[Editor’s Note: This post was co-authored by Jessica Yingling of Little Dog Communications.]
Loosely defined, arbitrage is striking a combination of matching deals that capitalize upon an imbalance. Profit is gained from the difference between the market prices. With the Chinese government focusing on innovation through forward-looking national agendas for economic development, the opportunity to apply an “innovation arbitrage” is emerging as an important means to develop novel medicines in China.
Historically, the potential value of developing a new therapeutic in China was discounted heavily by the potential risk that the therapy would not be used. Chinese healthcare has relied heavily on traditional Chinese medicinal remedies, and the less established intellectual property enforcement did not protect against domestic competition.
Major advancements supported by the government in China have countered these two hurdles.
The China Food and Drug Administration (formerly the State Food and Drug Administration) was reorganized earlier this year to elevate the agency and further streamline regulatory processes. In 2009, Chinese regulators implemented a “green channel” to speed the agency’s review and communications for novel treatments and drugs. Since then, more than thirty products have been approved through this process. The CFDA also has put in place mechanisms to identify potential patent infringement prior to approval and market entry.
Furthermore, in China’s most recent five-year plan (outlined in March 2011), the government set forth to develop seven emerging industries, including biotechnology, for the country’s long-term social and economic development. As the largest healthcare payer in the world, China has seen the need to make significant government investments in biotech and healthcare innovation.
The World Property Office has reported that Chinese patent filings in general have increased 200 percent since 2007. Yet China continues to show an almost singular focus on developing bioequivalents in both small and large molecules. These are drugs that are not eligible for patent coverage in China or for which patent coverage is pending expiration.
But is this really a lower-risk, lower-cost strategy than developing innovative products in China?
Breaking the question into three parts, specifically as it relates to biologic (antibody) drug development:
1) Is there less technical and/or biologic risk in developing a biosimilar than an innovative new antibody?
Clearly a biosimilar of an established antibody therapeutic has less mechanistic risk than novel biology. The chances of failure due to biologic mechanism are significantly lower. However, the technical challenges of developing a true biosimilar are not trivial. Any variation from the original antibody must be assessed to ensure that there is no therapeutic consequence for the patient. The chemical, biochemical, and physiologic attributes of the drug candidate must fall into a very small window established by the original antibody to qualify as a biosimilar. Changes in gene expression, host cell line, and upstream and downstream processes, for example, can have significant impacts on hitting this tightly defined window.
2) Is there less financial risk in developing a biosimilar than an innovative new antibody?
When designing a clinical trial, a significant factor is the comparator or control group. In the case of a biosimilar, the comparator is the approved, well-documented originator. While this may seem to imply lower cost (e.g., the trial design is well established and the goal is to test for similarity not superiority) the cost for such a trial can be profoundly impacted because the originator molecule, especially if it is not off patent yet, may be extremely expensive.
3) Is there less commercial risk in developing a biosimilar than an innovative new antibody?
Biosimilars by definition do not have patent protection. Therefore, market competition should be expected. As the number of entrants increases, it should be assumed that price would be a factor—perhaps the key factor—among consumers. Without other product differentiation (because they are, by definition biosimilars) price erosion is a very, very large risk.
These risks are not secret, and those companies in China that are developing biosimilar products are beginning to seek ways to innovate. However, like everything in drug discovery and development, the road to innovation is not clearly defined, especially not the roads being built in China for the development of novel medicines.
To be able to develop novel medicines in China, we must take careful consideration and selection of products that meet the needs of Chinese patients, and to identify and structure the right collaborations to bring these products from discovery to the market. In fact, this is exactly what every drug development program should lay out to do no matter the country. On the path of developing novel medicines in China, we get back to the roots of what is necessary and important. So by looking through the arbitrage lens to find new opportunities, we see that innovation arbitrage can bring significant benefit to both sides of the equation. Select assets discovered outside China with best-in class-potential that have been passed over due to the competitive landscape could be extremely innovative in China. Identifying, accessing, and partnering such an asset defines an “Innovation Arbitrage” for the arbiter who is prepared for the opportunity.
(I will be discussing this topic further tomorrow in Beijing at a panel entitled “Biosimilars and Biologics in China: The Race is on” at the ChinaBio Partnering Forum 2013.)