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      1. News

        Media Focus

        Lyu Aifeng Outlines Strategies for Navigating the New Cycle at the 2022 China Healthcare Summit for Entrepreneurs, Scientists, and Investors

        2022.12.05 ? Size

        In 2015, the medical reform preluded a new cycle of the pharmaceutical industry. With the continuous introduction of policies, many scientists at home and abroad started business, and China’s biological medicine industry saw an explosive growth. At that time, it’s generally believed that the medical and health industry would become a growing market with high value in the coming decade.

        After years of booming biological medicine innovation, the market experienced new changes in the second half of 2021. A cocktail of special changes in the external environment, centralized procurement of drugs, medical insurance access negotiations and other factors drove down the valuation and share price of companies in both the primary equity investment market and the secondary market in varied degrees.

        No industry will always be in low ebb or in prosperity. The capital market will eventually act in a rational way. When the pharmaceutical industry is in the epicenter, what companies should do is to align themselves to the irresistible megatrends and make changes accordingly. In this way, businesses can get through the industry cycle and seek for long-term value.

        In the past 5-10 years, what achievements have been made in China’s biological medicine industry? Looking ahead, how should companies get prepared for the new cycle?   

        At the opening ceremony of the China Healthcare Summit of Entrepreneurs, Scientists and Investors 2022, sponsored by China Pharmaceutical Enterprises Association, China Medicinal Biotechnology Association, Central Office of Chinese Peasants and Workers Democratic Party (CPWDP), Hangzhou Chengxi Sci-tech Innovation Corridor Management Committee and Hangzhou Investment Promotion Bureau, and organized by the Central Medical and Health Working Committee of CPWDP, the Central Biotechnology and Pharmacy Working Committee of CPWDP, the Central Youth Working Committee of CPWDP, Healthcare Executive, and China H50, Executive Director Lyu Aifeng of Jiangsu Hansoh Pharmaceutical Group Co., Ltd. (Hansoh Pharma), as a business representative, shared the experience and trajectory of the previous cycle, and the strategic methods for “Winning the New Era”.

        Moderator: Both innovative and conventional pharmaceutical companies went through a difficult time. Gratifyingly however, a large number of innovative pharmaceutical companies were established and many conventional enterprises successfully completed their transformation in the past 5-10 years. Looking at their transformation journey, there was a key enabler – CXO businesses. In the context of major changes and transitions full of uncertainty, industry players will be faced with a lot of difficulties in the future, and they are now more eager to hear experience from industry leaders.

        Question: China’s pharmaceutical industry has experienced a “happy decade” of innovation. Looking back, what were the achievements? What were the characteristics of the last industry cycle? And what did the pharmaceutical companies experience in the past cycle?

        Lyu Aifeng: In my eyes, the first cycle of China’s pharmaceutical innovation started from 2015. Afterwards, China initiated a series of reforms and innovations, such as the drug review and approval system, and normal medical insurance access negotiations. After China joined ICH in 2017, it actively got geared to the highest-level international rules and systems, paving a solid way for China’s innovative and high-quality leapfrog development. In that period, synergies between policies, capital and talents were created to drive fast innovation in China’s pharmaceutical industry, moving towards the goal of knowledge innovation.

        Local pharmaceutical companies, including biotech businesses, created a more forward-looking R&D pipeline, and a large number of emerging technology platforms were built. It’s noted that some innovation results even went global to compete in the global arena. China’s pharmaceutical innovations gradually gained recognition across the globe. Specifically, there were the following aspects of innovation.

        First, referring to advanced international experience, the reform of China’s drug review and approval system was continuously deepened in recent years, significantly shortening the R&D cycle of innovative drugs. In addition, China issued a batch of guidelines, laws and policies to better guide innovation and R&D.

        Second, pharmaceutical companies increased their R&D investment year by year. In 2021, nearly 20 companies registered a R&D investment of over RMB 1 billion. In step with growing R&D investment in China’s pharmaceutical industry, the number of R&D pipelines and new drugs on the market from domestic pharmaceutical enterprises were in top places in the world list.

        Third, great importance was gradually attached to original innovation, and a clinical value-oriented innovative R&D approach became a common understanding among pharmaceutical companies. Some technologies and platforms were internationally advanced.

        Fourth, with Big Pharmas’ navigation into the innovative drugs sector, the quality and commercialization of innovative drugs improved rapidly.

        Moderator: From my perspective, I observed that capital investors benefited substantially from the exponential growth of innovative drugs in the first cycle in the past 5-10 years, especially after the addition of Chapter 18A on Hong Kong Exchanges and Clearing Limited (HKEX) and the launch of Science and Technology Innovation Board of Shanghai Stock Exchanges from 2018. Capital investors gained a lot from the launch of the secondary market, capital premium and other favorable factors, and represented a key enabler in the first cycle over the years.

        Question: From June 2021 however, the secondary market saw a downtrend. Coupled with the adjustment of related policies and complex international situation, the industry’s high-speed growth came to an end. The whole industry fell into confusion, and is now in the transition between two cycles. How do you view the new cycle? And what characteristics will the new cycle have?

        Lyu Aifeng: The underlying logic of the development and the rigid demand in China’s pharmaceutical industry stay unchanged, so the industry will embrace a sound development in the second cycle, when the division of labor will be clearer in my eyes. Further segmentation, cooperation between strong companies, and collaborative innovation will become the key words in the second cycle. First of all, the industry will see enhanced cooperation. For example, the cooperation between Big Pharmas having strong industrialization capacity and biotech companies owning strong R&D capability, will become a main direction. Moreover, in the first cycle, all players felt the intense competition in the innovation of many hot targets, that is, the so-called “involution”. I reckon that in the second cycle, companies will chew over their R&D innovation and project approval in a more rational and scientific way, and ponder how to align their R&D efforts and projects to the market demand and their strategic development. Furthermore, in the recent years, the Chinese government introduced a lot of incentive policies for the development of drugs for rare diseases and children. In the days to come, these segmentations may experience a relatively rapid development. In general, the common understanding of a patient-centric and clinical value-oriented approach will continue to optimize China’s pharmaceutical innovation ecosystem. Big Pharmas that have strong commercialization capability will join hands with Biotech companies holding strong R&D capability. Special Pharms that are engaged in medicines for diseases in specialized segments including ophthalmology and central nervous system will emerge. New technologies will help enable new screening and design platforms, drug R&D platforms, and data platforms. With the creation of specialized platforms and the rapid development of various specialized CXO companies, a fully-fledge ecosystem will take shape. In addition, under the impetus of incentive policies, the R&D of medicines for special patient groups, rare diseases and children will see a faster development. The patient-centric and clinical value-oriented consensus will continuously refine the innovation ecosystem in China’s pharmaceutical field.

        Moderator: Now there is an increasingly prominent awareness that in the first cycle, the pharmaceutical industry and the capital market excessively pursued absolute innovation, and that innovation became the main driver of the capital market’s premium. In fact however, many large product varieties are not necessarily absolutely innovative drugs. Some products that contain a modified formulation and provide higher safety and effectiveness can better meet the needs of the common people. This point will get noticeable in the second cycle.

        Question: In the new cycle, all players may be more rational and focus on the original aspiration of the industry development, that is, a patient-centric and clinical demand-oriented approach. Investment institutions will also become more rational after the difficult time in the previous cycle. In the investment market, leading investment institutions will play an increasingly prominent role. In addition, going-global may also be a necessary step for innovation. To address the challenges and difficulties that accompany the new cycle, what strategies and preparations have pharmaceutical enterprises made?

        Lyu Aifeng: In the new cycle, China’s new drug R&D efforts need to keep pace with cutting-edge technologies, and international cooperation needs to be strengthened for high-quality innovation. Take Hansoh Pharma for example, the company will adhere to the strategy of R&D driven by both independent innovation and BD cooperation, and make efforts in the following three aspects. First, further sharpen the “product power” of innovative drugs. “Clinical value” is the core “product power” of innovative drugs, which also decides the core “competitiveness” of pharmaceutical companies. Good product power is reflected in three aspects: first, whether the product has differentiated efficacy and safety advantages in clinical applications; second, whether the product itself targets a large market size and patient group; third, whether there is a leading market advantage and time window. Undoubtedly, to win the new cycle, we need to have product varieties with FIC and BIC potential in the pipeline. Only by putting focus on both quality and quantity and combining multiple product lines, can sustainable development of the company be ensured. Second, continue efforts in key fields. Our company will continue to deepen efforts in key advantageous areas of treatment, and on this basis expand other clinical areas in urgent need, while enhancing the “product power” of innovative drugs. Third, we need to stick to the path of going global. Although China’s innovative drugs are still exploring a path of international R&D and commercialization, this is the only way to achieve innovative development. International presence depends on the following three elements: innovative products with differentiated and competitive advantages; efficient overseas registration and clinical capabilities; and partners with an international insights. These three conditions are indispensable. Challenging as it is, we will firmly move forward on the road of going-global.