Chinese Drugmakers Gear Up in R&D to Develop Lucrative Novel Drugs
COVID-19 and China
Image: Credit to BeiGene

China's pharmaceutical giants have responded to recent policy changes by boosting their research and development expenses; amongst the five largest Chinese drugmakers, no firm spent less than CNY 800 million in the first half of 2019. BeiGene (百济神州) (BGNE: NASDAQ), a Beijing-based biotech company, spent over USD 407 million (the equivalent of around CNY 2.91 billion) in research and development over the same period, increasing its R&D expenses around 48.6% year-on-year. 

In September 2019, China's generic drug bulk-buy policy was expanded, increasing the number of selected companies from 25 to 45. The expansion led to further price-cuts in the drugs market – this follows a freefall of up to 90% for some of these medicines’ prices since the first announcement of the policy.

The ‘visible hands’ intervention to reduce the prices affected Chinese generic drugmakers’ stocks and created a panicked atmosphere in the markets. Ultimately, the industry pivoted its long-term direction from generic drug making to novel ones, which resulted in increased research and development expenses.   

Yet another factor shaping this trend is the new set of policies by the National Medical Products Administration (NMPA), facilitating the application and approval process of the clearance of novel drugs within mainland China for both domestic and multinational entities.

Expenses aside, two novel drug applications by Jiangsu Hengrui (恒瑞医药) (600276: SH) were approved by the NMPA over the period. BeiGene's Zanubrutinib, a novel BTK inhibitor in chronic lymphocytic leukemia and non-hodgkin’s lymphoma, was accepted by the NMPA.

“Chinese pharmaceutical groups are potentially releasing more funding for innovation and shifting China toward a developed-market profile,” concludes McKinsey on the changes in Beijing's approach to the pharmaceutical industry.

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