An ageing population in Asia has expanded the scope for pharmaceutical companies. And countries, in turn, are using regulation to speed up the drug development process as they embrace a dynamic life science market.
This demographic shift has attracted the attention of investors outside the region. In an exclusive interview with FinanceAsia, Nicholas Galakatos, head of the Blackstone Life Sciences business, shares his views on the development of the life science sector in Asia.
Galakatos joined Blackstone as part of its acquisition of Clarus in December last year, indeed he had co-founded Clarus in 2005. Galakatos has more than 30 years of industry and investment experience in the healthcare sector and has led investments in biotechnology, pharmaceutical company partnerships, and diagnostics firms, from startups to commercial-stage companies.
Blackstone Life Sciences retains and builds on Clarus’ hands-on approach to clinical development expertise in adapting to its investment landscape. Not only does the firm invest capital in the drug development process, but it also helps biotechnology and pharmaceutical companies with research and clinical trials for drugs themselves.
Galakatos sees a uniformity in pharmaceutical regulation around the world and reckons that regulatory change has had a positive impact on drug R&D. An increasing amount of drug research, as well as the clinical trials themselves, have been carried out by smaller biotechnology companies instead of pharmaceutical giants.
Patent protection in Asia, especially in China, has been going through a massive transformation. Beijing issued a draft regulation for drug patent protection in 2017, setting up a database for medical trials and patents. China also dramatically shortened the timeframe for drug approval last year, allowing drugs with enormous demand to get access to market as quickly as possible.
These regulations encourage drugmakers to be innovative and competitive. And such healthy competition will also attract more quality investors into the Asian market, Galakatos said.
The following conversation with Galakatos has been edited for clarity and brevity
Q How do you see the development of life sciences around the world?
A There are so many important products and bright people around the world. We are trying our best to meet as many of them as we can, in China, Japan, and more broadly in Asia.
Instead of applying for a patent sequentially in each country, we develop a product globally. To achieve this, we recruit patients from all over the world including the United States, Europe, Japan, China, and other countries where their regulatory agencies would accept foreign data. It’s really a global business.
Q How has Asia’s pharmaceutical development changed over the years?
A There used to be many regulatory differences, but the world is becoming more uniform.
If you look at Japan 20 years ago, pharmaceutical companies needed to provide Japan-only studies to get a product approved. This was not only costly but very time-consuming. As a result, pharmaceutical companies were hesitant to develop products in Japan because it didn’t make economic sense to invest an amount of money for a product with such a limited patent time. It was a similar situation in China five years ago. Not only did you have to run clinical trials in China, you also often had to manufacture the products locally too.
Japan changed its regulations years ago to permit global data in pharmaceutical trials and the Chinese Food and Drug Administration (FDA) ended up doing the same. A lot of these barriers have come down.
Given the huge demographic shift to a large ageing population in China, the market has become much more attractive to pharmaceutical companies and investors. For both the general public and pharmaceutical companies, making medicines available to patients will be increasingly important in China.
Q China's national health insurance system can give medicines wide access within the country while cutting their prices dramatically. As an investor who develops drugs, are you worried about this?
A It is always a matter of price versus volume. For example, I was talking to a chief executive who runs a pharmaceutical company in China. His company provides a lifesaving drug that is so effective, that even with a price reduction the volume is large enough to cover his expenses.
Q Do you think US investors have an increasing interest in Chinese or the Asian healthcare market?
A Yes. If you look at Japan, the population is declining but the market is not shrinking. The Japanese are living longer and need more medicines.
In China, there is a massive volume. My understanding is that there are not enough hospitals in the country and, eventually, the system will become more decentralised. Healthcare in China is likely to evolve as a result.
Q What do you think of the startups in the pharmaceutical industry?
A Last year, about half of the products that were approved by the US FDA were from biotechnology companies, while the other half came from large pharmaceutical companies. I wouldn’t call them startups necessarily because they have been developing products for years.
Biotechnology companies tend to have one product for a very specific treatment, while big pharmaceutical companies want to develop products that can apply to more cases.
Q What are your thoughts on the current enthusiasm for oncology drugs such as PD-1 and PD-L1?
A There really isn't a risk of whether or not the PD-1 or PD-L1 drugs are going to work because someone else has shown that they do. It’s more of a patent risk. To be competitive, drug companies need to run expensive trials on different diseases to get the drug applicable to various symptoms.
If a hundred companies are doing research now, in ten years, only ten of them will still be doing it. It’s like a gold rush, but at the end of the day, only a few will actually own it.
Q How do you see the patent protection in China?
A It’s going through a massive transformation. China is evolving its patent practices to make them more compatible with international standards.
Q Do you think that the growing ways to exit biotech companies in Asia are attracting investors?
A The number of biotech companies listed on the Hong Kong Stock Exchange is still pretty limited, but if investors see the quality, then more quality investors will appear. The tricky part is the gold rush I just mentioned. Quality investors will not go for the gold rush.
I have seen some Chinese biotechnology companies with good pipelines, solid clinical trials, and quality investors go public. Once something begins to look right, quality investors will show up.
Q Is the drug development process accelerating?
A Most of the speeding-up is the result of regulatory changes. If there is a big unmet need, the regulator will allow the process to move more quickly which will open up the floodgates.
Q Can you walk us through what Blackstone has done in the development of life sciences?
A I lead Blackstone’s Life Sciences business, which is one of Blackstone’s newest business lines. It was developed at the end of last year when Blackstone completed the acquisition of a company that I co-founded, Clarus. What we did in Clarus was fund the development of products and clinical trials, not necessarily companies.
At Blackstone Life Sciences, we work with partners – either in the pharmaceutical or the biotechnology industries – and finance the most expensive and the least risky part of clinical development, which is usually the last phase [phase three].
In addition to funding products, our team also runs clinical trials that operationalise these investments. We are actively involved in guiding the product through phase three of the clinical trial process and eventually bringing it to market.
The Blackstone team, combined with our development companies and advisors, is made up of 90 people assembled over 10 years. A third are investors and the remaining 60 are researchers who run clinical trials. It’s a unique way to invest.
Q What is your business model?
A Part of our upside comes from the sales of a product while another comes from being successful in developing a product for a partner.
For every successful product, you have a limited window of time because these products are patent-protected for 20 years to harvest their full value, and some of this time may be used up during the development stage. In reality, a pharmaceutical company may only have 10 to 12 years of real monopoly in the market. Companies want to capture as much value as they can and this is how we can help. We help the industry speed up the development of products so that companies can harvest the full value.
Each member of our team brings a depth of experiences and skills. Throughout their careers, they have collectively developed 93 drugs in the pharmaceutical industry.
Q How do you evaluate the products in which Blackstone invests?
A We have a lot of standards, but just to give you one example, every year we look at about 200 to 300 products – eventually, we invest in five or six. This is not a fixed ratio, but we evaluate based on a number of factors including the probability of success and commercialisation.
Recently, we funded two products – one from Japan and one from China. In Japan, we partnered with Eisai, one of Japan’s largest pharmaceutical companies, to develop Lenvatinib, a drug for thyroid cancer. In China, we helped develop Besponsa, a drug for leukaemia that doubles the effectiveness of chemotherapy.
