3SBio Inc. is hoping to gain market presence in China with its diabetes drug Byetta, but the recent price talks that saw substantial cuts in a competitor product could pose hurdles for the Hong Kong-listed biotech company.
In July, China came out with its list of drugs that accepted price cuts to be included under the national reimbursement program.
On that list was Novo Nordisk A/S's diabetes drug Victoza — a direct competitor for Byetta, which 3SBio had in-licensed from AstraZeneca PLC in October 2016.
"If you look at the U.S. market for GLP-1, Victoza is leading. Therefore, Victoza being included in the reimbursement list is negative for 3SBio," said Wilfred Yuen, an analyst at equity research firm Cinda International Research Ltd. who rates the 3SBio stock a buy.
Novo Nordisk agreed to a 49% price cut for Victoza — an injectable glucagon-like peptide 1, or GLP-1, receptor agonist. Byetta is also a GLP-1 agonist.
Based on the Danish drugmaker's annual report for 2016, Victoza has a 58% market share in the GLP-1 segment with sales reaching 20.05 billion Danish kroner. Byetta's global sales, on the other hand, were $254 million, according to AstraZeneca's 2016 report.
But despite Victoza's national reimbursement gain, 3SBio still plans to compete at the provincial level on price and market access. The biotech company, with current market capitalization of around $3 billion, listed on the Hong Kong exchange in June 2015.
"We hope that for [upcoming] provincial reimbursement updates, [Byetta] will be included in more provincial lists," 3SBio's finance director, Rachel You, told S&P Global Market Intelligence.
"Right now we are included in about 15 provincial lists … we can still compete with [Victoza]," she added.
Victoza's patent in China expires in 2017 which could have been a factor in accepting the price cut.
Drugs about to reach patent expiry face increasing competition from biosimilars, said Jefferies analyst Eugene Huang, who has a hold rating on 3SBio. So it was "a right strategy to lower pricing," for Victoza, he said.
While Byetta's patent is valid until 2020, 3SBio is also planning to cut prices to stay competitive, You said. In addition, the company was also exploring ways to make the drug more accessible and cost-friendly to patients such as through charitable funds or using the government's critical illness provisions.
Further to the pricing hurdle, Victoza is also seen to be a better drug, said Huang.
"[Victoza] has a better safety and efficacy profile with less adverse effects, so even if 3SBio lowers Byetta's price, I think doctors would prefer to use the competing drug because it's now reimbursed," he said.
However, being part of the new GLP-1 drug class may mitigate some of Victoza's impact on Byetta, said CCB International Securities healthcare analyst Albert Jin, who has an outperform rating on the company.
"Patients who use Byetta are usually high-end users who don't necessarily need national reimbursement support. The lack of national reimbursement coverage will certainly have some impact but not necessarily as big as most people think," said Jin.
"The competitor will grow faster but it doesn't necessarily mean Byetta [sales] would fall immediately. Diabetes patients usually do not change their treatment solutions very often," he added.
According to a November 2016 note from Cinda International Research, 3SBio expected Byetta's peak sales to reach 300 million Chinese yuan with a growth rate of 30% per year over the next few years. 3SBio also plans to launch a long-acting version of Byetta, called Bydureon, in 2018.
Cancer, autoimmune drugs
For its other drugs, especially the autoimmune disease drug Yisaipu, 3SBio saw some benefit from the price talks.
Yisaipu is a biosimilar version of Amgen Inc. and Pfizer Inc.'s Enbrel and accounts for about one-third of 3SBio's sales revenue.
The drug, approved to treat rheumatoid arthritis, ankylosing spondylitis and psoriasis, notched up sales of 925.2 million yuan in 2016 and was included on the national reimbursement list in February.
Its direct competitor is Johnson & Johnson unit Janssen Pharmaceutical Inc.'s Remicade. But as Janssen withdrew the drug from the price talks and reimbursement benefits, it was positive for 3SBio, a Citi Research note said.
However, it might take some time for the benefit to be reflected on 3SBio's accounting books.
Sales projections for Yisaipu in 2017 have been cut, due to the company undergoing some internal restructuring, Cinda's Yuen said. "So, in the first half of the year [Yisaipu] had been underperforming. It was forecast to reach 10% to 15% growth but now it may be only a single digit growth," he added.
The other drug on 3SBio's portfolio is a biosimilar version of Roche Holding AG's breast cancer drug Herceptin, or ipterbin.
Roche accepted a massive 67% price cut for Herceptin during the talks.
While analysts feel the cut will dampen 3SBio's prospects for launching its biosimilar ipterbin, You is optimistic that it will bring more awareness to ipterbin as a domestic option.
The company withdrew the biosimilar's drug application in 2016.
"We hope in the next six to 18 months we can reapply [for ipterbin]," said You.
As of August 1, US$1 was equivalent to 6.30 Danish kroner and 6.72 Chinese yuan.