Will China Outperform The U.S. In Developing New Gene Therapy Treatments

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This past year marked a milestone in cancer treatment: In August, the U.S. FDA approved Novartis AG’s Kymriah, a CAR-T 1 therapy for children with acute lymphoblastic leukemia, a blood and bone-marrow cancer previously considered untreatable. Two months later, Kite Pharma Inc.’s Yescarta, which also uses CAR-T to target certain types of large B-cell lymphoma in adults, got the green light, too.

So far, CAR-T has shown extraordinary results. More than 60 percent of children treated with Kymriah were cured, while the rate of full remission for patients treated with Yescarta was more than half.

The big problem is price. Kymriah costs $475,000 for a single treatment; Yescarta goes for $373,000.

Now China reckons it can do this better and cheaper. There are currently 153 CAR-T studies in the nation, just behind 186 in the U.S., according to Bernstein Research’s Laura Nelson Carney. Already, China has one therapy commercially available in a free-trade zone for medical tourism on the resort island of Hainan. The product, made by Innovative Cellular Therapeutics Co., sells for 490,000 yuan ($76,000) per treatment. Prices for CAR-T can be expected to drop below 100,000 yuan in three years, according to local media reports.

It’s not hard to see the potential. For one thing, China’s huge population means an abundance of patients for trials. For another, the nation is now flooded with venture-capital money to throw at well-qualified “sea turtles” — as returning Chinese expats are known — to build world-class medical labs at home.

Beijing is keen to leapfrog. On Dec. 20, just one week after Nanjing Legend Biotechnology Co. applied to the Center for Drug Evaluation — China’s equivalent of the FDA — for CAR-T clinical trials, the regulator placed the treatment on its priority review list. That’s a prelude to approval.

Nanjing Legend is being fast-tracked because it grabbed attention at the American Society of Clinical Oncology’s annual meeting last June with good trial results for a multiple-myeloma treatment. Nanjing’s CAR-T was seen as on par with products from Celgene Corp. and Bluebird Bio Inc., according to Bloomberg Intelligence analyst Curt Wanek.

Underlining Nanjing Legend’s progress, Johnson & Johnson in December entered a joint venture with the firm, paying $350 million upfront and promising to share half the profits.

All this buoyed Nanjing Legend’s parent, Hong Kong-listed Genscript Biotech Corp. The company went public two years ago with an unimpressive offering of HK$524 million ($67 million), then soared 580 percent over the last year to become a $5 billion mid-cap.

Smelling profit and prestige, Hong Kong Exchanges & Clearing Ltd. has proposed letting biotech companies list without track records of profitability. Of its more than 2,100 current listings, only 47 are in biotech or pharmaceuticals, so investors are likely to appreciate the newcomers.

Wuxi Biologics Cayman Inc., which leverages China’s army of cheap lab technicians for contract biotech research on behalf of global pharmaceutical makers, helped set a track record by soaring 164 percent since its HK$4.6 billion IPO last June.

Buyer beware, though: Scarcity doesn’t come cheap. Wuxi Biologics is now trading at 152 times forward earnings, with only 50 percent top-line growth expected this year.

The valuation of Genscript Biotech is more nuanced. According to Bernstein estimates, the entire Chinese market into which the company can sell, assuming $76,000 per treatment and 1 percent penetration — even at that price, CAR-T is expensive — is only $6 billion. 2 Genscript’s $5 billion market cap pretty much assumes regulatory approval and a monopoly position in multiple-myeloma gene therapies.

With most of these therapies, the scale of potential markets is the big question. Pricing aside, will Chinese patients accept the notion of genetically altered cells? They may not be fans of genetically modified food, viewing it as an unnecessary risk to health. But when taking that risk is the only way to save lives, attitudes can change quickly.

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