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Competition for Keytruda, Opdivo in China may intensify after Junshi drug launch

Concerns of a price war in the Chinese immuno-oncology market mounted after new entrant Shanghai Junshi Biosciences Co. Ltd. priced its melanoma therapy Tuo Yi at a cheaper rate than market leaders Merck & Co. Inc.'s Keytruda and Bristol-Myers Squibb Co.'s Opdivo.

Junshi priced its PD-1 class of checkpoint inhibitor Tuo Yi at 7,200 yuan per vial, less expensive than both Merck and Bristol-Myers Squibb, even though both American heavyweights roughly halved their prices in China versus the U.S.

Tuo Yi, also known as toripalimab, is the first approved domestic PD-1 class of checkpoint inhibitors in China. The treatments work by blocking certain proteins on the surface of immune cells and cancer cells to enable the immune system to destroy the invader cells.

Drugmakers could face a price war in China amid intensified competition, Hong Kong-based Core Pacific-Yamaichi International analyst Kevin Tam said. Chinese regulators approved four PD-1 drugs in 2018 — Tuo Yi, Keytruda, Opdivo and Innovent Biologics Inc.'s Tyvyt.

"Tuo Yi's pricing is not too low yet, there is still some room for price cuts," Shanghai-based UBS analyst Bing Zhao said, adding that if taking the dosage and patients' weight into consideration, The cost gap with Keytruda and Opdivo is actually less substantial than what the price tag suggests.

"Domestic drugmakers that plan to release their therapies later will have to slash their prices to catch up, as the companies released first will take most of the market share," Zhao said. Jiangsu Hengrui Medicine Co. Ltd.'s camrelizumab and BeiGene Ltd.'s tislelizumab are also under priority reviews. Innovent has not yet revealed the price of Tyvyt, but CEO Michael Yu told S&P Global Market Intelligence in an interview in October 2018 that the company will price Tyvyt much lower than imported drugs.

Junshi CEO Li Ning, however, said in an interview with S&P Global Market Intelligence that pricing is not much of a concern for the company. "Our price is already very low," Li said, adding that domestic competitors may find it hard to challenge the price.

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Li said he agreed with the current market projection that domestic PD-1 drugs will eventually capture 70% of the market share in China, while imported drugs will share the remaining 30%. He said Junshi expects to obtain one third to half of that 70% as Tuo Yi has a pricing advantage and is just as good as Keytruda, which also targets melanoma.

Expanded use and affordability are also crucial to the race going forward, Zhao said. Keytruda, Opdivo and Tuo Yi are only approved to treat one type of cancer in China right now, but other indications are being investigated.

Paying out of pocket

None of the approved PD-1 drugs is included in the national drug reimbursement list in China, which means patients have to pay full price. Junshi said the company will join the negotiations this year to add Tuo Yi to the list. Bristol-Myers Squibb also said in an email to S&P Global Market Intelligence in December 2018 that it will actively participate in various forms of health insurance negotiations at both national and provincial levels in China.

"It's hard to say who or even if any of these drugs will be included in the reimbursement list, as there are a lot of objections given the high costs. We rarely see any drug on the reimbursement list that costs more than 50,000 yuan a year," Zhao said. Junshi's CEO said the company took into consideration the capacity of China's medical insurance fund in its pricing process for Tuo Yi.

Tam, however, said he is optimistic that PD-1 drugs will be included in the national reimbursement list as the therapy has become a trend for cancer treatment.

"Domestic drugmakers will definitely have a better chance [to be included] as the Chinese government wants to bolster its own innovative pharmaceutical manufacturers," Tam said.

Chinese regulators added 17 anti-cancer chemical drugs to the list in 2018 and 15 in 2017, as part of the country's effort to make cancer drugs more affordable.

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As of Jan. 8, US$1 was equivalent to about 6.85 Chinese yuan.