China Medical System Holdings Ltd. (0867. HK) Strategically Introduces Overseas Launched Blockbuster Innovative Products

Chart: The Recent Stock Performance of China Medical System (Sources:Futu Securities)

HONG KONG, July 16, 2019 - (ACN Newswire) - On June 27, 2019, China Medical System Holdings Ltd. ("China Medical System" or the "Company") announced that the Company introduced Tildrakizumab, a product used to treat psoriasis and psoriatic arthritis, and Cyclosporine A, 0.09% Eye Drops, a product used to treat dry eyes disease, from Sun Pharma, a leading Indian pharmaceutical company.

Both products have been approved by the FDA for commercialization in the U.S. in 2018. After signing license agreements, the Company will obtain the rights to commercialize the products in Greater China (mainland China, HK SAR, Macau SAR and Taiwan incl.). For China Medical System, the introduction of two innovative drugs will greatly enrich the Company's existing product portfolio and provide new drivers for the Company's sustainable growth.

Product Analysis

1) Tildrakizumab

Tildrakizumab is a humanized lgG1/k monoclonal antibody designed to selectively inhibit its interaction with the IL-23 receptor, leading to inhibition of the release of pro-inflammatory cytokines and chemokines. It is developed mainly for the treatment of adults with moderate-to-severe plaque psoriasis. In March 2018, the product has been approved for marketing by the U.S. FDA under the ILUMYA brand name. Among drugs with similar targets, only Ustekinumab has been approved in China so far (no sales record yet).

Two pivotal Phase-3 clinical trials of the product covered over 200 clinical trial sites with more than 1,800 patients. The results showed that, after 12 weeks of treatment, comparing with the placebo and Etanercept treatment groups, an average of 63% of patients receiving Tildrakizumab 100 mg achieved PASI 75 (PASI stands for Psoriasis Area and Severity Index, which is based on the objective measurement of the area of skin redness, phosphorous debris, and thickness over different parts of human body. PASI 75 means that 75% has been improved from the baseline PASI after the treatment), demonstrating significant clinical improvement. Meanwhile, an average of 57% and 66% of patients receiving Tildrakizumab 100 mg responded (meaning achieved the score of PGA 0,'cured', or 1, 'almost cured with minimal symptom') in the Physician's Global Assessment (PGA) at weeks 12 and 28 respectively. Moreover, Tildrakizumab is well-tolerated with the most common adverse reactions ( no less than 1%) being upper respiratory tract infection, the reaction over injection site and diarrhea. The long-term research data shows 77% of patients achieve PASI 75 after 28 weeks of treatment; up to 89% of patients achieved PASI 75 at week 148, indicating better clinical benefits could probably be achieved after long-term Tildrakizumab treatment.

Tildrakizumab's medication regimen is: each 100 mg hypodermic injection applied at week 0 and week 4 respectively, followed by applying a 100 mg hypodermic injection every 3 months. It provides patients with a more convenient treatment regimen: only 4 times of medication per year are needed during the subsequent maintenance treatment, after the initial treatment completed.

Tildrakizumab, introduced by China Medical System this time, is a rare new monoclonal antibody (McAb) drug targeting IL-23 in China. Comparing with the approved target delivery preparations including TNF-a, Tildrakizumab can reduce patients' pain with less injection times besides having a novel mechanism. Tildrakizumab might be the most cost-effective psoriasis McAb drug considering the factors including efficacy, easy-to-use and pricing.

Based on the "Psoriasis Epidemiological Survey in Six Provinces (2010)", the prevalence rate of psoriasis was about 0.47%. While with the data from 1984 National Psoriasis Epidemiological Research, 30% of psoriasis patients are with moderate-to-severe symptoms. It is estimated that there are about 6 million psoriasis patients in China, among whom 2 million are with moderate-to-severe psoriasis.

Obviously, psoriasis points to a promising market with a large number of targeted patients.

In this competition, major players include commercialized Secukinumab from Novartis, commercialized Ustekinumab and Guselkumab (a new IL-23 inhibitor under pending approval) from Jannsen, Risankizumab from AbbVie, and Mirikizumab as well as Ixekizumab from Lilly.

It is well known that most McAb drugs are expensive, while MNCs apply lower pricing strategies in China market than that in U.S. market. For instance, Ustekinumab, priced at $12,000 per unit (45 mg) in the U.S., only priced at RMB 39,000 per unit in China as reported. Secukinumab, priced at about $5,200 per unit (150 mg) in the U.S., only priced at about RMB 3,000 per unit in China, and as reported, the price is lowered to about RMB 2,400 with 20% discount for Secukinumab medication. Tildrakizumab's price has not been reported in China market yet. However, as Sun Pharma is a leading generics-oriented pharmaceutical company and China Medical System equipped with strong marketing and promotion capabilities, their cooperation indicates that Tildrakizumab is bound to adopt a lower price than its competitors to conquer the market via pricing and brand strategies. We will see if Tildrakizumab can be the most popular and cost-effective treatment for psoriasis patients.

In terms of the existing market scale of the psoriasis McAb in China, the cost of treatment per year commonly falls in the range of RMB 100,000 to 200,000 according to the pricing of the domestically approved psoriasis McAb products. If the permeability of biological agents could reach around 20% among the patients with moderate-to-severe psoriasis in the future, the market scale of psoriasis McAb would be at least RMB 40 billion in China.

With the exclusive innovative drug for psoriasis with excellent therapeutic effects and the Company's academic promotion ability, if China Medical System could take around 15% of the market share of psoriasis biological agents in the future, the peak sales of the product would reach RMB 6 billion. This will be a significant increase for the Company's current revenue scale. Meanwhile, in its existing products portfolio, China Medical System owns dermatology promotional line represented by its exclusive drug-Hirudoid. In the future, the addition of Tildrakizuma will produce synergistic effect, boosting the competitiveness and the strength of the Company in the field of dermatology.

2) Cyclosporine A, 0.09% Eye Drops

In addition to IL-23 McAb for psoriasis treatment, the Company has also introduced an innovative drug for the treatment of dry eye disease from Sun Pharma: Cyclosporine A, 0.09% Eye Drops, under the brand name, CEQUA, in the U.S. CEQUA is a novel ophthalmic formulation of 0.09% cyclosporine, using a patented nanotechnology. Currently, its first indication that has been approved is for increasing tear production in patients with keratoconjunctivitis sicca (dry eye). CEQUA is preservative-free and twice-a-day eye drops with disposable independent package.

According to "Experts' Consensus on Clinical Diagnosis and Treatment of Dry Eye (2013)", the incidence of dry eye disease in China is about 21%-30%, while the data of epidemiological studies indicate that moderate-to-severe patients account for 40% of total dry eye patients. Accordingly, there are about 118 to 168 million moderate-to-severe dry eye patients in China. As there are a wide range of therapies for eye diseases in China, if 10% of moderate-to-severe patients received formal treatment in hospital, the targeted patients would be about 10 million.

Although there are a large number of patients with dry eye disease, the market scale of related drugs is still small in China, which is similar to the condition of the psoriasis market. According to Essences Securities, the global market size of dry eye disease is about $5 billion currently, while the market size is only RMB 1 to 2 billion in China. The huge market vacancy exists mainly due to the lack of innovative products with excellent therapeutic effect in domestic market.

Currently, the drug treatments for patients with dry eye disease include artificial tears, lubricant cream, topical anti-inflammatory and immunosuppressive agent, and autoserum, but the efficacy and safety of them are not satisfactory. Artificial tears, for example, can only relieve symptoms temporarily; it is unable to increase the tears production. Cyclosporin A is recommended by domestic and foreign guidelines as a topical anti-inflammatory and immunosuppressive agent for the treatment of moderate-to-severe dry eyes patients with ocular inflammation. However, there is no cyclosporine A with low concentration approved for the treatment of dry eye disease in China. This product has been proved by the pivotal phase III clinical trials that it effectively reduces ocular inflammation and increases tear secretion. It is expected to become the first choice of topical treatment for patients with dry eye disease in China.

It should be noted that the Cyclosporine A, 0.09% Eye Drops introduced by China Medical System, is the agent with the highest concentration of cyclosporine that has been approved by the U.S. FDA, using nanotechnology for dry eye disease. The product is a preservative-free, clear aqueous solution with better efficacy than other products with low concentration of cyclosporine A. Moreover, the product adopts nano-micelle preparation technology, in which the cyclosporine molecules are surrounded by 'micelles' for greater tissue penetration, while at the same time providing for what looks like a kind, gentle side effect profile even in a high concentration.

According to the China Medical System announcement, the primary endpoint indicator of dry eye patients improved significantly after 12-week treatment using Cyclosporine A, 0.09% Eye Drops twice a day. Therefore, we assume that the product's treatment course is 12 weeks. As for pricing, take Cyclosporine A, 0.05% Eye Drops (Restasis) that launched in Taiwan for reference, the cost of each dosage equals to about RMB 20. Assuming that the Company sets the similar price as Restasis for Cyclosporine A, 0.09% Eye Drops, then it would be around RMB 3,000 for each treatment course. Referring to the above-mentioned estimation of about 10 million targeted patients with moderate-to-severe dry eyes in China, the product's market potential is expected to reach RMB 3 billion if the product could cover 10% of these patients.

Similar to psoriasis market, the dry eye disease market also has huge unmet clinical needs. A company that can exploit the market must be the one with 'good products portfolio + strong promotion capability'. According to the sales data of branded originators being promoted by the Company, combined with the clinical needs of dry eyes disease and the therapeutic advantages of Cyclosporine A, 0.09% Eye Drops, the product is expected to become a new major product of the Company after being approved and launched in China, producing the synergistic effect with the Company's existing exclusive ophthalmic product--Stulln across the academic network and promoting platform.

Conclusion

Both products introduced by China Medical System this time are innovative products that have been launched overseas. It is expected that the commercialization process would be relatively smooth in China, which reduces the R&D risk of the Company's innovative pipeline.

Through this transaction, we can further understand the Company's perspective of innovative products arrangement. In terms of the degree of innovation, the products introduced by the Company can be generally assorted into highly innovative 'first-in-class' or 'global-new' and relatively innovative 'me-better' products. In terms of the R&D progress, those products fall into early-to-mid clinical, late clinical and commercialized stages. All of these products together form a portfolio with considerable profitability and controllable risks, which is so called the 'basic carrier' of the R&D system.

The two innovative products introduced by China Medical System have been launched overseas, so it is expected that the marketing approval process would be relatively smooth in the Greater China. In other words, distinct from the majority of domestic innovative-drug companies, China Medical System is controlling risks to keep its performance in steady growth while enriching its pipelines of innovative drugs. This is what makes the Company's business model unique.

At last, it is worthy to mention that these two deals are made with Sun Pharma, a leading Indian pharmaceutical company.

Sun Pharma selects China Medical System as its cooperative partner in the Greater China also indirectly proves China Medical System's excellent academic promotional capability for innovative drugs, which acts importantly in industrial value chain of innovative drugs. The Company's strong academic promotional capability of innovative drugs and its products screening ability have been proved by either the financial indicators including sales expense ratio or the promotional performance of originator products such as XinHuoSu, Ursofalk and Deanxit. After all, the inherent strength of China Medical System lies in its R&D and promotion of innovative products.

From the perspective of industrial development trend, the innovative products from overseas innovative pharmaceutical companies are entering China at higher speed. However, receiving marketing approvals does not mean they could achieve rapid sales growth. Whether those companies can act as good promoters for their products at commercial stage remains a point. In fact, few domestic pharmaceutical companies have experience in promoting innovative drugs, and rare domestic pharmaceutical companies are able to introduce truly innovative products from overseas. While China Medical System integrates those two strengths as its core competitiveness under its business model.

Overall, China Medical System, a pharmaceutical company with R&D and promotional capabilities of innovative products as its features, deserves our close attention, whether from its growth driver brought by these newly introduced products, or the industrial opportunities came with the accelerated entrance of overseas innovative drugs into China.


By GeLongHui




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