There's tremendous interest in ophthalmology from companies around the globe, as well as a wide range of ophthalmic deal structures that demonstrate the creativity that biotech and pharma partners can bring to bear when securing the rights for new pipeline products. In the last installment of Ophthalmic Product Development Insights, we highlighted some general elements related to early product development in Japan, and approaches to regulatory discussions that may be useful to the entrepreneur investigating ex-U.S. strategies for partnering and funding. This month we shift our attention to China, and how focusing on such an emerging market—and possibly securing a deal with a regional company—can add significant value.
China has a population of more than 1.3 billion people, many of whom have cataracts. A growing number of individuals in China also have chronic conditions such as retinal disease, glaucoma and dry eye, and the ophthalmic business tracking firm Market Scope projects that the Chinese ophthalmology market will approximately double by 2021, from $2.7 billion to $5.3 billion. China is certainly an important emerging market and can play a key early role in a product-development program.
Here are some examples of how one might approach an opportunity in China, depending on the stage of development at which a company finds itself:
- Early-stage projects trying to bridge a funding gap to move forward into the investigational new drug application (IND) stage, and clinical proof-of-concept in the United States. Engaging with a partner in China in a deal in which that company could secure early regional rights, an early option or license fee could help supplement other financing or, in some cases, maybe secure enough funding to move its project to the next step in the United States.
- After a value inflection in the United States (such as Phase II), either before or during engagement with other pharmaceutical partners for licensing/acquisition. In this instance, discussion with Asian partners can add a complementary strategy for showing a deal’s momentum, or may even be the exit point in a situation in which the Asian partner may seek global rights itself.
- In discussions with a global pharmaceutical company. In this case, you may want to hold back and carve out a specific region such as China. Since the Chinese market is still emerging, keeping rights to China while you license your product to the rest of the world may not affect the deal value as it would if you were to hold back major markets such as Europe or Japan. Holding back China and collaborating with a regional company based in Asia might allow you to focus on strategies for bringing your product to market sooner than you otherwise could. Or, in some cases, a global pharma company may not have plans to enter China in the foreseeable future; therefore additional value will be left on the table if you don’t pursue a deal with a regional player in China.
With these potential strategies in mind, it’s important for the new entrepreneur/startup CEO to understand the potential value that a deal with a regional Chinese company may hold, and to consider when/if timing may be appropriate to consider such an approach. Some high quality regional companies in China are also becoming more aggressive and focused on bringing in products from the United States, and thus are open to creative deals for investing in new projects.
Next, we’ll review a specific example of a regional company in China that collaborated with a global pharmaceutical company.
The company is called Essex Bio-Technology, and is based in Hong Kong. Essex has extensive experience in ophthalmology, and sells its own growth-factor product in China for use in dry eye, ocular trauma and post-refractive surgery healing. Notably, Essex is also Pfizer’s exclusive importer and distributor of Xalatan and Xalacom in China (which had already been approved in China before Pfizer’s relationship with Essex). Essex has an extensive reach into China’s ophthalmology network, with 1,280 sales reps. By working with Pfizer, Essex has benefited intangibly on corporate governance and strategic planning. The two companies have established a long-term, symbiotic relationship through a sharing of resources, and appear to have successfully tackled China’s challenging market.
Essex is also in the process of pursuing a development program in the United States for its growth-factor formulation for anterior segment disease, for which it will ultimately be seeking a U.S. partner. In the future, Essex hopes to expand into therapies for the posterior segment, as well as for wound healing, oncology and neurodegenerative disease.
As China’s population grows wealthier and older, the health-care industry will need to focus on primary care through improved primary screening methods to better manage chronic diseases. Diagnostic tests with higher sensitivity and specificity will allow for better patient care through personalized medicine.
Historically, the process for bringing a drug that’s in late-stage development or that’s already approved in the United States into the Chinese market has been a laborious process that has taken years, and has generally required repeating studies either in China or in a Chinese population. Therefore, having late-stage clinical data from outside China has been a key to driving a program into China.
In order to navigate the regulatory pathway, communication with China’s version of the Food and Drug Administration, the CFDA, is critical. CFDA as an organization is evolving to ensure that its structure, processes and policies are in line with the exponential growth of the health-care industry domestically and internationally. CFDA has in place similar mechanisms akin to an FDA pre-IND meeting, and embraces face-to-face meetings as well, with an appointment made well in advance. While CFDA has a fair system which allows foreign companies to request meetings, it may still be beneficial for foreign companies to engage relevant local partners for better engagement on such matters, since these partners may be more savvy regarding local culture and formalities.
Recent guidance from China’s FDA suggests that it’s striving to help companies be more efficient when bringing novel products into China, and this may lead to some altered requirements, such as with the need to repeat safety or other early trials in China, or relying on development in the United States to occur first. Strategies are situational and, in some cases, U.S. or global data may not be necessary, and product development can begin in China. This progressive approach represents CFDA’s advancing policies and its recognition that it needs to bring innovative products to China.
The CFDA has put forth many interesting policies that may enhance China’s competitiveness on the world stage. These policies include its approach to multicenter clinical trials in which investigative sites in China may be part of a global or U.S.-based program, and the CFDA’s stated intention to speed up early-stage clinical trials of foreign drugs without late-stage trials having taken place elsewhere. This forward-looking approach will help accelerate China’s position within the health-care industry. In ophthalmology, retina diagnostics and treatment are areas of high interest, given the demographics of China’s population.
Another consideration is price expectations. While China may present itself as a large economy, suggesting good potential commercial returns, the reality of China’s demographics shows significant wealth disparity with varying levels of purchasing power within the country. With this in mind, China is doing its best (through various policies) to ensure wide affordability for health care. State regulation on pricing (as part of its Universal Health Care coverage) is one method that is commonly applied through a tender system, taking into consideration many parameters (i.e., epidemiology of diseases, product indication, volume of sales, frequency of prescription and usage, etc.). Under newer policies, the health-care industry is expected to self-regulate to ensure competitive prices, underpinned by state-regulated revision of prices (which may be revised dramatically). Amid the expectation of affordable health care for all, it would be important for the entrepreneur to take into consideration tiered (i.e., decreasing) royalties based on sales and pricing levels when negotiating a license deal in China. Understanding a potential regional partner’s position and the reason for these tiered royalties during a negotiation will help ensure a mutually successful deal.
We hope this brief review has highlighted the opportunities of this region, and demonstrated how a relationship with a regional player can become part of a strategy for an early-stage program seeking creative ways to move forward.
Mr. Chapin is Senior Vice President of Corporate Development at Ora. Ora provides a comprehensive range of development, clinical-regulatory and product consulting services for developers, investors and buyers; preclinical and turnkey clinical trial services; assistance with regulatory submissions; and the integration of business development and financing support in ophthalmology. Mr. Ngiam is deputy general manager (Business Development) at Essex Bio-Technology. We welcome your product development comments or questions. Please send correspondence to email@example.com or visit oraclinical.com.