In late March, the China Biopharma ETF (Nasdaq: CHNA) team traveled to Shanghai and attended the China Healthcare Investment Conference (CHIC). There we heard the latest from industry insiders about their thoughts on the healthcare sector in China. We also caught up with the leadership teams of various companies held by the fund. One CEO we had the opportunity to sit down with was Dr. Li Ning, CEO of Shanghai Junshi Biosciences. View all holdings of the CHNA ETF.
This was a good time to sit down with Dr. Li because Junshi has been making a lot of headlines lately. To start, it became the first domestic company in China to receive approval from the National Medical Products Administration (NMPA) for a PD-1 inhibitor to treat cancer (in this case for melanoma) in mid-December. A Christmas Eve initial public offering (IPO) on the Hong Kong Stock Exchange quickly followed. Later, Junshi made global headlines when the pricing of its PD-1 inhibitor was announced (more on that below). The company was added to CHNA ETF in early February.
In our wide-ranging discussion, Dr. Li talked about the importance of regulatory reform in China (he spent 13 years at the U.S. FDA), offered a summary of the company’s pipeline, and described the logic behind the Junshi’s headline-grabbing pricing strategy. Below is a transcript of our interview, which has been minimally edited for clarity.
CHNA ETF: Thank you for joining us. Can you please tell us about yourself and your background?
Dr. Li: I earned my medical degree here in Shanghai almost 30 years ago and then I went to the United States. There I earned a doctorate degree in preventative medicine at the University of Iowa. I spent almost 13 years at the U.S. Food and Drug Administration (FDA) as an oncology reviewer. I joined Sanofi as Vice President for Asia. There I spent almost eight years traveling back and forth between the United States, Europe and Asia, before I joined this company.
In English we call it Top Alliance and in Chinese we call it Junshi Biosciences. Top Alliance is a subsidiary in the United States. Our research and development centers are in San Francisco and Rockville, Maryland.
CHNA ETF: Let’s quickly go back to your experience at the U.S. FDA. At this conference today (China Healthcare Investment Conference, Shanghai) you talked about important regulatory reforms that are happening in China. One you highlighted is how China entered something called the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH). What is that and why do you feel it is important?
Dr. Li: ICH is an international consortium for regulatory harmonization. Before, only Japan, the European Union, and the United States were the three agency members and there were also three corresponding industry members. ICH is the internationally recognized gold standard. All publications and standards are based on it. Most of the U.S. FDA’s technical guidelines are adapted from ICH guidelines. This means it becomes a gold standard for regulatory submissions into those member countries. So if you meet ICH, your standards are high enough.
Before China joined ICH, most of the technical requirements in China were based on local guidelines that in general were not all recognized by the three ICH member countries. But after joining ICH, the standard becomes the same and the technical review part becomes similar. So innovative companies in China can work based on global standards.
For example, we just submitted an IND (an application to begin a clinical trial) in the United States for a cancer medicine that targets something called BTLA last Friday (this interview was conducted on March 27), which is the first submission anywhere for a drug with this target in the world. The dossiers we put together for submission in China and the United States are exactly the same content, format, and technical requirements. Once FDA accepts it, we can just submit this anywhere else in the world like China FDA and Europe. We do not need to prepare anything else. All the preclinical contents are essentially the same. That saves a lot of time.
Also, if we get this accepted, the trials we are conducting in the United States and the data we are collecting will also be accepted in China. The United States will also accept data from China.
“We are the first PD-1 of a local company so we have to set the bar for others to follow.”
—Dr. Li Ning, CEO, Shanghai Junshi Biosciences
CHNA ETF: So you are saying your company filed to start the trial for this drug in the U.S. first before China?
Dr. Li: Yes, the reason is that most of our proof-of-concept preclinical studies are conducted in the United States. We conduct them at Johns Hopkins, Yale, and our early research lab in Maryland. Most of the data is in English. We need time to translate them into Chinese. However, it is only the translation that is needed. We do not need to redo the contents or add any more testing. It is not just the paperwork that is translatable, but also the work that had been done before. If we conduct a phase 1 study in the United States, China will accept it once we file. For innovative companies in China, this ICH makes a lot of difference. For foreign companies coming into China, it is the same. You can submit a dossier into China without any revision other than the translation. This makes a huge, huge difference. It is one reason why the review time for innovative drugs coming into China is getting faster. Previously, the format, content, and technical requirements were different.
I’ll give you one example of how it was different in the past. For cancer drugs in the United States you can submit an IND when you have short-term toxicology data. However, in China you previously needed long-term toxicology data in order for them to accept it. Most of China’s regulations were based on generic drugs, which means all kind of me-too things. That is why China previously wanted the fully commercialized standard CMC (chemistry, manufacturing and controls) data because almost 90% of those generic submissions would get approval. However, the success rate for innovative drugs of course is much lower so it would not make sense to require all the same manufacturing and CMC requirements.
CHNA ETF: Let’s get into some of your company’s programs. What is your overall plan and vision for the company?
Dr. Li: The original plan for the company when it was set up five or six years ago was to develop innovative biologics and biosimilars. At the time, people believed biosimilars were the future. We knew we had a background in biologics manufacturing, we had a facility in Suzhou for manufacturing, we had returnee scientists from the U.S. with experience at top biopharmaceuticals. We realized that too many people are working on biosimilars and that focusing on innovative areas was a must if the company wanted to grow.
Then we decided to set up a strategy that included PD-1 and PCSK9 in addition to the Humira biosimilar. We also did a PD-L1 because we did not know which one would get into the pipeline faster. We also have programs like CTLA-4, TIGIT, anti-BLyS, and IL17. We are going to submit our IND applications for IL17 in about two months. So, back then we set this goal. Of course, there were some failures. For examples, we had some efforts on IDO but had to drop that early because data from other companies was not supportive.
CHNA ETF: Let’s talk about your PD-1, which was approved in China late last year. What was the pathway to getting it approved?
Dr. Li: Because the company was small and capital was limited, we had to pick the right strategy for development. During the early development stage, we had many preclinical comparisons. We knew from preclinical work that our preclinical efficacy and safety was at least as good as other marketed PD-1s. So we had high confidence about the product. That is why we started several indications at the beginning. We did melanoma, lymphoma, urothelial carcinoma (UBC), and nasopharyngeal carcinoma (NPC), which is very common in the south part of China. Those indications are relatively small in terms of population. Although when we say small in China, it is not the same as the United States. There are about 100,000 NPC patients per year. It is almost the same size as lung cancer in the United States and is especially prevalent in Southern East Asian population. So we picked those for accelerated approval. The accelerated approval pathway does work here in China like it does in the United States. The aim is to get approval as fast as possible.
Merck’s PD-1 drug Keytruda got into clinical trials for melanoma in China almost at the same time as ours. We were conducting our study with the same principle investigator (PI), almost identical hospitals, and very close clinical study protocols. While it is not a head-to-head comparison, we like to call it a shoulder-to-shoulder comparison. It was a single-arm study and the preliminary data was very encouraging. Melanoma is 10,000 patients a year in China, but our PD-1 trial for that enrollment was very fast. It took about less than one year to get over 100 patients.
CHNA ETF: Ok, so that is for melanoma. Do you have any other open applications or trials that are late stage?
Dr. Li: We are going to submit the commercial application for NPC this year. We are going to submit the commercial application for UBC early next year. As I mentioned, we started the enrollment for melanoma, NPC, and UBC around the same time about three years ago. The other two take longer because the total number of patients is higher. NPC is 180 patients and UBC is about the same.
CNHA ETF: Are there other indications like lung cancer where you have late-stage studies going on?
Dr. Li: Yes, if you look at our website, we are running 11 late-stage studies. For example, you mentioned lung cancer. We have already started a couple of phase 3 lung cancer studies which are first line non-small cell lung cancer and EGFR positive patients who have failed a tyrosine kinase inhibitor, which is about 40% of non-small cell lung cancer patients. Those two studies have already started and are 400 to 500 patients per study. We are also starting IND discussions with the Chinese regulators about small cell lung cancer. Small cell lung cancer is not very big in China, maybe 10% to 15% of the total population of patients. However, again given the scale of China it is about 100,000 patients. We are stepping up that trial very fast. The competition for it is not very high. So that is lung cancer.
We are also the first company in China to start a triple-negative breast cancer trial. Triple negative breast cancer has about over 40,000 patients. There is no other local company that has a phase 3 study for it in China. In addition to breast cancer, we have started our liver cancer studies as well. We also have an esophageal trial already started. So in total, we have eight phase 3 trials starting or already started and three pending trials. It is a very big development plan. We think our spectrum of trials is as complete as any foreign multinational company.
CHNA ETF: You must have a big staff that is managing those trials and orchestrating it all?
Dr. Li: We are using two strategies for those trials. For key core trials like lung cancer, because that is a very big investment, we are using our staff for the trial. Of course we use some contract research organizations (CROs) for other trials. Our people are highly qualified. Most of our staff is from multinational companies and they have long-term experience in clinical research operations. We want them to focus on our core trials. We have a little less than 100 of our staff physicians and scientists in clinical operations and medical science. We are very small compared to some other companies in this stage.
CHNA ETF: You made a lot of headlines after the melanoma approval when you announced your pricing. Merck’s Keytruda was approved slightly before yours and they announced approximately a 50% discount to the U.S. price. Then you announced your pricing, and it was almost half of Merck’s (depending on the patient’s weight).
Dr. Li: Yes, you are right. Keytruda’s price is about 600,000 renminbi per year (approximately $89,400 USD) and ours is about 200,000 renminbi per year (approximately $29,800 USD) so about one third.
CHNA ETF: Can you describe your business model? How are you able to have such a low cost?
Dr. Li: Before we priced the product, we did a very thorough survey of clinicians. During that time, we already had over 1,000 patients in our various studies and almost 100 clinicians conducting them. We also surveyed patients. We had an external pharmacoeconomics (PE) expert who helped prepare the PE study.
The overall strategy for the price setting is that we are shooting to get onto the national reimbursement program as fast as possible. 200,000 renminbi is almost three to four years of the average household income in China even in the rich cities like Shanghai and Beijing. This market is not like the United States. The out of pocket expense in the United States is less because either insurance or Medicare or Medicaid will pay a lot of it. So the comparison between pricing in the United States and China is not comparable because the out of pocket part is key here. If you don’t get on the national reimbursement list in China, even if the drug is one tenth of U.S. price, it does not make any sense because the affordability isn’t there given the average income level in China.
Given that strategy, we do believe 200,000 renminbi or below per year is reasonable for the government to consider reimbursement. Above that, look at targeted therapies and imported drugs, the reimbursement agency may not want to even talk to you if your price is too high. We are the first PD-1 of a local company so we have to set the bar for others to follow. We know that a local competitor priced higher than us. Actually, our expectation was for it to be much higher. We have an idea of what other companies that are followers are likely to price at. We have also talked to the national reimbursement agency officials and they of course have said the lower the better.
CHNA ETF: Will the national reimbursement list be a ‘winner take all’? For melanoma, will there just be one that is reimbursed?
Dr. Li: Yes, usually for one indication one will be reimbursed based on past practice.
CHNA ETF: You have talked about how you think this is the right price for the China market. One thing we have all been talking a lot about at this conference is whether pricing in China will begin to affect and lower drug prices globally? With this asset, for example, are you planning to develop and sell the PD-1 in other parts of Asia and eventually Europe and the United States?
Dr. Li: We are running multinational trials. For NPC, we already started a trial last year that has patients from Singapore and other parts of Southeast Asia. We do have plans to export into those countries later on once this trial is done. They will also need our low price there. Those countries drug prices are not as high as China. We do think our price is competitive.
Actually, we are very satisfied with the profit margin for us at this price. In China, clinical development and manufacturing costs are about one-third of that in the United States. So a price of about one third of the U.S. competitor is reasonable in terms of PD-1s. Also accessibility is the key for us. We do have one local manufacturing site in Suzhou. We are also building another site that is ten times bigger. It will be ready for operation by the end of this year. China has four million new cancer patients per year. If PD-1s can grab 20% of those patients, which is 800,000 patients, and if we can grab 20% of those, then we do need at least ten times bigger capacity. Our current capacity in Suzhou is approximately 12,000 to 15,000 patients per year. However, because we use some of that for clinical trials, we do need much bigger capacity already today. That is why the new site will be kicking off very quickly. Even with this we can only meet about 100,000 to 150,000 patients per year maximum capacity for the next five years at least. If we can have a relatively accessible price for patients, we do think our capacity will make a huge difference.
CHNA ETF: We have talked a lot about oncology. Would you like to discuss some of your non-oncology programs? What has you excited?
“We think our spectrum of trials is as complete as any foreign multinational company.”
—Dr. Li Ning, CEO, Shanghai Junshi Biosciences
Dr. Li: We have already completed the clinical trials of our Humira biosimilar. It is in the data rapping up period. We are going to submit our new drug application in about two to three months. Hopefully we can get an approval in the next 12 months or so. The competition for a Humira biosimilar is very high in China. There are at least five or six companies that are completing their clinical trials and either have submitted their application for approval or will be soon. However, I think price and accessibility is the key. The indications for the Humira biosimilar in China are very big – it is close to 100,000,000 patients. This is much bigger than any oncology indications.
Rheumatoid arthritis is big and today patients are using very inexpensive drugs like aspirin and painkillers. People already know that biosimilars are good drugs but the price is too high. It is about 7,000 renminbi per dose (approximately $1,000 USD) even after a 60% price reduction. This is not assessable. The reimbursement agency will not reimburse this for sure. It is way too expensive for them. Our strategy is to get on the national reimbursement list and we are capable of having a very low price. The disease prevalence is there and this is a big issue in China because it is a chronic disease. That is why at our new manufacturing site we are planning to set up 5,000 to 10,000 liter stainless steel incubators for manufacturing our Humira biosimilar if we can get the right market. So we do see the potential there. Maybe the profit margin is not has high as in oncology, however we do think the accessibility is the key.
We also have a PCSK9 drug. The prevalence of high cholesterol is also very high in China. People are currently using the generic statin type of drugs. These are very inexpensive, but many patients are intolerant to them. The market is also big. I think it is even bigger than rheumatoid arthritis because the aging society and increasing economic status. Those kind of diseases of the wealthy are increasing. We are pushing this program very fast and hope to be able to get to a commercial regulatory decision by the end of 2020 or in 2021.
CHNA ETF: For investors and others who are reading this who are hearing about what is happening in China biotech right now but maybe don’t fully grasp it or understand it, how would you describe it? Where do you see the future of this industry in China?
Dr. Li: I think there are two key parts here. The first is the medical need. Many medications currently, whether they are innovative or me-too drugs, are not being fully utilized in China. I talk a lot about how accessibility in China is very limited. Either drugs do not get into the national reimbursement list, so not many people can afford it, or a certain disease just gets ignored like rheumatoid arthritis. Those factors make the demand for better healthcare in China very high and it is growing. Another thing is affordability. The economic status is getting better and people are more and more emphasizing and paying attention to their health. Those two factors are making the market in China bigger and bigger.
Secondly, there is the advanced technology itself made by local innovative companies and the capital that is now available to them. Those factors make this industry booming. I think you can compare today’s China biologics and pharmaceuticals market to the United States 20 years ago. I do think in the future more innovative products will be coming from China. For example, our BTLA is the first one in the world to be submitted for an IND. It is a sign that more and more innovative drugs will be coming from China because the demand and the capital that is being made available. The situation is getting better for our companies. I will also say that history repeats itself. I do think you can compare it, as I mentioned, to the U.S. biotech sector 20 years ago. The booming situation is repeating in China. Now that does not mean there will not be hiccups along the way, because of course there will be.
CHNA ETF: Well that is a great place to stop. Thank you for joining us. CHNA ETF is an investor in Junshi Biosciences and we wish you the highest success.
Dr. Li: Thank you.
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Opinions expressed are those of the author, interviewee, or Funds and are subject to change, are not intended to be a forecast of future events, a guarantee of future results, nor investment advice. Fund holdings and allocations are subject to change at any time and should not be considered a recommendation to buy or sell any security. Merck is not a holding of the Fund or affiliated with the Fund.