Chi-Med, backed by Hong Kong tycoon Li Ka-shing, is an oncology-focused drugmaker that started operations in 2000. The company is listed on the Nasdaq and London Stock Exchange. Its listing in Hong Kong was delayed in June 2019 amid market uncertainty.
The company's novel cancer drug Elunate, or fruquintinib, was included in the latest revision of China's drug reimbursement list.
The drug's price was slashed by about 64% to $1,210 per month from $3,350 per month to qualify for addition to the list. Drugs on the list qualify for reimbursement from state-sponsored insurance schemes, making them more affordable to patients.
CEO Christian Hogg, also based in Hong Kong, spoke to S&P Global Market Intelligence about Chi-Med's listing intentions, the evolving healthcare landscape in China and the race to access more patients in China via drug price cuts. The following is an edited transcript of the interview.
S&P Global Market Intelligence: Is Chi-Med still interested in a Hong Kong listing? And are there any plans to delist from any of the other exchanges?
Christian Hogg: I don't think the market shakiness in Hong Kong I mentioned in the past will stop us again this time; it's just about the right timing for the company. I hope the window [to list] will open again in 2020. We are ready to go.
We will have some clinical updates in 2020, and some of these may act as a trigger for more attention [from investors] toward the company.
Nasdaq is a predominant biotech stock exchange, so the prospect of the company delisting there is zero. Hong Kong will also be very important because it is our home and we are well-known here.
The dilemma with London is that trading volume is relatively low, but Chi-Med has been there since 2006, and investors know us well. They are mostly long-only investors who tend to hold stocks for the long term. We will not discontinue unless there is a very good reason.
What are the biggest changes you have seen in China's healthcare market in the past few years?
The first big change is the regulatory structure, such as speeding up the approval process and making the process more transparent. About 15 years ago, getting approval to start clinical trials took 18 months; now, it is down to 60 days.
The second big change is related to pricing. It is really smart that regulators are driving down the prices of generic drugs — historically overpriced in China — to make room for reimbursement of innovative drugs.
More people now have access to the national medical reimbursement scheme and more innovative drugs are being included. With 10 years of innovation, I would expect China's pharmaceutical market to be close to or being the largest in the world.
Also, getting financial resources is no longer a problem in China, but getting hold of the talent you need is challenging as the cost of hiring and retaining talent is increasing rapidly.
It is also becoming competitive to enroll patients as well as to get the attention of clinical inspectors to attend your study.
There are 50 to 60 high-class clinical centers in China right now, but we need more. However, in 10 years, I think there will be more clinical centers as China will build them.
To qualify for China's reimbursement list, companies have made steep price cuts on their therapies. Is drug pricing becoming a concern for innovative drugmakers as they seek greater access to the market?
My sense is that the government will push pricing to a level that is fair and manufacturers are still incentivized to invest in innovation. Manufacturers can always pull out, and some have chosen not to be involved in the negotiations this year because they think the price cut is too much.
Right now, that equilibrium has not yet been reached. It is still at a point where it feels like pricing is being squeezed. However, at some point that equilibrium will establish itself.
What do you think companies need to do to succeed in China?
First and foremost is innovation. You have to bring something to China that it does not have but needs. If you can do that, you will get access to a huge patient population and government support.
Beyond that, you also need a really solid foundation in manufacturing, clinical study and commercialization. Getting a drug approved in China is complex and labor-intensive. Chi-Med has about 500 people working in drug discovery, development and manufacturing. Despite that, we were stretched to our limits bringing cancer drug fruquintinib to China.
I think it will be difficult for small biotech companies in general to undergo and clear the approval process.
Given the recent spate of acquisitions in global healthcare, how open is Chi-Med to acquisitions?
We are, of course, open to any collaborations and M&A activities. We will look for scientific synergies with our small molecule pipeline, and we are very interested in getting into the large molecule space. We will consider the potential for acquisitions in biologics.
