Contract research organization rose at the beginning of 1980s. The rise of the Chinese CRO industry was more than a decade later than the Europe and America: it gradually rose in 2000-2004 with the founding of Chinese CROs including WuXi AppTec, ShangPharma, Tigermed, and Boji Pharmaceutical, etc.

CROs seemed to usher in a small climax in 2017, with frequent listings and M&As to hit nerves of the industry. According to incomplete statistics of Sinohealth.com, there were at least 7 enterprises that applied for IPO in 2017: CROs including WuXi AppTec and Pharmaron, etc. successively filed IPO applications, and JOINN Laboratories completed listing on the main board (of Shanghai Stock Exchange); Sinocro and SMO ClinPlus were listed on the NEEQ.

Financing Situation of Some Enterprises in 2017

In addition, two CROs were acquired: ChemPartner was acquired by Quantum Hi-Tech in November, to rapidly improve service ability and expand capacity scale with the strength of capital; in December, CrownBio was acquired by Japan JSR for TWD 2 billion (about RMB 2.64 billion) through reverse triangular merger, and CrownBio planned to expand towards toxicology and production, etc. besides the original oncology and metabolic disease pharmacodynamics business.

With massive funds flooding into the CRO industry, the M&A and integration may be accelerated, and the industry will develop towards higher concentration.

The wind rising

The focus of the industry has long been on the pharmaceutical enterprises that play the head and pharmaceutical commerce that plays the terminal, and CROs rose late in China with relatively small industry scale and had been playing the low-key one behind the scenes, until in 2017 when the Chinese CROs started to strive for the "spotlight" as pushed by the policy and capital.

Wherein, the arrival of the pharmaceutical innovation wave added fuel. In 2017, the Chinese government constantly released signals encouraging innovation from top-level design, and the pharmaceutical innovation environment continued to be optimized in China:

1. Introduction of the 36 Measures

The Opinions on Deepening the Reform of the Review and Approval System and Inspiring Innovation of Drugs and Medical Devices (36 Measures for short) was introduced in October 2017, to encourage pharmaceutical innovation.

2. Joining ICH

China announced the joining in ICH (International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use) in 2017, for the pharmaceutical R&D to be synonymous with international standards, overseas new drugs hopefully to be accelerated marketing, and Chinese pharmaceutical enterprises to accelerate export; it means that the clinical trials (international, multicenter clinical trials) conducted synchronously in the world will get a boost, to bring unprecedented opportunities to CROs that go international.

3. Acceleration of new drug approval

In 2017, the new drug clinical approvals continued to largely increase and import of overseas new drugs constantly refreshed record in China, with the application for Class 1 chemical drugs alone reaching 199 among applications of Chinese-produced new drugs, growing by 42% year on year. Furthermore, the released clinical demands that were delayed since 2015 clinical self-inspection and checking required by CFDA directly drove the overall performance of CROs to grow.

4. Growth of contribution of consistency evaluation

2018 is the deadline for the consistency evaluation of varieties of catalog of 289 essential drugs, with the preclinical pharmaceutical evaluation service and clinical BE test expected to largely grow.

The key factors for Chinese CROs to flock to be listed in 2017 were the sufficient sample size and limited financing channels, besides the favorable policy.

Patient recruitment and management are the biggest challenge in clinical trials. According to statistics of Tufts, 11% clinical centers fail to recruit any patient, and 37% clinical centers fail to complete patient recruitment target. While in China, the population of nearly 1.4 billion people guarantees the sufficient case demands, especially in the rare disease therapy development filed.

CROs also mark a capital-intensive industry. Massive fund investment is required in terms of talents, equipment, sites, and environmental protection, etc. Enterprises need to expand the service platform through financing, to meet market demands.

Advancing titan

WuXi AppTec is the most active in capital operation among the Chinese CROs.

Revenue Situation of Four CRO Leaders in China (Unit: RMB 100 million)

At the beginning of 2017, WuXi AppTec acquired the preclinical CRO HD Biosciences, to rapidly strengthen its drug R&D capacity from target verification to pilot chemical discovery and optimization, and further enrich its R&D service. WuXi AppTec announced the acquisition of the U.S. clinical study institution Research Point Global (RPG) in October.

Besides the acquisition, WuXi AppTec established the venture capital fund (Fund I) early in 2011, with Fund II Eight Roads established and independently operating in 2015 with investment targets including famous Chinese and overseas listed companies like CStone Pharmaceuticals, BeiGene, JunoTherapeutics (acquired by Gilead in October 2017), and Hua Medicine.

In the Trends in Healthcare Investments and Exits 2016 issued by Silicon Valley Bank, WuXi Venture Fund was one of the top 10 most active corporate venture capital funds.

It’s worth mentioning that WuXi Venture Fund was quite active in investment in the medical diagnostic tool field, ranking first in the list, followed by Novartis Venture Funds and Qiagen.

According to the incomplete statistics of Sinohealth.com, WuXi AppTec participated in the investment in at least 3 projects, with the investment direction of the U.S. early and innovative life science companies.

Some Projects Invested by WuXi AppTech in 2017

In fact, the laboratory service in China is the one with big revenue among the business plates of WuXi AppTec, which accounted for 54.06% of the total revenue in 2016. WuXi AppTec and Mayo Clinic announced a joint venture in January 2018 to co-develop and deliver clinical diagnostic services in China. Mayo Clinic, representative of medical institutions with the highest level in the world, will bring the innovative, cutting-edge, and world-leading diagnostic test platform to the Chinese market.

Source: http://med.sina.com/article_detail_103_2_42874.html

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