Good News on Listing | Frost & Sullivan Assists Beijing Zhaoyan New Drug Research Center Co., Ltd. to Successfully List on the Hong Kong Stock Exchange (6127.HK)

Beijing Zhaoyan New Drug Research Center Co., Ltd. (hereinafter referred to as 'Zhaoyan New Drug') was successfully listed on February 26, 2021, with an issue of 43,324,800 shares at a price range of HK$133.00 - HK$151.00. Frost & Sullivan (Frost & Sullivan, hereinafter referred to as 'Frost & Sullivan') provided exclusive industry advisory services for the listing of Zhaoyan New Drug, and hereby warmly congratulate it on its successful listing.

During the Hong Kong listing process, Frost & Sullivan mainly undertook the following tasks: helping the company accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the company's competitive advantages, assisting the company, investment banks, and other intermediaries in completing relevant parts of the prospectus (such as the overview, competitive advantages and strategy, industry overview, business, and other important sections), facilitating communication with the Hong Kong Stock Exchange and investors, helping investors quickly understand the market ecosystem and competitive landscape, and assisting the company in responding to various questions from the Hong Kong Stock Exchange regarding the industry.

China Pharmaceutical Market Details

China is the world's second-largest pharmaceutical market after the United States. The scale of China's pharmaceutical market increased from about $194.3 billion in 2015 to $236.3 billion in 2019, and it is expected to further increase to $322.6 billion by 2024. The compound annual growth rate from 2019 to 2024 is expected to be 6.4%.

According to the nature of the drug components, the pharmaceutical market can be divided into (i) chemical drugs and (ii) biologics. Chemical drugs are the largest component of the Chinese pharmaceutical market, with sales reaching $118.5 billion in 2019. By 2024, the biologics market is expected to further grow to $138.5 billion, with a compound annual growth rate of 3.2% from 2019 to 2024. Biologics are the smallest component of the Chinese pharmaceutical market, but it is expected that the growth rate will accelerate further in the future, with the highest compound annual growth rate from 2015 to 2019 being 18.2%. It is estimated that the market size will grow to $103.1 billion by 2024, with a compound annual growth rate of 18.0% from 2019 to 2024.

Chinese pharmaceutical market divided by innovative drugs, generic drugs, and biosimilars

According to the degree of innovation involved in the drug research and development process, the pharmaceutical market can be divided into (i) innovative drugs and (ii) generic drugs and biosimilars. Currently, innovative drugs dominate the Chinese pharmaceutical market, accounting for 56.1% of the total market size in 2019. Due to favorable policies for innovative drugs, dynamic adjustments in medical insurance, increased research and development expenses, and other reasons, the market size of innovative drugs in China is expected to continue growing at a compound annual average growth rate of 8.8% between 2019 and 2024. Benefiting from policies supporting the development of high-quality generic drugs and biosimilars, the growth rate of generic drugs and biosimilars is quite impressive. By 2024, the market share of generic drugs and biosimilars in China is expected to reach $120.6 billion, accounting for 37.4% of total revenue. Compared with chemical generics, biosimilars are currently facing increasingly high evaluation and approval standards. For example, the National Medical Products Administration has issued the 'Guiding Principles for the Research, Development, and Evaluation of Biosimilars,' requiring the establishment of a more stringent non-clinical drug safety evaluation procedure.

R&D expenditure on Chinese drugs by drug discovery, preclinical, and clinical stages

The drug R&D process involves identifying candidate drugs and testing their safety and efficacy to obtain regulatory approval and then enter the drug market. The related process also includes post-approval studies to further evaluate the safety and efficacy of the drugs. The entire process generally consists of four stages: (i) drug discovery, (ii) preclinical research, (iii) clinical research and registration, and (iv) commercialization.

Due to government encouragement and the transformation of the pharmaceutical company industry, China's drug R&D environment has great potential. From 2015 to 2019, China's total drug R&D expenditure grew at a compound annual average growth rate of 19.1%. From 2019 to 2024, China's total drug R&D expenditure is expected to continue growing at a compound annual average growth rate of 17.7%, reaching $47.6 billion by 2024. In the next four years, it is expected that the expenditure on clinical-stage drug R&D will grow at the fastest compound annual average rate of 18.1%, accounting for 67.5% of total expenditure.

Service scope of CRO

With the continuous development of the pharmaceutical industry, CROs are playing an increasingly important role in the capital-intensive, complex, high-risk, and time-consuming drug R&D process. CROs provide comprehensive R&D solutions covering (i) drug discovery phase, (ii) preclinical phase, and (iii) clinical phase (including Phase I to IV clinical trials).

China's CRO Market by Drug Discovery, Preclinical, and Clinical Contracting Services

From 2015 to 2019, the total revenue of China's CRO market grew from $2.6 billion to $6.8 billion, with a compound annual growth rate of 27.3%. The market will continue to grow rapidly in the future, and it is expected that the total revenue of China's CRO market will approach $222 billion by 2024, with a compound annual growth rate of about 26.5% after 2019.

Services provided by CRO in the preclinical research phase

CRO services cover the development and reproduction of experimental models, pharmacokinetics, pharmacology and toxicology, safety evaluation, bioanalysis, analytical chemistry, etc. The 'Drug Registration Management Measures' stipulate that preclinical drug research should comply with relevant management regulations, among which safety evaluation research must implement the 'Good Laboratory Practice for Non-clinical Drug Research'. Drug registration applicants can entrust part or all of the preclinical research work to a CRO, but the CRO must be responsible for the authenticity of research results that prove the safety, effectiveness, and quality controllability of the drug.

Development and Scale of the Chinese Drug Non-clinical Safety Evaluation (DSA) Market

Non-clinical research refers to experiments conducted without human subjects in drug development studies, covering all important stages of the drug development process, including drug discovery, preclinical, and clinical trials. Drug non-clinical safety evaluation (DSA) provides safety data and lays the foundation for the design of first-in-human (FIH) clinical trials for candidate drugs.

The total revenue of China's non-clinical DSA market was approximately $138 million in 2015 and increased to $416 million in 2019, with a compound annual growth rate of 31.7%, far higher than the global market's compound annual growth rate. Thanks to the continuous growth of China's innovative drug and biologic markets and the further standardization of the clinical trial application approval process for innovative drugs, China's non-clinical DSA market is expected to maintain rapid growth over the next five years, reaching $1.967 billion in 2024, with a compound annual growth rate of 36.5%.

Industry competition in the Chinese DSA market

The non-clinical DSA industry in China is relatively concentrated, with the top six participants accounting for 41.9% of the total revenue in 2019. The non-clinical DSA market in China will undergo a gradual integration process, with leading participants continuing to acquire smaller players to further gain market share. Zhaoyan New Drugs is the largest market participant, ranking first in the Chinese drug non-clinical DSA market by total revenue share in 2019, with a market share of about 15.7%.

Most countries have strict qualification requirements for conducting DSA trials. For example, organizations without GLP certification generally are not allowed to carry out DSA. GLP stands for Good Laboratory Practice, which provides a quality system for management and control of research laboratories and organizations to ensure the non-conformity, consistency, reliability, repeatability, quality, and integrity of non-clinical safety testing of chemicals and pharmaceuticals. In China, the National Medical Products Administration requires approval from relevant organizational and management systems, personnel, experimental facilities, instrumentation, equipment, and the operation and management of experimental projects before issuing GLP certification to non-clinical DSA research institutions. Currently, 30 private CROs in China have obtained GLP certification issued by the National Medical Products Administration, and only two commercial CROs have been approved to conduct all ten drug GLP studies, among which Zhaoyan New Drug is one. In addition, Zhaoyan New Drug is the first private CRO in China to pass the US FDA GLP inspection and the only one to have passed it four times, and it is currently the first private CRO in China to obtain all AAALAC, OECD GLP, and National Medical Products Administration GLP certifications.

Pharmacovigilance refers to the identification, evaluation, analysis, prevention, and other related drug safety monitoring evaluations carried out at different stages of drug development and marketing. The scope of pharmacovigilance includes but is not limited to adverse drug reactions, drug abuse, poor product efficacy, and drug interactions.

China's pharmacovigilance industry is still in its early stages of development. Currently, the Chinese pharmacovigilance market has been initially established, and the vigilance markets at the national, provincial, municipal, and county levels are continuously expanding. The total revenue of the Chinese pharmacovigilance market increased from about $8.9 million in 2015 to $290 million in 2019, with a compound annual growth rate of 34.1%. It is expected to jump to $300 million by 2024, with a compound annual growth rate of 60.3% from 2019 to 2024.

Zhaoyan New Drugs provides pharmacovigilance services to help clients monitor, detect, evaluate, understand, and prevent adverse drug reactions, as well as reduce the drug risks faced by human patients. The company's pharmacovigilance services mainly include the establishment and implementation of an Integrated Pharmacovigilance Management Platform (iPVMAP), case handling, reporting of serious adverse events and drug adverse reactions, detection, evaluation, and risk management of safety signals, a drug safety database, and assistance in related reporting (such as drug safety update reports and periodic safety update reports).

Experimental models play a crucial role in non-clinical DSA. Before human trials, conducting candidate drug tests on experimental models is essential to ensure the safety of the candidate drugs before pharmacological and toxicological tests can be completed. The main products of the experimental animal market include a large variety of animals such as rats, mice, dogs, rabbits, guinea pigs, and non-human primates. Among them, non-human primates have the highest degree of homology with humans and are particularly suitable for evaluating certain types of macromolecular candidate drugs, such as biologics and cell and gene therapies. Therefore, non-human primates have become a key subject for animal replacement research in biomedical R&D.

The Chinese experimental animal market is in a relatively early development stage. The market scale in terms of total revenue increased from about $200 million in 2015 to $400 million in 2019, with a compound annual growth rate of 16.9% from 2015 to 2019. It is expected to further increase to about $15 billion by 2024, with a compound annual growth rate of 28.1% from 2019 to 2024.

Zhaoyan New Drugs is engaged in the development, research, breeding, and sales of high-quality experimental models to support a wide range of non-clinical research. The company's current experimental models include rodents and non-human primates. The company is currently focusing on conducting scientific research and breeding non-human primate experimental models, with the long-term goal of achieving large-scale production of high-quality non-human primate experimental models.