Chinese drugmakers ramp up US FDA applications amid domestic pricing pressures

Chinese drugmakers are submitting more therapies for approval in the U.S. as domestic pricing constraints prompt them to seek higher price tags abroad.

Drug developers in China have filed five applications with the U.S. Food and Drug Administration so far in 2021, compared to three in total in 2019 and two in 2020, according to data from Beijing-based research company Pharmcube.

The rise in applications and a growing appetite for overseas expansion is partly driven by the limited profits available from innovative drugs at home, analysts said. In 2017, the Chinese government began including more innovative cancer therapies in its national reimbursement drug list, or NRDL, which requires companies to cut prices by an average of about 50% in exchange for reimbursement by state-sponsored insurance plans.

"More innovative drugs are being developed and are going to be launched [in China]. [The NRDL] squeezes their profits and caps the market potential at the same time," said Vicky Zhu, Hong Kong-based healthcare analyst with investment bank SPDB International Holdings Ltd.

With foreign markets looking increasingly attractive to Chinese pharmaceutical companies, Zhu said she expects to see more FDA filings in 2021 and into 2022.

Gaining FDA approval not only unlocks the door to overseas expansion, it also endorses a company's research and development capability, which is highly sought after among Chinese biotechs that have not yet accrued an international reputation.

"The U.S. approval might be interpreted as an important recognition of a drug's efficacy or safety results, a drugmaker's independent research and development, and global execution capability," said Cerina Zhang, an analyst at Macquarie Group.

China has long been known for producing generic drugs. However, the increasing number of scientists returning from work and training abroad, combined with an injection of both private equity and government investment, has boosted the country's innovative drug development in recent years. So far in 2021, China has approved 54 innovative drugs — most developed by domestic companies — compared to 36 novel treatments approved by the FDA, according to Pharmcube.

Taking these homegrown treatments overseas "brings a diverse source of revenue for domestic players, offsetting the potential price cut impact domestically," said Macquarie's Zhang.

A similar trend can also be seen in Japan, where since 2016 authorities have had the power to cut prices of selected therapies by as much as 50%, while pricing reviews have been increased from once every two years to every year as of 2021. As a result of the squeeze on their profits, leading Japanese pharmaceutical companies have sought out new drug launches and deals abroad, such as Takeda Pharmaceutical Co. Ltd.'s acquisition of Dublin-based Shire PLC in 2018 and Astellas Pharma Inc.'s purchase of U.S.-based Potenza Therapeutics Inc. in the same year.

PD-1 boom

Of the five applications to the FDA by Chinese drugmakers in 2021, three are from a drug class called PD-1 checkpoint inhibitors, which treat cancer by boosting the immune system's response.

They include penpulimab, submitted by Guangdong, China-based Akeso Inc. in May. The therapy is still awaiting a decision in the U.S., but in the meantime it has received the regulatory nod in China. Innovent Biologics Inc. told S&P Global Market Intelligence that the Suzhou, China-based company expects to hear back from the FDA about its own PD-1 drug, Tyvyt, in March 2022.

With penpulimab's domestic approval in August, there are now five PD-1 drugs approved in China, including Shanghai Junshi Biosciences Co. Ltd.'s Tuo Yi — the first drug in this class launched in the country — which the company submitted to the FDA in March. Apart from penpulimab, the other PD-1 drugs available have received steep price cuts in China after being included in the NRDL.

These four PD-1 therapies are currently priced at around 40,000 yuan, compared to an annual cost of about 100,000 yuan when they entered the market, according to SPDB's Zhu.

One solution for domestic PD-1 drugmakers has been to ramp up production in a bid to reduce the cost per unit. But Zhao Bing, healthcare analyst with investment bank China Renaissance Securities, said that "without a doubt" the price cuts have also spurred manufacturers to pursue the larger profits they can receive in the U.S.

"These drugs will most likely be priced based on the local market pricing [for similar treatments] in the U.S. and won't be priced with a very big discount," said Zhao, who gave BeiGene Ltd.'s blood cancer therapy Brukinsa as an example. The treatment gained FDA approval in 2019, and is sold for around $300,000 per year in the U.S., about 20 times higher than its price in China, Zhao said.

Chinese PD-1 drugs will likely be priced at about 15% below Merck & Co. Inc.'s Keytruda and Bristol-Myers Squibb Co.'s Opdivo — both blockbuster PD-1 therapies — in the U.S., Zhao added.

More to come

With such prices on offer, analysts do not expect Chinese applications to the FDA to be limited to cancer drugs.

"Oncology drugs [have been] a hot area in the recent few years, but we think immune system diseases could be the next therapeutic area for Chinese companies to pursue," said SPDB's Zhu.

Shandong, China-based RemeGen Co. Ltd., for example, is conducting trials for its lupus drug RC18 in the U.S., where the FDA granted the therapy fast-track designation in April 2020.

Unlike cancer therapies, many immune system diseases are not included in the NRDL because they are not usually considered critical illnesses, Zhu said. Instead, the pricing pressure comes from the patients, who are less willing to pay high prices for medicines they need to buy on a recurring basis for diseases that are not life-threatening, Zhu added.

"Therefore, these companies also need to [keep an] eye on overseas markets where commercial insurance is more prevalent," Zhu said.