Healthcare's next frontier

Asian firms could lead the way in huge biologic drugs market

Shortly after the outbreak of H7N9 avian flu in China in 2013, two of the country's biotechnology companies were quick to develop vaccines, put them through clinical trials and apply to get them on the market.

Hualan Biological Engineering Inc and Sinovac Biotech Ltd both submitted their applications before the end of January this year for vaccines for different strains of avian influenza, commonly known as "bird flu".

Two months earlier, researchers from five different institutions in China had developed the country's first vaccine strain for avian flu in what Li Lanjuan, a professor at the Zhejiang University School of Medicine, calls "a breakthrough".

"China didn't have the ability to develop our own vaccine strains in the past. We used to import from abroad and then put it into manufacture," Li says.

These developments were barely noted in the press but were significant as they marked the continuation of a global trend in the industry. This trend could see Asian companies emerge as more globally important makers of biologic drugs, which many see as key to future medical advancements.

Much of the future of biologic medicine, from drugs to cure disease to the deals that will help economic growth, is now focused on Asia.

Biologics or "big molecule" drugs, as opposed to chemical formulations, are made from living organisms. They are manufactured inside living systems like microorganisms or inside the cells of plants or animals.

Biologic drugs are the next great frontier of healthcare. Global pharmaceutical companies are looking to biologic drugs as key to solving some of the most complex healthcare riddles of our time, from curing cancer to bringing back the elderly from the abyss of Alzheimer's disease.

Stepping up the research and development of biologic drugs could help drug researchers and makers in Asia reach a global market that has long been dominated by Western giants.

The three best-selling drugs on the world market last year (and seven of the top 10) were biologics. The top-selling drug in 2013 was AbbVie's Humira, which is used for rheumatoid arthritis among other things, with global sales reaching $9.7 billion.

The second-best seller was Genentech Inc's Rituxan, a cancer drug for non-Hodgkin's lymphoma, with sales of $7.7 billion. Another Genentech drug, Avastin, sold $7.6 billion.

By 2016, more biologic drugs, such as protein-based drugs, are likely to dominate the top 10 list, said Paul Bridges, worldwide head of Parexel Consulting, at the Bio Korea 2014 International Convention in Seoul last month.

By 2017, the global pharmaceutical market will be worth $1.2 trillion and Asia will account for as much as $250 billion.

These are precisely the types of drugs that the aging population in Asia will need in the years ahead. So not only are multinational companies setting up more research and development facilities in China, South Korea, Japan, Malaysia and Singapore, but so are a breed of new companies.

Most of what is driving investment is whether a company is developing a drug against a disease that is relevant to Western populations, said Eric Shiozaki, principal of Denmark-based global investor Novo A/S, speaking in Hong Kong recently.

"Sometimes a disease is not prevalent in the US so they overlook it and this is an opportunity for Asia."

Doctors, researchers and health ministries are optimistic about biologic drugs, which are more expensive but often more effective than their chemical counterparts. This is because they reach deeper into the cellular structure of the body and are often more targeted.

Asian governments have stepped up efforts to attract companies and make it easier for them to develop more biologic drugs and, perhaps more importantly, to get them into the hands of patients faster.

In April, Japan started moving forward on a plan to combine three ministries that control healthcare and research funding into a single and more effective institution. The plan is to create an organization like the National Institutes of Health in the United States, which would be responsible for drug research.

Japan is putting a lot of hope on the development of expensive biologic drugs to target areas like cancer, says Hiroshi Tamada, vice-president, Japan medical affairs at Bristol-Myers Squibb, a multinational drug company.

"Everybody is afraid of cancer. That's why even for expensive drugs with small side effects, the government will reimburse," he says. "The government has huge expectations for new biopharmaceuticals."

Cancer is the No 1 cause of death in Japan, killing around 361,000 people in 2012. It is also the leading cause of death in South Korea, another country that is putting a lot of hope in the development of biologic drugs.

China's own biotechnology industry grew fast last year, said Zhang Xiaoqiang, vice-chairman of the National Development and Reform Commission, speaking in March. China has already identified biotechnology as a driver of economic growth and cemented that in its 12th Five Year Plan (2011-2015), and the country has the domestic size to help companies step up globally.

Sinopharm Group Co Ltd, the largest pharmaceutical company in China, and Fosun Pharma, which is part of the giant Fosun Group, are both looking to develop biologic drugs for the global market.

Last year, China's biopharmaceutical manufacturing industry was worth 2.1 billion yuan ($337 million), according to Zhang. This marked growth of 18 percent over a year earlier.

Like China, South Korea is also looking to biotechnology and the development of biologic drugs, to help shore up both healthcare and economic growth.

"The healthcare industry is a key driver of growth," said Park Ha Jung, deputy minister for planning and coordination at the Ministry of Health and Welfare, during last month's Bio Korea 2014 Convention. "Korea has successfully developed stem cell treatments and has established itself as a leader in biosimilars."

South Korea plans to position itself as the seventh-largest market in the world for the bio industry by 2020.

Other parts of Asia are lagging behind, although Indonesia has made some moves along with Singapore, Malaysia and Taiwan. But these places are typically home to smaller companies.

It is precisely these smaller companies that the global giants look to for expansion, however, as the smaller firms can develop personalized products at the heart of the promising future for biologic drugs.

This is one key aspect of biologic drugs. They are more targeted and personalized. They typically focus on much more specific diseases than the broad-spectrum chemical drugs. A chemical-based aspirin, for example, can be consumed to deal with a number of symptoms, yet no such biologic drug exists. Aspirin works by blocking pain receptors. It deals with the symptoms of an illness but not the actual problem.

Biologic drugs, however, aim to tackle the problem by reaching into the very cells of the body and fixing them, rather than simply eliminating defective cells.

One factor that could help companies in Asia step onto the world stage is the global intellectual property infrastructure.

Patents protect drugs from being copied by competitors, but the patents currently used for some best-selling biologics will expire this decade. The door will then open for companies to develop and market copies of these drugs, known as biosimilars.

The expiration of patents also means that pharmaceutical companies will need to find replacement blockbusters or new ways to shore up their bottom lines. Some are moving toward personalized medicine, which translates into fewer but much more valuable sales, as those who buy these drugs will be charged higher prices.

Many of these multinationals are looking for companies with products they can buy. And a lot of these products are being developed in Asia.

"The industry is increasingly looking to find new products to replace the blockbusters that are being lost," said Parexel's Bridges.

A major challenge the Asian industry has struggled to overcome is innovation. A growing biotech industry requires innovation or it is relegated to making copies of the products created and patented elsewhere. And in Asia, for reasons that defy experts, that innovation has been hard to come by.

India is a case in point. Throughout the 1990s, India became a world leader in the development of chemical drugs.

But just about every drug that came out of the country was a copy, known as generic drugs.

Generics helped lower the price of drugs around the world but, according to Yusuf Hamied, chairman of Mumbai-based generics maker Cipla, India was in no position to develop a new drug.

Still, the global pharmaceutical industry is increasingly looking to the East.

Over the next few years, big biotech is going to continually be looking to Asia. They appreciate the research talent in this part of the world," says Billy Cho, director of healthcare for Asia Pacific at Citibank. Cho, an investment banker, says the next wave of mergers and acquisitions in the biotech industry is likely to happen in Asia, in part because of the growth of the industry and because most of the companies in the West up for grabs have already been acquired.

The largest biotechnology companies in the world are now as big as the largest multinational pharmaceutical companies - giant organizations that control much the world's market.

Gilead, for example, is now worth $122 billion by market capitalization, up from $47 billion in 2009. Another US company, Biogen Idec Inc, grew 390 percent in five years to $68 billion.

"What you see today is that these biotech companies are getting close to big pharma size," says Cho. "There has been a lot of M&A activity recently. It is pretty clear that M&A is back," he says.

And it is happening right here.

As Bridges points out: "The landscape is shifting and it is shifting towards Asia."

Cornelia Zou contributed to this story.