or liver, Le Deu said, and patients and families are willing to pay for any medicine that can help.
Heavy smog has blanketed a third of China’s cities including its capital Beijing in recent weeks and at least 62 cities have issued health alerts.
While the government has shuttered some coal-burning power plants and curbed the number of cars over the past few years, such bouts of heavy pollution remain common, especially in winter.
The World Health Organisation’s cancer agency has classified outdoor air pollution as carcinogenic for humans.
A 2015 analysis by experts at China’s National Cancer Centre said while cigarette smoking was the most important risk factor for lung cancer, air pollution has also been determined to have a significant effect in the development of the disease.
China’s market for cancer drugs is still dominated by foreign brands from companies such as Roche Holding and AstraZeneca. But to build its own national champions, the government has begun easing financing and regulation for healthcare companies.
Betta Pharma said in an e-mail that China’s stubbornly high lung cancer incidence and death rates inspired chairman Ding Lieming to return to China in 2002, armed with a medical doctorate from the US, to develop "Chinese people’s own anticancer drug".
BeiGene, another Chinese biopharmaceutical company that is working on experimental drugs focused on cancer, listed its shares on the Nasdaq in February and has a $1.2bn market cap. Hong Kong-based Hutchison China Meditech already had a London listing before its US debut.
"China faces air pollution as it undergoes industrialisation, and is going through a stage of high cancer incidence, which America has gone through in the ’70s and ’80s," said Samantha Du, who represented private equity firm Sequoia Capital’s investment in Betta Pharma in 2013.
She believes treatments for other kinds of cancers also have large markets and Chinese companies that can develop and bring them to market are highly valuable. Betta Pharma says it has 28% of the China market for certain kinds of lung cancer therapies. It had total revenue of about $143m in 2015.
New drugs seeking approval in China still face many challenges. China’s Food and Drug Administration has cut the backlog of applications awaiting review almost by half, and approval time has begun to shorten. But the process is still taking many times longer than at the US FDA, according to McKinsey. It is also a difficult process for new drugs to be covered by China’s public health insurance.
China’s so-called innovation, in fact, free rides on a lot of basic research by American scientistsSteven Wang
Founder of HighLight Capital
China’s drug discovery is still often seen as being limited to "me-better" drugs, or improved versions based on chemicals and treatment targets first identified by foreign researchers.
"China’s so-called innovation, in fact, free rides on a lot of basic research by American scientists," said Steven Wang, founder of HighLight Capital, a private-equity fund.
He has invested in other innovative drug makers in the country because he believes they have the ability to make money from these drugs because of high demand.
Du said her decision to invest in Betta Pharma, which generated little revenue at the time, faced scepticism.
"But I felt at the time that cancer is a very large market in China, and people estimating the lung cancer market at the time only took into consideration patients who had access to medicines," said Du.
In 2014, she started her own drug developer called Zai Lab, whose pipeline also includes a few therapies targeting lung cancer.