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As the medical reform goes deeper, the survival rules of my country's pharmaceutical industry are undergoing tremendous changes. The previous strategy of companies relying on generic drugs and auxiliary drugs to compete for the market is no longer feasible. Traditional pharmaceutical companies are seeking transformation, and emerging pharmaceutical companies are rising rapidly. Innovation and change are in full swing in my country's pharmaceutical industry.

In this era of reshaping the pharmaceutical industry, opportunities, risks and time windows are in dynamic change. How to understand the underlying logic of innovation and formulate appropriate innovation strategies in order to gain a place in the new landscape, or even to be on par with MNCs (multinational pharmaceutical companies), is a problem that local pharmaceutical companies must face.

Wang Xingli, Executive President of Fosun Pharma and CEO of Global R&D Center, said in an interview with 21st Century Business Herald, "Most of the old pharmaceutical companies started out as generic drugs, and the transformation to innovative pharmaceutical companies requires an iterative process. Although it may take a long time, there will definitely be domestic pharmaceutical companies in my country that can grow into international multinational pharmaceutical companies in the future."

"In this process, first, medical insurance payment support is needed to feed back into research and development; second, drug regulatory agencies are needed to support innovative drug development processes, including the use of AI in clinical trials; third, original innovation cannot be separated from the support of universities, and policy support is also needed from promotion mechanisms to encouraging professors to join companies," Wang Xingli added.

From a macro-environmental perspective, with the State Council launching the "Implementation Plan for Supporting the Development of Innovative Drugs in the Whole Chain" this year, local governments have followed suit and introduced relevant policies to support the high-quality development of innovative drugs. Wang Xingli analyzed, "Each place should have its own characteristics and give full play to its own advantageous industries. For example, Chengdu's inherent advantage is the nuclear industry, which can greatly attract nuclear pharmaceutical companies. Make full use of the agglomeration effect to create differentiation, and also leverage each other in terms of talent recruitment, resource utilization, etc."

Wang Xingli. Data map

Choosing the right innovation strategy

The research and development of innovative drugs has always been characterized by high risk and high investment. According to statistics, the average cost of global innovative drug research and development in 2022 is US$2.284 billion, and the average clinical trial cycle is 6.74 years. The average success rate from Phase I clinical trials to FDA approval is only 7.9%, which means that pharmaceutical companies need to develop at least 12 drugs in order for one to succeed. Choosing the right innovation strategy is crucial.

"The biggest difficulty in innovation lies in choice. Companies have to balance all conditions to make decisions, including company size, strengths, resources, capabilities, investor acceptance, etc." Wang Xingli said frankly that the same is true for Fosun Pharma. In the early days, with limited experience and resources, the layout of biopharmaceuticals and cell therapy was done only after obtaining certification from overseas peers. At the same time, it also had to focus on unmet clinical needs in China.

Henlius is the first profitable innovative pharmaceutical company among the Hong Kong 18A-listed companies created by Fosun Pharma. It achieved a net profit of 546 million yuan in 2023 and has launched 5 innovative products, 3 of which have been launched in overseas markets such as Europe, the United States, and Southeast Asia. In addition, Fosun Pharma also adopted a cooperative development model to launch China's first CAR-T cell therapy product, Ikeda. In June of this year, Fosun Pharma announced its plan to privatize Henlius. In this regard, Wang Xingli explained, "Fosun Pharma is gradually integrating strategic innovation resources and will focus more on different teams, technology platforms and treatment areas. Only by focusing can we more efficiently utilize limited resources and develop truly high-value drugs."

According to public information, 80% of Fosun Pharma's R&D investment is currently focused on innovative drugs. Among them, in the field of diseases, it mainly focuses on opportunistic layouts in tumors, inflammation and immunity, chronic diseases, and CNS. In Wang Xingli's view, although the previous layout in the field of tumors seemed too heavy, we will continue to exert our strength in the tumor sector in the future, but we will also focus on the development of more innovative, high-value, and high-risk products. "R&D investment in non-tumor fields will also gradually increase, and we hope that the proportion will reach about 50% in the future."

In fact, among the key areas of new drug research and development in the world, anti-tumor drugs have always accounted for the largest proportion, and target concentration is also one of the main reasons for the "involution" of new drug research and development. According to statistics, in 2023, among the top 10 large pharmaceutical companies in the world, 8,480 drugs for treating tumors are under development, accounting for 39.8% of all R&D drug pipelines, an increase of 9.1% year-on-year.

"Due to the high incidence of tumors, more than 70% to 80% of the resources of Chinese pharmaceutical companies are spent on tumor research and development, from new drug development to basic research. In comparison, cardiovascular and cerebrovascular diseases, which are the 'number one killer' among the top ten causes of death in the world, and diseases such as Alzheimer's disease, whose impact is gradually expanding in the aging process, also show an upward trend in China's epidemiological data and are also the number one killers. However, there is still a gap in the layout of drug research and development, and there is a huge unmet clinical demand, with huge room for market growth." Wang Xingli said.

Currently, Fosun Pharma is also expanding its R&D team. "Through this team, we can further build our own innovative R&D pipeline on the one hand, and also evaluate the scientific and clinical needs of potential product targets during BD (business cooperation) on the other hand." Wang Xingli explained, "When the self-developed pipeline is not enough to achieve the company's strategic goals, we can supplement it through BD."

Wang Xingli emphasized that "internal and external R&D will be consistent in the selection of disease areas and treatment technology platforms. The main criteria for selecting projects or introducing them are whether they are products with curative potential. Whether it is technology platform innovation or product innovation, the original intention is to serve patients, and the purpose is to provide medical security for patients to achieve a healthier, higher-quality and long-term life."

In recent years, BD has become one of the important strategies for the development of local pharmaceutical companies. Public data shows that in the first half of 2024, Chinese pharmaceutical companies have reached 31 different types of licensing cooperation for innovative drugs. From the perspective of the research and development stage of the cooperative drugs, phase 2 preclinical drugs accounted for 33%; phase 2/3 clinical stage drugs accounted for 39%; in addition, there are 4 drugs that have been approved for marketing.

Image source: IC photo

Mutual "running together" and fault tolerance mechanism

Innovation transformation is an inevitable trend, but my country's overall innovation transformation capabilities are still somewhat behind the world's leading edge, and the conversion rate of scientific and technological achievements is one of the main constraints. Public data shows that since 2019, my country has been leading the world in the number of patents for three consecutive years, but very few have been truly transformed into products and reached the clinical front line, and the conversion rate may hover between 2% and 5%.

Looking at the biopharmaceutical field in my country, like in advanced countries around the world, the original innovation resources are mainly concentrated in universities/research institutes and hospitals, and pharmaceutical companies are the powerful promoters of the industry's development and growth. Driven by innovation, it is urgent to organically connect the research and development results of universities and research institutes with the development of enterprises and the growth of the industry.

"The drug development chain is long, from target discovery, verification, compound screening, clinical selection to registration and market sales. It requires a lot of time, energy and resources, and each stage is very challenging. Therefore, collaborative innovation is the only way forward." Wang Xingli emphasized that the division of labor and cooperation among the main participants at each node will help break down the barriers to innovative research and development.

Specifically, doctors understand patients' clinical needs best, and feeding information back to universities can incubate innovative ideas; enterprises, as resource concentration centers, have high drug development capabilities and establish strong connections with doctors to determine drug segmentation indications and treatment plans; pharmaceutical development is a highly regulated industry, and close cooperation between regulatory agencies and enterprises is equally important. Through cooperation, we can have a more detailed and comprehensive understanding of patients' needs and the needs of pharmaceutical innovation and development, jointly achieve innovation, and shorten drug development time.

In terms of the cooperation with universities, Wang Xingli introduced that "for example, for a new product, mechanism or target, university research took five years to achieve a leading level, but when the company wanted to transform it, it was discovered that some necessary early experimental content was missing from the perspective of drug commercialization development. If it had to go back to work, it would have missed the opportunity to take the lead. In this case, universities also need to 'open a door' to allow companies to participate in the early research of universities."

"Such examples can be found everywhere in Europe and the United States. Summarizing the experience of MNCs such as Novartis, Pfizer, and Roche, the efficient transformation of scientific research results requires time and scientific accumulation, as well as policy guidance and support." Wang Xingli said, "This innovation transformation model is still in its early stages in my country. At present, the National Natural Science Foundation of China has begun to set up transformation projects. I believe that in the future, my country will see an improvement in both the quantity and quality of scientific research transformation."

The transformation of medical innovation results is a closed-loop system that requires the joint participation of the government, enterprises, universities, and capital. In order to stimulate the innovative vitality of scientists, encourage the research and development of original drugs, create the necessary conditions for the successful commercialization of original new drugs, and strive to create an institutional environment and innovation ecology that encourages original innovation. In this process, Wang Xingli emphasized that given the natural attributes of drug innovation and development, it is very necessary to improve the fault-tolerant mechanism.

"The reason why multinational pharmaceutical companies are successful is that their mechanisms are tolerant of mistakes," said Wang Xingli. "New drug research and development requires scientific judgment and a certain degree of opportunism. But before, my country's funds did not have sufficient tolerance mechanisms and could not accept project failures. When the R&D team is not allowed to fail, sometimes they will choose less innovative methods, use abnormal R&D channels, and take shortcuts to ensure that they do not fail. Such low innovation will inevitably lead to low-value products."

“Going Global” and Internationalization: How Can Local Pharmaceutical Companies Grow into MNCs?

In recent years, Fosun Pharma has successively launched blockbuster drugs such as Hanlican, Hanquyou, Hanszhuang, and Yikeda. In the first quarter of this year, Hanquyou made another breakthrough in "going overseas" and was approved for marketing by the US FDA. As of now, it has been approved for marketing in 47 countries and regions around the world, benefiting more than 200,000 patients worldwide.

Wang Xingli emphasized that in distinguishing between "going overseas" and internationalization, "in the past, domestic enterprises' internationalization was more about selling products and then not caring about it. This would make them sellers and reduce them to the low end of the industry value chain. We should not only consider selling products, but also have the ability to develop products. Multinational companies in Japan, South Korea and other countries that are currently developing well have also taken this difficult first step to become today's international giants. Of course, this requires time and experience accumulation, and it is a process."

Last year, the number of domestic innovative drugs exported overseas continued to grow, which was called the first year of Chinese pharmaceutical companies' overseas expansion. At the end of last year, an MNC introduced a local innovative pharmaceutical company's bispecific ADC for US$8.4 billion, setting a new record for the first payment of my country's innovative drug authorization overseas. The intensive BD cooperation between Chinese and foreign pharmaceutical companies is considered to be a manifestation of the transformation and upgrading of China's pharmaceutical industry and the recognition of R&D innovation by overseas markets, and it is also one of the ways for my country's innovative products to go global.

Wang Xingli analyzed that, on the one hand, MNCs can invest so much money to license and introduce pipelines because they cover the global market and the final sales revenue can feed back R&D investment. However, my country's local pharmaceutical companies have very little ability outside the Chinese market, and the value of their products is often not maximized, so they cannot invest too much in R&D or licensing.

On the other hand, when selling semi-finished innovative products to MNCs, the MNCs that sell them to the market will be the ones who make the final profit, so innovative pharmaceutical companies also miss the opportunity to maximize their profits. "This is the challenge brought about by the long cycle of innovative drugs. At this stage, resources, entrepreneurs and systems are still unable to bear the long wait, and there is also an extremely high failure rate in the process."

"Corporate innovation also depends on innovative culture and soil," Wang Xingli explained. "Innovation has no hierarchy, everyone must be equal. Management has levels, and different professions bear different responsibilities. One of the biggest characteristics of MNCs is that talent comes from all over the world. Talents from different countries come together to work for a common goal. To innovate, the culture of the work environment must also be international."

In the process of building a global enterprise, "first, an operation team is needed. The biggest point of pharmaceutical manufacturing is to rely on standardized processes, but this does not mean that there is no freedom for innovation. Second, professional capabilities are needed, which is related to the source of talent. Third, my country's overall R&D capabilities are currently weak because there is not enough time." Wang Xingli believes that my country's local pharmaceutical companies still have a long way to go before becoming MNCs, but in time, some companies will be able to come out and become MNCs.