CRO/CDMO RIDING THE CHINESE BIOTECH BOOM China: The World's Fastest-Growing Biologics Market Government spurring innovation BIOLOGICS MARKET CAGR (2016-2021) In our November 2019 issue, we highlighted the market potential of the Chinese 18 biopharma sector. Thanks to government reforms and key drivers, Chinese biotech 16 companies are no longer imitators but innovators. 14 • The Chinese biotech market, the second-largest drug market in the world, is 12 expected to grow at a CAGR of 16% by 2021. 10 • The Chinese FDA (CFDA) has implemented several changes to modernize the 8 clinical trial process and speed up the approval of innovative drugs. 6 CDMO/CRO to support strong growth in China R&D spending 4 2 R&D spending in the healthcare sector has risen sharply, pushing companies to 0 increase outsourcing, for better cost control and higher efficiency. China US Europe Japan • There are two types of outsourcing services: Contract Research Organizations (CRO) and Contract Development & Manufacturing Organizations (CDMO). • China’s domestic drugmakers are keen on using these services to remain competitive and to launch innovative drugs as quickly as possible. PLENTY OF ROOM TO GROW FOR CHINESE BIOLOGICS Wuxi Biologics: our top pick 2021e Sales Biologics as % of total drug sales We believe that Wuxi Biologics is well positioned to benefit from the growth opportunities in China, thanks to its leading market share, high quality and well U.S. $260bn ~30% differentiated services. • Wuxi has a 75% market share in CRO services for biologics. China $43bn ~12% • The COVID-19 pandemic has delayed many clinical programs, but CROs helped to ensure consistent and continuous trials. SOURCE: HKEx Website, McKinsey, Evaluate Pharma, UBS research BIOTECHNOLOGY 26 AUGUST 2020 8 CRO/CDMO RIDING THE CHINESE BIOTECH BOOM The Chinese Biotech Market Boom Rising living standards bring health issues NUMBER OF CLINICAL TRIALS OF CAR-T CELL TREATMENTS (AS OF MARCH 2018) China is the second-largest drug market in the world, with a growing middle class whose living standards and related health issues are catching up with the western world. 150 25000 • The population is aging; by 2020, 200mn people will be over 65 in China. • The largest diabetic community in the world is in China with over 100mn patients. 20000 100 • Due to the high incidence of cancers, oncology remains the primary area of 15000 research: the number of CAR-T cells therapy trials surpassed those in the US due to lower cost of manufacturing and less stringent regulations. 10000 50 NUMBER NUMBER OF TRIALS NUMBER TRIALSOF New reforms to boost the development of the biopharma sector 5000 The Chinese government has been carrying out a series of policies to encourage 0 0 India China Africa Japan innovation in drug R&D. China Europe Canada Russia EuropeCanada Australia CaribbeanGreenland Middle East Middle East • The "Healthy China 2030" plan includes 15 reforms to improve healthcare access North America South America North America South East Asia Central America and mortality rates on major diseases. • Innovative drugs can now benefit from "priority review" status. More than 30% of total applications have received this status. IPOS:I PHK$39.7BNOS: HK$39.7BN (US$5.12BN) (US$5.12BN) R RAISEDAISED IN 2020IN 2020 (HKEX) (HKEX) Access to capital markets has been simplified NONE 5 14 16 In 2018, the Hong Kong Exchange reviewed its listing rules, allowing pre-revenue and NO. OF 18A LISTED COS pre-profit biotech to be listed. Significant investment capital has flowed into the sector. Chinese companies also raised funds in the U.S. through IPOs on Nasdaq. 2017 2018 2019 2020 • In 2019, the average amount of funds raised was 4 to 5 times the U.S. average, TOTAL IPO FUND RAISED NONE 18.5 34.5 39.7 with the largest listing raising over $900mn. (HK$BN) • The IPO of Legend Biotech, which develops CAR-T cell-based therapies in partnership with J&J, raised more than $400 million last June. SOURCE: HKEx Website BIOTECHNOLOGY 26 AUGUST 2020 9 CRO/CDMO RIDING THE CHINESE BIOTECH BOOM Main Chinese Biotech IPOs (2019-2020) Company Listing date Cstone Pharmaceuticals Feb-19 CanSino Biologics Mar-19 Viva Biotech May-19 Frontage Holdings Corporation May-19 MabPharma May-19 Hansoh Pharmaceutical Jun-19 Jinxin Fertility Group Jun-19 IVD Medical Holding Jul-19 Shanghai Henlius Biotech Sep-19 Euroeyes International Eye Clinic Oct-19 Ascentage Pharma Group Oct-19 Tot Biopharma Nov-19 Shanghai Kindly Medical Instruments Nov-19 SinoMab Bioscience Nov-19 Pharmaron Bejing Nov-19 Venus Medtech Dec-19 Alphamab Dec-19 Legend Biotech Jun-20 BIOTECHNOLOGY 26 AUGUST 2020 10 CRO/CDMO RIDING THE CHINESE BIOTECH BOOM Why Be Exposed To The Chinese CRO/CDMO Market? CRO/CDMO to support the fast-growing biotech sector in China BIOLOGICS OUTSOURCING – MARKET SHARE (CHINA) Biopharma companies in China have doubled their R&D spending over the past three years. Consequently they have also increased their outsourcing on clinical trials and manufacturing. 78.6% WuXi Biologics • The Chinese CRO/CDMO market is expected to grow from $8.3bn in 2018 to 5.9% Chempartner $29.9bn in 2023, at a 30% CAGR compared to only 11% in the U.S. 5.4% Others • Biologics, made from living organisms, are much more complex to develop and 4.3% manufacture than small molecules and CRO/CDMO provide expertise at each step of the process. 3.2% GenScript 2.8% MabPlex A competitive pricing strategy Lower costs and better efficiency attract local players but also foreign companies to outsource in China. Here they also benefit from a large patient pool, allowing for faster. • China accounts for 22% of all newly diagnosed cancer cases, including 36% of all BIOLOGICS OUTSOURCING – MARKET SHARE (GLOBAL) newly diagnosed lung cancer cases worldwide. • Preclinical and clinical trial costs in China can be as low as 30-60% of similar trials 69.4% Others elsewhere. 7.1% Lonza 6.7% A primary focus on preclinical and discovery service Clinical and commercialization services will represent future growth areas as 5.1% WuXi Biologics Chinese biotechnology moves to later stages of development with more and more 4.6% Catalent approvals expected. 3.2% Samsung Biologics • Most CROs offer services in three areas: discovery biology (26%), preclinical (21%), 2.3% AGC Biologics and pharmaceutical development (14%). 1.6% Thermo Fisher SOURCE: Nomura, F&S, Contract Manufacturing Organization (CMO), PWC, Wiley Online Library BIOTECHNOLOGY 26 AUGUST 2020 11 CRO/CDMO RIDING THE CHINESE BIOTECH BOOM CRO/CDMO At A Glance CRO SERVICES CDMO SERVICES Drug discovery Development API production Formulation Target identification Drug development Extraction Solids S U C Lead discovery Sourcing Synthesis Semi-solid O F G N I Cell line Fermentation: small R Medical chemistry Non-sterile liquids E development molecules OFF E Preclinical studies: Fermentation: large C Scale up Sterile liquids I in vitro molecules V ER S Preclinical studies: Other finished dosage Tech transfer Other methods in vivo forms (FDF) Formulation Process analytics development development BIOTECHNOLOGY 26 AUGUST 2020 12 CRO/CDMO RIDING THE CHINESE BIOTECH BOOM CRO/CDMO: The Covid-19 Impact Support for COVID-19 vaccine and treatments development CRO/CDMO work alongside biopharma companies to provide the necessary TELEHEALTH AND ingredients and conduct trials more efficiently. M-HEALTH APPLICATIONS • Among the seven vaccines candidates already in Phase III, four are being developed by Chinese companies: CanSino, Sinopharm, Sinovac and Fosun Pharma (in partnership with BioNtech and Pfizer), • Two are approved for limited /emergency use: The Gamaleya Research Institute’s vaccine in Russia and CanSino’s vaccine for military use. Both have been approved based on small Phase II studies. The importance of China’s supply chain APPLICATIONS USE FOR FOR WEARABLES MONITORING VIRTUAL FOR The COVID-19 epidemic has highlighted the importance of China as the world's ADHERENCE CONTINUOUS largest producer of active pharmaceutical ingredients (APIs) TRAITS DATA COLLECTION • It is estimated that 80% of the APIs used in the United States could come from China or India. • Despite the wish to re-located API manufacturing in Europe or the United States, costs will continue to drive the decision to outsource to China. • Besides, the complexity of estimating the exact number of Chinese APIs involved CLOUD-BASED E-CONSENT DATA in the supply chain could protect the industry from additional tariffs. COLLECTION Virtual trials are the future of clinical trials ELECTRONIC PATIENT During the outbreak, many trials have been shut down or delayed. New types of REPORTED OUTCOMES clinical trials, more adaptive to patients and more digital have emerged. • The role of the CRO will grow and evolve, as the conduct of a full virtual clinical trial requires expertise in understanding technologies and healthcare regulations. • China has a significant competitive advantage: local players can rely on important Big Data and AI capabilities. SOURCE: The 2020s Will be the Decade of Virtual Clinical Trials, NY Times BIOTECHNOLOGY 26 AUGUST 2020 13 CRO/CDMO RIDING THE CHINESE BIOTECH BOOM Wuxi Biologics: Our Top Pick (1/2) China's market leader in biologics outsourcing ONGOING WUXI BIOLOGICS PROJECTS Wuxi Biologics provides CRO and CDMO services. Wuxi works on 250 integrated Number of projects: 121 in preclinical, 112 in Phase I/II, 16 in Phase III and 1 in commercial Biologics development on-going Typical Typical process stage integrated duration Revenue² manufacturing. projects¹ • As a result of market share gains, the company’s revenue increased from CNY Pre-IND 557mn in 2015 to CNY3.9bn in 2019, a CAGR of 63.5%. – Drug discovery – 2 years US$1.5-2.5 mm • Company’s revenue could reach CNY10.3bn by 2022, continuing to grow at 40% – Pre-clinical development 121 2 years US$4-6 mm annually.