Bristol-Myers Squibb announced today that its pioneering cancer immunotherapy drug Opdivo has been approved for sale in China.
Opdivo targets a protein called PD-1, which is effectively a braking signal in the immune system. Cancer cells are incredibly wily when it comes to evading the body’s own natural defenses, and one of the ways they manage this feat is by tricking the immune system into restraining its own attack dogs. So-called “checkpoint inhibitors” like Opdivo—which is often called by its biological name, nivolumab—essentially remove the biological leash, allowing immune cells to freely attack the cancer predator.
The strategy, along with other immuno-oncology, or IO approaches, has been remarkably effective in a small subset of cancer patients—and has even cured some people with terminal disease. There’s also an inherent danger in IO, as you can imagine. (There are reasons, after all, why the human body has put various limitations and border controls on the immune response.) But that said, from both a clinical point-of-view and a commercial one, there hasn’t been this much excitement over a new class of cancer drugs in a long, long while.
As big as the appetite and excitement for IO is in the U.S., though, the market in China—with its close to 1.4 billion people—could well be even bigger. And today’s approval of Opdivo by China’s national drug regulator may have helped open the floodgates for U.S. and other western biopharma companies.
One key question that’s likely to help determine the ferocity of that deluge is where Opdivo ends up being priced, says Brad Loncar, the CEO of Loncar Investments, an influential biotech investor and observer who has long had an eye trained on China. One Chinese source that Loncar follows estimates the price range will be 400,000 to 600,000 Renminbi, which is about US$62,000 to 93,000. That compares to an Opdivo sticker of about $150,000 in America. If the price finishes near the top of that range, that could be a problem for reimbursement, Loncar says. “They have the ultimate single payer system in China and it’s not really set up to pay high prices for innovative drugs currently.” There are a number of converging factors that should, together, yield a “really first-rate biotech sector” in the country, he says, “but one piece I’ve always felt that’s missing is reimbursement. So it’s very important to watch what the pricing ends up being on Opdivo and whether that turns out to be viable in the market.”
Opdivo—which is sold in more than 60 countries already and which has been approved by the FDA for a number of cancer indications, from non-small cell lung cancer to metastatic melanoma to Hodgkin lymphoma—was widely seen as the favorite U.S. blockbuster to break into the Chinese market this year. In January, Chinese biopharma database PharmCube predicted that Opdivo would be first to the gate—while naming 15 other big drugs from major Western companies that would likely be approved by China regulators in 2018, according to FiercePharma.
The sudden rush is part of what Goldman Sachs calls “a new chapter of healthcare investment.” In a somewhat breathless 213-page report-slash-“primer” the investment bank coincidentally issued today, Goldman analysts say “China’s biotech era has arrived.”
The “transformative shift [by China’s FDA] in favor of new drugs, significant capital in-flows, a highly specialized talent pool and a sizable Chinese pharma/biotech market [including upcoming new biotech listings in the Hong Kong Stock Exchange] are driving major new investment opportunities in the growing healthcare space,” says the report.
The Goldman analysts project China’s medical biotech market, which they estimate to be worth 35 billion RMB ($5.4 billion) in 2017, to grow by a compound annual growth rate of 15% to 20% over the next three years, up from their roughly 10% pace during the past five years, as fresh capital from private equity and venture capital pours in.
With that projected upside, one might think today’s approval would have sent biotech stocks on a thrill ride. It didn’t. Bristol’s shares were up today, but not by much. As for the broader Nasdaq Biotechnology Index, it’s up just over 4% year to date.
Why the ho-hum? Loncar, who maintains two biotech indexes, one focused on cancer immunotherapy drugs and another on the China biopharma sector, says the China market is simply a “blind spot” for U.S. investors. “I don’t think most people here, even sophisticated biotech investors, really appreciate the extent that the China market can take off,” he says. “I think it’s really at an inflection point right now. And so my guess is that news like this, for the next six months or so, will be underappreciated.”
As the market evolves, he says—as companies start going public in Hong Kong, for instance, and making news—more people will start to get it. “I think that China’s biotech market today is where ours was in the mid-’90s, which is when our biotech sector really took off,” says Loncar. “We’re not used to thinking of the Chinese commercial drug market in terms of innovation. But they’re investing heavily in making sure they have a world-class healthcare system over the next decade or so. And the reforms that are happening there right now, like with their FDA, are significant. They’re changing the market dynamics there substantially.”
For a lot of U.S. biotech investors, China is simply not on the radar, he says. It should be.
|Clifton Leaf, Editor in Chief, FORTUNE|
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|Produced by Sy Mukherjee|