China Market Access Through Cross-border Partnership: Opportunities and Challenges for Western Pharmaceuticals

Introduction

Since entering the World Trade Organization, China’s Pharmaceutical industry has experienced rapid growth in value, from $123.7 billion in 2016 to an estimated $573.5 billion in 20221. This is driven largely by the recent healthcare reforms, such as the introduction of the 14th Five-Year Plan that called on Chinese high-tech firms to lead innovations. While the value of China’s patented drug market remains low relative to other mature markets, with branded drugs representing only ~20% of total sales[2], the government has begun to consolidate strategies that would bring China to the forefront of biotech innovation.

As such, the government has set out to increase investment in domestic research and development, with the vision of building an internationally competitive pharmaceutical industry. In light of this key policy reform, it is essential for Western pharmaceuticals with strategic interest in the Chinese market to understand the opportunities for market access through partnerships including licensing agreements, as well as the challenges posed as a result of increasing domestic competition. Strategic cross-border partnerships between Western pharmaceutical companies and domestic Chinese firms present a range of opportunities including risk and profit-sharing potential for both parties.

Growing Opportunities for Partnerships

High-value deals have dominated the Asia-Pacific (APAC) pharmaceutical strategic partnership landscape in recent years; and within the region, China is well ahead of other countries, particularly in the field of oncology. In 2021 alone, there were 271 cross-border licensing agreements signed to promote developments in clinical trials, commercialization, local manufacturing, and data sharing [3]. Notably, China’s domestic PD1/PD-L1 inhibitors have been demanding global attention. And with immuno-oncology expected to continue as one of the most impactful trends in the biopharmaceutical industry, it is expected that a growing number of companies are likely to explore this opportunity to form strategic collaborations with Chinese counterparts.

**Table 1: Selected In-licensing Deals with Chinese Licensees, 2022**

Multinationals are not the only ones benefiting from cross-border partnerships, early-stage biotech companies are leading the trend of Chinese drug makers ramping up their product pipelines through overseas licensing. In 2019 alone, Chinese companies signed 85 deals to obtain rights to treatments and technologies developed abroad, ranging from drug discovery platforms to immuno-oncology therapies, up from 37 in 2017[4]. Towards the end of 2020, the number totalled 83 therapies. Experts predict this pattern will continue as smaller overseas companies need local partners to commercialize their drugs in China[4].

**Table 2: Selected Out-licensing Deals with Chinese Licensors, 2022**

Competitive Threats for Western Manufacturers

China is increasingly playing an important role in global drug competition as the result of its growing investment in domestic R&D. Western manufacturers now face challenges from increased local competition, with Chinese firms blocking access to the National Reimbursement Drug List (NRDL), which is the main pathway for foreign assets to reach the Chinese market.

NRDL offers access to China’s vast population, but to achieve reimbursement via NRDL inclusion requires significant price cuts, often as much as 80-90%[5]. Domestic manufacturers have been willing to accept very low prices, in part due to active government investment which has helped to address some of the upfront R&D cost, thus enabling them to be more resilient in price cutting during NRDL negotiations. On the other hand, multinationals often cease negotiations because domestic firms have driven the price down to a level where it is no longer financially appealing for further engagement, forcing them to consider alternative access routes[6]. A prime example of the strength of this domestic competitive challenge has been in the PD-1/PD-L1 inhibitor space; Keytruda (Merck), Opdivo (BMS), Imfinzi (AstraZeneca), and Tecentriq (Roche) have had successful commercialization in Western markets but have all been blocked from NRDL listing by domestically developed products.

The antibody-drug conjugate (ADC) category may constitute the next largest wave of oncology product launches in China where domestic products will pose fierce competition. Domestically produced Aidixi (RemeGen) was the first ADC to be NRDL listed in 2021 after accepting a discount of >70%[7]; this discount is more than likely to set the bar for follow-on ADC NRDL negotiations with both foreign and domestic firms.

Multinationals may have had their homegrown products competitively blocked from NRDL listing; but Novartis, AstraZeneca, and Pfizer have all had success through joint commercialization deals on local PD-1/PD-L1s which have all enjoyed NRDL listing in multiple indications.

While the domestic companies bring the advantages of cost-competitive R&D and manufacturing to the table, the multinationals can boast the advantages of their strong marketing presence. Some deals also include global commercialization agreements, but to date the US FDA, although granting Breakthrough Therapy Designation for many, has been hesitant to approve any Chinese-originated PD-1/PD-L1s pending the clinical trial data being more representative of global populations. Nevertheless, this has not deterred Takeda from licensing Fruquintinib, a highly selective and potent oral inhibitor of vascular endothelial growth factor receptors (“VEGFR”) -1, -2, and -3, for outside China. Results from a Phase III multi-regional clinical trial conducted in the U.S., Europe, Japan, and Australia have recently been presented [8].

Windrose’s Take

China is facing significant domestic healthcare demand with its rapidly aging population and increasing prevalence of chronic diseases. Combining this with the government’s ongoing push to consolidate and invest in domestic R&D capabilities, China’s pharmaceutical industry is a fruitful yet risky hunting ground as companies brace for evolving opportunities and threats in a dynamic market environment.

Access to the National Reimbursement Drug List (NRDL) is crucial but comes with significant price pressure and risk. Uncertainty around the reimbursement status of drugs and the 2-year listing limit on the NRDL add to the challenge of accessing China’s large patient population. As we expect more consolidation in the Chinese market and finalization of the NRDL practices in the coming years, manufacturers should consider various critical factors to forge a successful China market entry path and maximize commercialization opportunities in China - including further exploring opportunities for cross-border partnerships.

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Article co-authored by Steven Lin and Amy Morgan, Windrose Consulting Group.

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