WIM 2022: Transcript of Fireside Chat of Biotech [2/2] EqualOcean organized the WIM2022 event in New York City from July 29 to July 30, 2022. The following is the transcript for Fireside Chat of Biotech. Leon Tang, Bing Yuan, Ying Huang, Dahai Guo, and…

In the first half of the article, we concluded the first five questions and answers of our Fireside Chat of Biotech in the WIM2022 event. The following is the rest of the transcript of this chat. We continued with the discussion of Q5. For your convenience, the questions are: “What do you think about the FDA? Do you think they have beef with China’s biotech companies, or did China’s biotech companies make some mistakes or have gaps to fill?”

Sally: FDA is an agency that, I think, was designed to the best science and to help more patients and also to in some way promotes the industry to some extent enable the industry. I think for the PD-1 case, I want to un-patch and play almost a little bit as David’s advocate, which has been a part of the United State’s political system in it. I think there are large factors at play that may have influenced the way FDA saw the issue and given someone almost 180 in perspective. So one is that FDA approval is generally a pendulum and wings back and forth.

In the last bloom, we have seen a lot. Just it’s definitely much more relaxed and favorable. And we saw, on the neuroscience side, environments struggle getting by one probably shouldn’t have. Even in oncology, things get improved on the circuit. Definitely, relaxed rules are trying to bring more approval faster to patients. That pendulum has, fortunately, swung back. And we saw it on oncology with some of this phase for trials getting, and it happened to shorten the label. You will also see it in something like PD-1, where a drug may have a good argument for approval is not getting that. And then, on top of that, I’m sure we are all aware that being Asian American, the racial tension here in the United States that also plays into the diversity is in everybody’s vocabulary every day today. And FDA is translated to what we call clinical trial diversity. So I’m on the regulatory steering committee at Bio [inaudible], the main training association, and at every meeting, we talk about clinical trial diversity. We have been talking about it for a year. So FDA is very similar. When you have a patient from a very homogeneous group, who wants to base your approval on that, FDA is questioning, “So what about white people, African American people, and other ethnical groups? How do they represent in that?” And that’s a very natural question that is one that has been popular. It is most common when you do your clinical trial in China almost exclusively. So I think these large factors may have played a role. The main augment for PD-1 is drug pricing. The United States has giant problems, as Leon pointed out, with health care costs. But the drug pricing policy is targeting a more towards financing side, meaning this week, or just last week, we saw Joe Manchin, the wholes story around Medicare allow to negotiate brought changes. So I think the people that are in pushing the advocates for drug pricing to control drug cost are not seeing PD-1 as a solution. 

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Dahai: I want to add a little bit in here, two points. The first one is following what Sally said about the pricing issue. I want every audience to understand that FDA does not handle pricing issues. So, if you said to compare this high price drug with other drugs that are much cheaper, that is nothing FDA should care about, and not on their policy to care about it. They should not judge any approval based on pricing, and they are not, which is good. They approve any drug only because of scientific issues. That is the first thing I want to clarify to the audience, in case you don’t know. The second thing I want to say is that having been in this industry for long enough – three decades, I love dealing with different agencies globally. I used to sell drugs in over many dozens of countries. I have to say FDA is the one that I really respect. I think FDA is the fairest, even though they are just no absolute fairness across this world. But comparably, FDA is the fairest and most scientific-driven agency in the world. Because they deal with applicants from all over the world, I should say they try not to discriminate by country as much as they can, and I think we have to give them credit. So far, I think they are the fairest, said this way. Again, there is no absolute fairness but comparably saying that they are the most respectful agency in the world.

Bing: I just want to add from a different perspective. So, no matter what we see, the difficulties are there. I mean FDA is stricter in approving drugs that have one regional people’s data. What is your solution? For biotech companies, you need to think about what your growth strategy is and improve to utilize your market. So don’t do pure Chinese study at the beginning. You should study global study. So you won’t have a problem. For Legend, for example, their gene studies are all global studies. And I don’t think that they encounter any problems in eventually getting approval. Secondly, don’t continue to pump up No.7 and No. 8 in-class products. Because right now, it is difficult for FDA to approve another one if your trial is not head-to-head. The first, second in-class product, and the third, and that is it.

Discussion Q6:

Leon: Fantastic discussion. Now let’s get into the money issue. Follow up with PD-1, which I already touch base at the very beginning about the high cost of PD-1 drugs, and Keytruda costs an average of USD 180 thousand per patient per year. But similar drugs are still a lot cheaper in China. Similar drugs to Keytruda cost only USD 7 thousand per patient per year in China. Now one of the hottest topics on Capitol Hill is drug pricing. With that in the background, I’ll start with Sally since you know the political world pretty well. 

Question: What do you think about the above? Obviously, if anyone in the United States googles it, they will find out that Chinese drug is at least 20 times cheaper. How does Capitol Hill deal with this fact?

Sally: The first one I think is that policymakers have really struggled with. Because it is, again, many issues in this country on the political line, you have democrats that want to pro drug pricing, and republicans are taking more of the less fair industry should do its thing. Approaching, and of course, our industry is generally against drug pricing. And I know VCs like the RA Captial, Peter Kolichinsky, the founder who spent a vast amount of his time lobbying on Capitol hill against any kind of drug pricing. Personally, I think there are a lot of other healthcare industries that are very complex, drawing different interest groups along the value chain. So, I think that they need to address some of the interest groups. I think, recently, we have been taking a stab at what we call pharmacy benefit managers. Most of us do not know about it unless we are in the pharmaceutical world, which is not part of our universe. But basically, they have insurance companies manage these drug plants and eventually get drugs to patients, but they take a significant amount of profits, and they generally don’t add that much value. They are not innovators like all of us who are putting in billion dollars to get drugs on the market. So, I think there are groups like that now I can address. I think, generally speaking, as an industry, we do have to be more conscientious of drug pricing. So I think part of the reason why makes the biotech story even more ugly is not only the drug have most minimum effect and safety issue and probably should haven’t approved by FDA [inaudible], but also the pricing, right? It’s like USD 50 thousand plus per patient per year. And that would be transited into billion dollars to Medicare, which is already struggling with paying for healthcare for others. So generally, for the industry, we would be more conscientious of that. I am personally not against the drug pricing scheme that allows Medicare to regulate but negotiate on private issuance. However, I think what we will eventually have – is an effect on the private equity in the industry. Because when VCs put money in, we are building our financial models, expect the drug to exit at a certain price, and if that price on the market is going to be as high, that is going to affect the general model. That’s going to definitely have a board negative rippling effect across the industry. But maybe that is the correction. I think that is debatable and depend on who your ask. I think another thing is that when I was a consultant, the United States market was 50% globally. We are paying for 50% innovation globally. So that’s also something. And the prediction of the number might even go up to 70% or 80%, which is also unsustainable. So, I think it is, we have to figure out, and there’s some argument the US wants the best drug, so we have to pay for it. But from a purely economic perspective, that may be harder to overcome.

Leon: I think the last augment doesn’t make sense, right? We already threw the numbers in the beginning that the United States spends more money than China. But the life expectancy is slightly shorter than in China. 

Sally: that’s the irony.

Discussion Q7:

Leon: So I don’t buy that. So I want to continue on the money front to tell you more stories because Sally touched base on NPV. 

Question: I kind of remembered most innovative approved drugs in China have negative NPV. So innovative China drugs on the market right now are dirty and cheap. But that does not help China’s biotech company at all. What is your thought on that?

Bing: That is another extreme, right? When the reform came, originally, people thought they only cut generics and pushed down generics by 90% from the price of 98%, so they could save the national reimbursement money for the emerging innovation sector. But we see the actual practice in the last two years. We got national reimbursement money for the innovating sector. The price is very tough. The PD-1 is only 5% of the United State’s price. That is just not acceptable for the innovative sector. Because for the innovative sector, you have the global compounds. You have to do the clinical trial. The statistic is the same. No matter whether you use Chinese or American patients, if you need 300 patients, you need 300 patients. But if your trial is only for the Chinese, in China market, that price is going to kill you. So that is why most Chinese companies are forced to go aboard. To be more innovative, maybe it is a good thing to pop up more globally first and second-class products. But for many companies, it is a very difficult situation, especially if you have products on the market. Every year you have to re-negotiate the price with the NPA agency.

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Dahai: They kept changing the agency’s English name, and I couldn’t pick up. I think I agree with what Bing said. The United State market basically supports the entire global biotech pharmaceutical innovation by giving that the United States has 50% of global pharmaceutical spending. I think everybody, I said not only to the audience here but also in front of all the Chinese audience, that everybody in the global probably should appreciate a little bit about the United States consumers who pay higher drug prices to support scientific breakthroughs in the world. The pricing regulations are always a sensitive issue. It is always between the industry player and the government in every country, being that every industry, healthcare, pharma, biotech, and industry impacts everybody’s health in every country. Therefore, every government has a tendency to drop the price. It Is not only for democrats or republicans. In Europe, some European countries are even stricter in drug price regulations. In England, the generic drug is cheaper than in China and India. You could not believe it. So you can imagine what the incentive for a player in the UK to do something about it is. Anyway, that is a long story short. Leon mentioned that these USD 7 thousand PD-1 drugs in China, in the long term, is not truly sustainable. The industry players in China have already complained about it, not officially, but you have heard that in the industry a lot. And some of this pricing conduct is ridiculously low, for your cardiovascular stamps only cost USD 120 per stamp. And I start worrying about the quality of it. I have been to many pharmaceutical manufacturing plants they invited me to give them some critiques about the qualities. I have been to small molecules, the biological drug, and the Chinese medicine drug manufacturing plants. Maybe way too many, and also including many disciplining manufacturing plants, the qualities are all over the place. And I start worrying about it if MMPA starts emphasizing the price regulations and the quality, I am concerned.

Leon: One sentence, you get what you pay for. 

Discussion Q8:

Joanne: My question is for all the panelists, especially Legend Biotech, how do we foresee the sale and market potential in China and the rest of the world?

Ying: For the field of selling gene therapy, there is typically personalized and unidolized therapy. And it is very costly to make them. So, I do think that the United States is probably the main market. If you look at some of the other parts of the world that are ahead of us, given the pricing and reimbursement operation, this is where the biggest market is. And it was followed by might be the UK, Germany, France, and Japan. These are the market where gene therapy can actually become profitable in these markets. Because there is no way that, for example, our products can be covered by NRDL because NRDL has a ceiling for any drug that no matter for generic or branded drug. There is a ceiling of about CNY 300 thousand, which is about USD 50 thousand. If you exceed that limit, there is no way China’s national healthcare system can cover that. Therefore, I think most cutting-edge therapy. They want them to be here in the United States. We collaborate with Johnson&Johnson in the United States. And in China, we do commercialize our products in China.

Discussion Q9:

Kevin: You guys mentioned biotech companies going public in Beijing and Hong Kong. But right now is closely impossible to raise any money in Beijing’s and Hong Kong stock markets – the markets are closed. Is there any solution or future potential down the road?

Sally: My sense in China, there is a lot of branding aspect to going public. Yes, it may not create the liquidity that you might be looking for, but there is something to be said about I’m a public company, and I do have the liquidity. I think in the United States, the American company is much more financially driven. So they do not care about whether they are public or not. It is great to be a public company. But going public is going to have their stock price go low. And it is actually worse than private financing. The board is not going to approve that just to look good. These are my two senses.

Bing: You can see that some biotech businesses still go public. It is not completely close and still open. The thing is that you may not get your valuation. Once you go public, the stock price goes down. Exactly like what Sally said, the incentive there is different – sometimes it is the founder, sometimes it is the investors who force them to go public. So at least I said it publicly or appeared to have an attitude. But in the United States, biotech is different. IPO is just fundraising. And your true exit is M&A. So that is a very different mentality. But it is not necessary for you to open for funding in China.

Discussion Q10: 

Gina: I got two-part questions. The first part goes back to the FDA stands and the gene and cell therapy. We have also seen a lot more clinical holes [inaudible], specifically towards gene therapies. Some even for not very substantial reasons. I am a research associate at a sell-side firm. And my second question is that the biotech market, as in the United State’s equity market down like 10% or 20%. And if we pick out specifically the Chinese biotech companies, they are probably down a lot more because of the trade war and geopolitical tension. But I think the panelists may acknowledge that there are also weaknesses and advantages of being a Chinese company. How should we think about growing Chinese public listed company? Is the United States like the value generation from shareholders and just moving forward given the overall market condition?

Sally: I think it goes back to what I was saying earlier about pendulums having swung back to more conservative. I think, generally, it starts with people on top. Unfortunately, someone you know of the recent happening, much more surprised that others shall be appointed by FDA. So, they have a different perspective on this. And also, they want changes right. They want to go away from what we are currently doing. Because of the downside, the potential negative effect has been caused. I think in that general environment, it is partially what contributes to cell gene therapy. Going back to Ying’s point, because it is the new mentality, they are learning as they go. So now they are just discovering these new either issues or considerations or just having more maturity around their thinking and the regulatory pathway. So that may be growing pains that come partially with that growth in the development of the industry.

Dahai: I probably comment on your second question. You are saying that the United States biotech industry index was dropping by 14 or 15%. And China, including Hong Kong markets, dropped further on that. I think the issue is a valuation gain. Chinese companies are going public in China, either in Shanghai or the Hong Kong market. The valuation was much higher than they go public in NASDAQ if they do. If they went to NASDAQ, their valuation could not be rewarded as much, not even close to what they haven’t been given in Hong Kong and Shanghai A share. For example, there are many companies in China that have gone public in the last several years – let us say in the last two years. Almost all of them are over billion dollars. They do not have as good products as Ying you have, I truly think. I think the valuation does not justify that. Right now, given the entire market downturn, they re-balance their valuation. And that is normal. And even that, some of their valuation is still overpriced.

Sally: That is actually true for the private market as well. Chinese biotech companies have significantly higher valuations compared to ones in the United States. I think that translates into the public market too.

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