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Pfizer pushes deeper into China with stake in cancer biotech.

Pfizer is looking to establish a deeper foothold in China, the world's second largest drug market, through a $200 million investment in the Hong Kong-based biotech, CStone Pharmaceuticals.

The deal hands Pfizer exclusive rights to commercialize CStone's most advanced drug, a cancer immunotherapy called sugemalimab, in mainland China. The partners can also work together on other cancer drugs — either from Pfizer's pipeline or from joint in-licensing initiatives — that have progressed beyond the earlier stages of development.

Pfizer's purchase of almost 116 million CStone shares at $1.75 apiece gives it a 9.9% stake in the biotech. The investment comes as many large pharmaceutical companies, which have historically focused on the U.S. and European markets, turn their attention to China. Amgen and AstraZeneca, for example, each inked agreements in the last year that were meant to strengthen their positions in the country.

Pfizer's had its eye on China for some time. Back in 2016, the pharma giant unveiled plans for a roughly $350 million biotechnology hub that would make biosimilar products in the Chinese city of Hangzhou. By 2019, the company had moved the headquarters of its established medicines unit to Shanghai and started to more actively target China's rural markets.

China, with about 1.4 billion people, represents an enormous opportunity for companies like Pfizer. Drug spending there surpassed $141 billion in 2019, and is on track to grow 5% to 8% each year from 2020 to 2024, according to market intelligence firm Iqvia.

Recent regulatory reforms have also made it a bit easier for drugmakers to get brand name medicines approved in China. The consulting firm McKinsey estimated China had cleared about 100 new drugs for market between 2016 and 2018, with "many more to come in the next few years."

Some companies are already seeing China play a bigger role in their businesses. Novartis, for instance, said sales in its emerging growth markets division rose 7% last year, in large part because of "strong growth" in China. Novartis also recently shifted its strategy in the country, directing resources away from drug discovery and toward early research and commercialization — a decision tied to the "maturation of the Chinese life sciences sector and regulatory system," according to the company.

AstraZeneca, meanwhile, earned in China a fifth of its total sales last year, reflecting the emphasis the British drugmaker has put on expanding in the country. 

Pfizer, too, has found China to be an important market. The country accounted for 7% of its annual drug revenue in 2017, 8% in 2018 and 9% last year, at which point it had become the company's second largest national market.

Pfizer's betting even more on China through the equity investment in CStone. The deal not only puts Pfizer in charge of commercializing sugemalimab there, but also establishes a framework for the companies to co-develop more cancer drugs for the Greater China market. CStone has a handful of experimental cancer therapies in the preclinical and clinical stages of development. It's also partnered with two U.S. biotechs, Blueprint Medicines and Agios Pharmaceuticals, on several of its more advanced programs.

Per deal terms, CStone will lead the clinical development and regulatory strategy of sugemalimab for five selected indications. The biotech is entitled to as much as $280 million in milestone payments related to the drug, along with tiered royalties if it comes to market. Additionally, CStone retains all rights to the drug outside mainland China.

Sugemalimab goes after PD-L1, a protein that helps cancer cells avoid attacks from the body's immune system. The protein has been a popular target for cancer drugmakers, giving rise to multiple approved treatments including the blockbuster medicines Imfinzi and Tecentriq.

Pfizer and its partner Merck KGaA have their own approved PD-L1 drug, Bavencio, though sales have lagged behind rival therapies.

Author:  Jacob Bell


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