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21st Century Business Herald reporter Ji Yuanyuan reports from Shanghai

The first half of 2024 has come to an end, and innovative pharmaceutical companies are also accelerating their search for new growth points in the market.

According to iFinD data from Tonghuashun, as of July 31, more than 10 listed companies in the biopharmaceutical industry disclosed their semi-annual reports according to the Shenwan first-level industry classification. In terms of the year-on-year growth rate of net profit attributable to parent companies, Zoli Pharmaceuticals, Enhua Pharmaceuticals, and MyBiotech temporarily ranked in the top three, with net profit attributable to parent companies increasing by more than 15% year-on-year in the first half of the year. At the same time, 102 biopharmaceutical companies have disclosed their first-half performance forecasts, 49 of which are expected to be positive, accounting for about 48.04%.

However, there are still many innovative pharmaceutical companies on the verge of bankruptcy, closure, and delisting. So, how can China's local innovative pharmaceutical companies turn things around in the second half?

Recently, an executive of an innovative pharmaceutical company told a reporter from 21st Century Business Herald that the competition in the Chinese market for innovative pharmaceutical companies remains intense, and many market sectors are still monopolized by multinational pharmaceutical companies. This also means that local innovative pharmaceutical companies need to understand the market and every value of their products earlier. Companies must not only have a comprehensive understanding of the market, but also conduct in-depth analysis of the characteristics, advantages and potential market demand of their products. At the same time, when choosing a project to enter or a project to start research and development, companies must ensure that the selected project is highly matched with market demand. This includes evaluating the market potential, competitive situation and whether it meets the needs of the target patient group.

"Innovative pharmaceutical companies should be as conservative as possible in resource allocation to avoid wasting resources due to excessive optimism. Correct resource allocation and capital management can ensure that companies have sufficient resources to support R&D and market promotion at critical moments," said the pharmaceutical company executive.

With limited funds, how can innovative pharmaceutical companies find the right market path and achieve differentiated competition?

How to differentiate market selection?

It is not easy to choose competitive fields with differentiation.

The above-mentioned pharmaceutical company executive emphasized to the 21st Century Business Herald reporter that in an era where innovation is king, true technological innovation only accounts for 20% to 30%. Therefore, companies must know that no matter how good the technology or how good the product is, how to produce and sell it is the most critical content.

"At present, high-quality innovative drugs are monopolized by multinational pharmaceutical companies. It is not advisable to follow the trend or crowd in. Instead, we should choose truly suitable products based on 'objective facts'," said an executive of the pharmaceutical company.

Zhao Guangtao, founder of Synmed, also said in an interview with a reporter from 21st Century Business Herald that local pharmaceutical companies need to accelerate the breakthrough of patent and technology barriers of leading foreign companies to form their own technological advantages. For example, in the respiratory chronic disease market, if aerosol inhalation solutions are not included, about 80% of the market share of pulmonary drug delivery products is occupied by original research drugs. Global giants such as GlaxoSmithKline (GSK), Novartis, Boehringer Ingelheim, AstraZeneca, etc., dominate the field of pulmonary drug delivery, especially in the field of diseases such as asthma and chronic obstructive pulmonary disease (COPD), where the market share is particularly significant.

"Chinese pharmaceutical companies are committed to breaking this situation and achieving breakthroughs through the research and development of generic drugs. In this process, drug prescription development, drug delivery device design, and clinical program formulation have become the biggest challenges." Zhao Guangtao pointed out that although China's biopharmaceutical industry has made remarkable achievements in the fields of injectables and oral drugs, local innovation and large-scale production have performed well, and Chinese CRO companies are also well-known internationally. However, in a few high-barrier segments, such as local drug-device combination products (inhalation powder sprays and inhalation soft sprays), they are still dominated by a few multinational giants. Before 2024, Chinese local companies have not made significant breakthroughs.

"Once the international technical barriers are broken, Chinese local pharmaceutical companies will have significant competitive advantages." Zhao Guangtao said that from a realistic perspective, the development of high-end drug-device combination products will also pay attention to the centralized procurement policy, and whether it is too early to enter the centralized procurement scope is also the focus of industry attention. The centralized procurement policy is both a challenge and an opportunity for generic drug-device combination products. High-end drug-device combination products face multiple technical and regulatory barriers, and it is difficult to form a situation where multiple generic drug varieties are launched simultaneously. Effectively utilizing the innovative advantages of drug delivery devices can bring uniqueness and timeliness to pharmaceutical companies in the market.

Take Seretide (salmeterol and fluticasone inhalation powder), one of the world's top ten drugs, as an example. Its patents have long expired, including the patents for the device and the drug. However, generic drugs have not been launched on the market because it is extremely difficult to imitate drug-device combination products. The first prescription-replaceable generic salmeterol and fluticasone dry powder inhalation drug in the US market was not launched until 2019 by Mylan (now known as Viatris). Previously, Seretide had accumulated sales of up to $100 billion, but it has been difficult to imitate for a long time. This case fully illustrates the high technological barriers of drug-device combination products.

Similar situations still exist in the Chinese mainland market. Although many pulmonary drug delivery products are no longer patent protected, the technical barriers of the devices are still high, and the clinical challenges posed by the synergistic effects between the devices and drugs are equally huge. Therefore, many local pharmaceutical companies are committed to breaking through these technical barriers and patent barriers in order to achieve the early listing of generic products.

"The barriers to drug-device combination products come not only from the technical level, but also from the regulatory and financial levels. This makes it difficult to gather three to four generic drug companies in centralized procurement." Zhao Guangtao believes that for the Chinese market, if high-quality drug delivery device solutions can be provided and supported by the customer's R&D efforts, it may be possible to be the first among many companies to achieve first imitation, and even in centralized procurement, it will have an active advantage.

The combination of medicine and equipment requires the construction of a supply chain

Products that combine drugs and medical devices are divided into drug-device combination products and drug-device combination products. The drugs and medical devices in the so-called drug-device combination products penetrate each other and combine into one product. The product only needs to obtain drug or medical device registration according to regulations. For example, drug-containing stents, catheters with antibacterial coatings, syringes pre-filled with drugs, etc.

Taking inhalation drug delivery devices as an example, foreign companies such as AstraZeneca, Boehringer Ingelheim, and GlaxoSmithKline occupy the majority of the market share, and there are only a handful of domestic companies with the technology accumulation of complex respiratory system inhalation preparations. This is also because the supply chain of drug delivery devices, including pulmonary drug delivery devices and nasal drug delivery devices, from research and development to mass production is extremely complex and lengthy.

Currently, this field is mainly focused on drug packaging and drug delivery systems. Among them, pulmonary drug delivery devices are particularly prominent and are known as the "crown jewel" in the field of passive drug delivery systems. Not only are the technical thresholds and barriers high, but the supply chain construction is also extremely challenging.

In addition, taking the silicon-based atomization chip as an example, as a key component, the processing difficulty is extremely high, similar to the processing technology of semiconductor nano-scale chips. Globally, only one European company can provide such chips, and the price is expensive and the supply is limited.

"To this end, local pharmaceutical companies need to start self-research of silicon-based atomization chips, realize localized production of the entire chain from wafer processing to atomization particle forming, and effectively alleviate the supply chain bottleneck problem. While improving the accuracy of silicon-based atomization chips, we also need to ensure that there is no blockage in the spray process, the spray shape is stable and it has large-scale production capabilities. The realization of localized production has greatly reduced product costs and significantly improved market competitiveness." Zhao Guangtao pointed out that taking the inhalation drug delivery device market as an example, in the past, international suppliers used to monopolize the market at several times higher prices. Now, China can provide high-quality inhalation drug delivery devices to global customers at a more reasonable price.

For local pharmaceutical startups, the security and stability of the supply chain is crucial. Therefore, they need to invest in building factories and overcome all difficulties in the supply chain.

"Only in this way, in the future, no matter what supply chain risks we face, we will have the confidence to provide comprehensive localized supply chain services, ensure the synchronous supply of materials at home and abroad, and maintain the security and stability of the supply chain," said Zhao Guangtao.

Coping with competition from Chinese and foreign markets from multiple dimensions

For companies in the Chinese market, even if they are currently in a comfortable zone with stable projects and considerable income, they still need to remain highly vigilant. The Chinese pharmaceutical industry has seen fierce competition in many fields, such as PD-1, ADC, GLP-1 and other tracks. The competition is fierce, and companies need to prepare for the rainy day to prevent the market from "involution" in the future.

This is also because the biopharmaceutical industry has gone through a transition from enthusiasm to calmness and is facing many challenges. When discussing the difficulties faced by Chinese biopharmaceutical companies, in addition to capital factors, a reason that cannot be ignored is the lack of real innovation investment, especially R&D funds.

In order to promote the improvement of innovation capabilities, the details of the "Full-chain Support for the Development of Innovative Drugs Implementation Plan" have been gradually implemented recently. Supporting the development of innovative pharmaceutical companies through key links such as research and development, approval, use and payment has become the key to creating a globally competitive biopharmaceutical development market environment for my country. At present, the intersection and integration of biotechnology, materials science, medical technology, formulation technology and information technology has provided more possibilities for the innovation of drugs and medical devices.

However, in the process of innovation layout, judging from the current investment and financing environment in the Chinese market, biosimilar pharmaceutical companies usually have no income in the entire process from early development to Phase I, Phase II, and Phase III clinical trials, unless they obtain technology licenses. How to rationally layout has also become a key issue that companies focus on.

"For biopharmaceutical companies, the importance of innovation needs to be emphasized. Innovation should be carried out as early as possible, that is, preparations should be made before a competitive situation is formed in the market. Taking drug-device combination products as an example, the development cycle is usually three to five years. The drug development cycle may be longer, but on average it is about five years." said Zhao Guangtao.

In addition, Chen Jinhao, head of IQVIA China Management Consulting, believes that before making innovation plans, companies should also evaluate market fit and ROI when choosing investment or R&D projects. Specifically:

First, understand market demand. Companies need to conduct in-depth market analysis to understand the unmet needs in the target disease area and the shortcomings of existing treatment options. This includes a comprehensive examination of the potential market size, growth potential, and competition. Only by having a deep understanding of the market can we ensure that the selected projects have sufficient market matching.

Second, evaluate the strategic significance of the product pipeline. When selecting investment or R&D projects, we should not only look at the prospects of individual projects, but also consider the strategic layout of the entire product pipeline. For example, whether it can form synergies with other products of the company, or whether it can enhance the company's competitiveness in a specific therapeutic area.

Third, calculate the return on investment (ROI). For any investment project, a detailed financial analysis is required to predict its potential return rate. This requires not only considering the initial R&D costs, but also evaluating the subsequent market access costs, marketing costs, and expected sales revenue. At the same time, possible risk factors and alternative plans must also be taken into account.

Fourth, decisive decision making. Based on the above analysis, the company needs to make quick and decisive decisions. If the market fit is high and the expected ROI is good, it should go all out to invest resources. On the contrary, if the fit is poor or the risk is too high, the project should be adjusted or abandoned in a timely manner.

Zhao Guangtao also emphasized that the reason for choosing the inhalation drug delivery device track is mainly based on its huge market potential, less competitive advantages and a business model that can create real value for customers. This also means that at present, local companies need to continue to accelerate the pace of innovation, respond to challenges, seize opportunities, and achieve greater breakthroughs and development in the field of differentiated biopharmaceuticals.