80% of China's Cell Therapy Firms Shut Down as HeKang Biotech Pivots Overseas and Expands into Aesthetic Medicine
On May 4, 2016, the Medical Administration and Hospital Management Bureau of the National Health and Family Planning Commission held a video conference to standardize departmental management in medical institutions and the clinical application of medical technologies. Immunotherapy was ordered to be suspended for clinical treatment and restricted solely to clinical research. Four months after the ban, it was reported that approximately 80% of immunotherapy companies in Shenzhen had shut down due to interrupted revenue streams. How did the remaining enterprises survive with zero income? And how could the immunotherapy industry—regarded as a beacon of hope for curing cancer—continue to develop in China?
On August 26, Heyikang, the first immune cell therapy company listed on the New Third Board, released its 2016 semi-annual report. The company reported operating revenue of RMB 17.4618 million for the period, a year-on-year decrease of 30.05%.
According to Luo Xiaoling, founder of Shenzhen Heyikang Biotechnology Co., Ltd., in an interview with a reporter from VCBeat (WeChat ID: vcbeat), the company’s cell therapy revenue has been virtually cut off since the National Health and Family Planning Commission implemented new regulations on Class III medical technologies in May. In other words, the so-called semi-annual report actually reflects normal revenue only for January–April 2016; had it not been for this new policy, Heyikang’s revenue would have seen some growth.
The new policy issued by the National Health and Family Planning Commission has had a devastating impact on many cell therapy companies. Previously, according to an industry insider, there were more than 200 cell therapy companies in China, including several listed companies that have actively invested in the cell therapy sector. It is estimated that the total number of employees in China’s cell therapy industry exceeds 100,000.
In Shenzhen alone, there are conservatively estimated to be at least 40 cell therapy companies of various sizes. Since the imposition of the ban, industry insiders estimate that a significant number of these enterprises have ceased operations due to financial pressures.
Shenzhen Zhongmei Kangshi Biotechnology Co., Ltd., a representative company in the cell therapy industry, was previously acquired by the listed company Beilu Pharmaceutical. According to Beilu Pharmaceutical’s 2016 semi-annual report, Zhongmei Kangshi also experienced a significant impact on its performance due to strengthened national regulatory oversight, with its operating income decreasing by 25.82% year-on-year.
Furthermore, it is worth noting that because Zhongmei Kangshi failed to meet its committed performance targets for net profit in 2014 and 2015, and given that Li Xiaoxiang (former Chairman of Zhongmei Kangshi) engaged in other major breaches of contract and illegal activities, Beilu Pharmaceutical has initiated arbitration proceedings. The company seeks an award to rescind the "Equity Transfer Agreement" and to order Li Xiaoxiang to refund RMB 204 million to the company, among other matters.
Although the cell therapy industry has experienced rapid growth in recent years, companies within the sector vary significantly in size and regulatory compliance, earning it the moniker “ant army” and leading to various irregularities—key reasons behind the National Health and Family Planning Commission’s stringent crackdown. However, according to information disclosed by Heyikang, its cell therapy technology has demonstrated significant efficacy in extending survival time for cancer patients.
According to Heyikang’s prospectus, the Affiliated Cancer Hospital of Guangzhou Medical University has been its largest customer, contributing 60% of Heyikang’s revenue for several consecutive years. Among more than 400 patients with non-small cell lung cancer (NSCLC) treated at this hospital with D-CIK cell therapy combined with chemotherapy, the three-year survival rate reached the level of the one-year survival rate observed with chemotherapy alone.
Currently, cell therapy is often regarded as a miraculous option for cancer patients, particularly those with advanced-stage disease. However, Luo Xiaoling notes that HeYiKang’s cell therapies are predominantly administered to patients in the recovery phase or used in combination with chemotherapy, playing a significant role in preventing recurrence. In the future, the focus will increasingly shift toward preventing recurrence and tumorigenesis.
In addition to D-CIK, Heyikang primarily offers other cell therapy technologies, including DC-CTL and γδT cells. Its specific workflow for cell therapy involves Heyikang applying its proprietary immune cell therapy techniques to process blood samples collected by hospitals from cancer patients—performing procedures such as cell isolation, culture, and ex vivo expansion—in accordance with the immunotherapy regimens formulated by the hospitals. Subsequently, the hospital clinically reinfuses the resulting cell preparation back into the patient.
HeYiKang does not participate in the diagnosis of patients or the determination of treatment plans; it serves solely as a technology provider for ex vivo cell culture, charging regular technical service fees.
It was revealed that HeYiKang initially introduced its foundational cell therapy technology from the United States, and subsequently conducted independent research and development. HeYiKang’s R&D expenditures in 2012, 2013, 2014, and 2015 were RMB 3.1229 million, RMB 7.1594 million, RMB 9.401 million, and RMB 10.1149 million, respectively.
According to Luo Xiaoling, each standard laboratory operated by Heyikang currently covers an area of at least 200 square meters, with investments in related instruments and equipment amounting to several million yuan. Following the introduction of new industry regulations this year, the company has continued to intensify its research and development efforts. As of August this year, it had filed nearly 40 patent applications in total, with nearly half of them being newly added in 2016.
Luo Xiaoling told VCBeat that Heyikang’s listing on the National Equities Exchange and Quotations (NEEQ) has significantly enhanced the company’s financing capabilities and brand influence. To some extent, this has also provided the company with room to explore various initiatives in the aftermath of new industry regulatory guidelines.
Heyi Kang successfully raised over RMB 20 million in financing prior to its public listing. After being listed on the New Third Board in 2015, the company carried out a private placement in the same year. Following the capital raise from its listing, it immediately began expanding into new business areas, including cell storage, medical aesthetic microneedle products, and cosmetics and skincare products.
Looking back, Heyikang’s listing on the New Third Board proved to be well-timed. Amid this year’s new regulatory storm and widespread industry distress, Heyikang has been able to continue increasing its investments in technology and business development, which is closely tied to its successful equity financing through last year’s listing and its early preparations for business transformation. Those who survive the fierce competition among the “ant army” may ultimately emerge stronger.
It is understood that Heyikang will continue to leverage the capital market to steadily enhance its R&D capabilities and support business transformation. In the first half of 2016, the company received RMB 4.5 million in government funding for its key technological project, “Preclinical Research on Mesenchymal Stem Cell Therapy for Major Diseases.”
Alongside its business transformation, Heyikang has initiated its overseas expansion in the first half of this year. During the reporting period, it signed cooperation agreements with Thailand’s Better Being Hospital, Malaysia’s Diamond Cell Sdn Bhd, and Fusheng International Cambodia Investment Co., Ltd., respectively. Under these agreements, Heyikang will provide immune cell technology to jointly conduct related businesses locally with its partners.
The cell bank project, initially launched on a trial basis to utilize excess storage capacity in existing laboratories, has received positive market feedback and has become a significant source of revenue for the company. Moving forward, Heyikang will establish dedicated storage facilities with a capacity of 500,000 units, which is expected to emerge as a new profit growth driver in the future.
In addition, Heyikang will launch medical aesthetics-related products for the medical aesthetics channel, having completed the first phase of technical R&D and trial production.
Regarding the new regulations for the cell therapy industry, MedSci commented at the time that while appearing to be a ban, they effectively raise the entry barrier by filtering out non-compliant third parties lacking technical capabilities, which should benefit the overall development of the industry. Stricter regulation also means that entities without core technologies or proven therapeutic efficacy will find it difficult to sustain their operations.
If cell therapies cannot be used for clinical treatment, they cannot be billed, turning cell therapy into a cash-burning game with an uncertain duration. However, in other words, this may present a prime opportunity for capital intervention. Entering the market during a hype cycle entails prohibitively high costs, whereas entering under strict regulatory oversight could allow resilient companies to emerge as leaders, guiding the cell therapy industry toward a prosperous future.
Previously, VCBeat conducted a special interview with Dr. Liu Tao, Director of the Shenzhen Public Service Platform for Cell Quality Testing and Evaluation and Deputy Dean of the Shenzhen Zhongxun Institute of Precision Medicine, learning that Shenzhen had already begun to implement strategic guidance for the cell therapy industry prior to the introduction of the new regulations by the National Health and Family Planning Commission in May.
In 2009, the then Ministry of Health issued the first batch of the Catalogue of Class III Medical Technologies Permitted for Clinical Application, providing a basis for the entry of cell therapy into clinical treatment; however, no corresponding formal regulations have been established since then.
“From a global perspective, the field of immune cell therapy is on an upward trajectory. It was a major focal point at both the 2016 ASCO (American Society of Clinical Oncology) Annual Meeting and the CSCO (Chinese Society of Clinical Oncology) Congress. The academic community regards it as the hope for future cancer cures, rather than relying on damaging treatments such as chemotherapy or targeted therapies, which have been found to rapidly develop drug resistance. This area will remain a key focus over the next ten to twenty years. The direction of scientific progress cannot be halted by any single institution, nor is there any need to do so. Although the technology is not yet fully mature, it is continuously advancing; therefore, we should not use today’s technological capabilities to predict developments a decade from now,” said Liu Tao.
First, China still lacks original technologies and is essentially following in the footsteps of the United States. Overseas cell therapy advances rapidly, with new generations emerging approximately every two years. On a positive note, China is catching up quickly; therapies available in the U.S. typically become accessible in China within about six months.
Second, there is a lack of standards, with everyone claiming to provide immunotherapy. For instance, in the Wei Zexi incident: regarding the bag of cells injected back into the patient, were the dendritic cells (DCs) sensitized and mature? What was the accuracy rate of the DC phenotype? Standards are needed for the formulation used in preparation, cell viability, and tumor-killing efficacy.
Third, the lack of standards has also led to lagging regulatory policies. Due to regulators’ lack of professional expertise in this industry and their inability to promptly define new technologies, effective regulation cannot be established.
Fourth, there is vicious cost-based competition. The absence of standards and regulatory oversight has resulted in excessively low barriers to entry. Many companies, driven by profit opportunities, have rushed into the market en masse, including numerous firms with insufficient technical capabilities that fail to meet appropriate thresholds. Consequently, competition has devolved into a race to cut costs, often through malicious means, which is a significant factor contributing to the declining quality of cell products and ineffective treatments.
Finally, there is a lack of clinical application guidelines. For instance, while radiotherapy and chemotherapy have established clinical practice guidelines, cellular immunotherapy does not. Clinical application requires a comprehensive set of standards, yet significant gaps remain regarding contraindications for specific cell types, situations in which their use is prohibited, indications, patient eligibility criteria, optimal timing, administration protocols, combination strategies with other therapies, and integration with chemotherapy. Physicians currently lack clear guidance on how to manage these aspects.
In light of the aforementioned issues, the national regulatory policies are justified. They demonstrate responsibility toward both patients and clinicians. Moreover, these measures will trigger a major industry reshuffle, allowing substandard enterprises to be naturally eliminated. This will compel the entire sector to adhere strictly to standards and regulations, thereby ensuring its continued progress.
However, for the government, it is impossible to establish a regulatory agency immediately upon the emergence of each new industry or sector in an era where new industries and sectors are proliferating endlessly.
Therefore, Shenzhen has chosen to draw on the experience of developed countries in Europe and the United States by fully leveraging the proper role of industry self-regulatory organizations. These organizations help government officials understand emerging industries and propose management frameworks, which are then evaluated by experts appointed by the government. This approach mirrors the path taken by all developed nations: starting with industry self-regulation and regulatory bodies, and progressively establishing industry standards, national regulations, and ultimately, laws.
Thus, in 2015, multiple entities from industry, academia, and research—including Luohu People’s Hospital, Shenzhen University, and the Sanyou Precision Medicine Incubator—joined forces and obtained approval to prepare for the establishment of the “Shenzhen Public Service Platform for Cell Quality Testing and Evaluation.” Funded by the government, this platform was designed to serve immunotherapy enterprises across Shenzhen and remain open to all companies within the industry. While participation is not mandatory, companies may choose to have their cell products tested on the platform, which offers numerous advantages: the platform’s laboratories hold accredited testing qualifications, enabling them to endorse enterprises and issue corresponding cell quality test certificates. Furthermore, cell samples are retained at the platform, which also implements a whole-industry-chain traceability system to preserve evidence for post-event investigations—a critical feature.
In addition to the government-provided office space (the Luohu District Government invested tens of millions of yuan to establish a base for the Institute of Precision Medicine in Buji, where the Cell Quality Testing Platform is also located), the Cell Quality Testing Platform will invest a total of RMB 10 million in instruments, equipment, reagents, and consumables. Of this amount, RMB 3 million is directly invested by the Shenzhen Science and Technology Innovation Commission, and the remaining RMB 7 million is provided as matching investment by the Luohu Medical Group.
“Once sufficient data has been accumulated through testing, this public platform will establish a high-quality database that can at least reflect the level of cell therapy in the Shenzhen region. The collected clinical efficacy and cell preparation data will provide industry reports to the government. As this initiative is government-funded, the entire data platform will be open to the public. Through this effort, we aim to create a platform where every step of the cell therapy process is evidence-based and traceable, thereby establishing a third-party service platform for patients, physicians, cell therapy companies, and other stakeholders.” stated Liu Tao, Director of the Shenzhen Public Service Platform for Cell Quality Testing and Evaluation.
It is reported that the Shenzhen Public Service Platform for Cell Quality Testing and Evaluation is expected to become operational after the 2017 Spring Festival.
In 2016, Shenzhen launched nine roadmaps in the life and health sector, with cell therapy being one of them. This initiative, which involved 14 drafting organizations, represented Shenzhen’s strategic guidance for the industry. Notably, this effort was initiated prior to the Wei Zexi incident.
In addition, during the application for the cell therapy quality control platform, the Biomedical Division of the Shenzhen Science and Technology Innovation Commission assigned an additional task: to organize a cell industry association. The association has eight founding members, including the Faculty of Medicine at Shenzhen University, Tsinghua Shenzhen International Graduate School, Luohu Hospital’s Zhongxun Institute for Precision Medicine, Heyikang, Sanqi Bio, Maisel Bio, and Umbrella Friends Precision Medical Incubator, among others. It is reported that the association will be officially established on September 11 and currently comprises more than 30 member enterprises.
The Association was originally established to bring organization to the cell therapy industry, assist enterprises in voicing their concerns, support government oversight of the sector, facilitate continuing education for administrative authorities, organize a variety of lectures, and publish regular reports.
“Ultimately, we need to establish a comprehensive and reasonable set of industry standards that are widely recognized and practical, thereby forming an actionable framework. This process may take one to two years of implementation. As these standards are continuously refined in response to project developments and technological advancements, the cell therapy industry—at least in the Shenzhen region—will have rules to follow. This could pave the way for nationwide adoption by leveraging regional experience. Do not expect the government to provide a complete, immediate solution; instead, the industry must first take the initiative to save itself,” said Liu Tao.