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Pressure from Beijing expected to weigh on investors more than country’s slowdown

China’s economy may be slowing as consumers cut back, but Alibaba, the country’s leading ecommerce company, has seen its share price bounce up 8 per cent so far this year.

Alibaba’s revenue is about 80 per cent domestic, and the company had a torrid 2018, saying in November that revenues in the year to March will be Rmb375bn ($55.4bn) to Rmb383bn, at most a 53 per cent rise. It had previously expected a 60 per cent increase.

Since the warning, nationwide retail sales growth hit a 15-year low and car sales last year fell for the first time since 1990.

But Alibaba shareholders appear to have factored in the broader economy. “Growth expectations are re-setting,” said Karen Chan, an internet analyst at Jefferies.

Alibaba has taken steps to ease the burdens on the struggling merchants that use its services, saying it will not charge for targeted advertising. Analysts said the company was likely to continue to prioritise keeping merchants on its websites over fees, as it fights for market share with rivals such as JD.com and Pinduoduo.

A bigger worry for investors than the slowdown is how China’s regulators will behave this year, added Ms Chan. “Investors are uncertain about how policy would be playing a role in the sector going forward.”

One US-based investor predicted that the global backlash against tech companies will continue into 2019.

“The tech giants are becoming more and more powerful, so we’re seeing governments everywhere trying to rein in their influence,” the investor said, adding that Xi Jinping, the Chinese president, will be emboldened by his new mandate after extending his term. “Now he is entrenched he can make more long-term changes. Why now? Because Xi is really trying to make his presence felt.”

For many, the major thrust is expected to be on financial services. A raft of rules have mostly hit the smaller peer-to-peer players, a development that ultimately only helps to entrench major players such as Alibaba’s Ant Financial.

But Beijing’s worries about systemic risk, particularly in a year of slowing growth and problems with debt, may force action against the larger players. “You can see clearly the direction of regulators is to control the [systemic] risk,” said David Dai, an analyst at Bernstein Research. “That’s why Ant has repositioned itself as a tech company.”

During its fundraising in April — an exercise that valued Ant at $150bn — the company was at pains to point out that revenues from providing tech services were growing faster than revenues from providing loans and other financial services. It is now, according to one person familiar with the group, “moving towards having a very light balance sheet”.

That was “probably wise”, said Mr Dai, and made for a better fit with Alibaba’s avowedly asset-lite model of providing a platform over which others — merchants, banks or fund managers — could sell their wares.

According to one China tech investor: “Ant’s view is that regulation is going to be the hardest challenge globally.” As such, he said, the plan was to target major markets like India rather than spreading the fight across a number of fragmented markets.

Meanwhile, Alibaba, in common with its peers, is diversifying into selling services to industry. It is the leader in China’s cloud computing market. This year is likely to see a further push into digitising shops, helping merchants to track customers and their shopping habits in a bid to increase sales.

It is similarly working with restaurants — a highly fragmented industry — to improve their efficiency. Fatter margins should in turn benefit Ele.me, Alibaba’s food delivery service.

Another worry is greater competition, not only from the next generation of Chinese internet platforms such as Bytedance, but also from the deep-pocketed SoftBank.

The Japanese tech investor, which has backed Bytedance, has often partnered with Alibaba, in which it has a 29 per cent stake. But its $100bn Vision Fund is setting up shop in China, suggesting it could also compete for assets and — with its outsize cheque book — drive up valuations.

But Alibaba has been through similar turbulence before. Referring to the slowdown at its last quarterly results, chief executive Daniel Zhang said: “This is the third time in Alibaba’s 19 years that we’ve encountered a setback in the global economy . . . We see an opportunity to greatly expand our total addressable market.”

our companies are within striking distance of filing NASH drugs for approval, but the competitive landscape is more nuanced than simply crossing the finish line first.

NASH, or non-alcoholic steatohepatitis, has no approved treatments. Estimates hold that about 30 million people in the U.S. have the fatty liver disease, representing a $35 billion market opportunity by some of the more bullish forecasts. Leaders in the space think there's more than enough room for multiple marketed therapies. How battle lines will be drawn is something they have yet to work out.

Investors got an early taste of what's to come this week at the J.P. Morgan Healthcare Conference in San Francisco. With late-stage readouts looming for Gilead Sciences, GenFit and Intercept Pharmaceuticals, 2019 is poised to be big year for the therapeutic area.

A stream of data

Earliest on the readout calendar are selonsertib and obeticholic acid.

Selonsertib is an ASK-1 inhibitor from Gilead, under investigation in two late-stage studies that should have results in the first and second quarters. Wall Street isn't terribly confident in the drug's chances of success, but Gilead remains optimistic. The biotech said positive data from its STELLAR 3 and STELLAR 4 studies would warrant a regulatory submission in the back half of this year and a potential approval in 2020.

Obeticholic acid, meanwhile, is the active ingredient in Intercept's Ocaliva, which the Food and Drug Administration cleared in 2016 for a liver illness called primary biliary cholangitis. Intercept hopes to expand the drug's label into NASH, and at JPM narrowed the timeline for Phase 3 data on the drug from the first half of this year to the first quarter.

French biotech GenFit also anticipates Phase 3 data for its candidate elafibranor to come in 2019, but likely near the tail end. Allergan ​rounds out the list of late-stage NASH drugs with cenicriviroc, a small molecule that inhibits a receptor involved in cell signaling. The Phase 3 AURORA trial assessing cenicriviroc has a primary completion date of Sept. 16, 2020, according to the federal database clinicaltrials.gov.

The Phase 3 NASH trials are similar in structure. But a differentiator — and sticking point — are their main objectives. STELLAR 3, STELLAR 4 and AURORA have primary endpoints of fibrosis improvement without worsening of NASH, whereas Genfit's RESOLVE-IT study is the opposite. Intercept's REGENERATE study has fibrosis improvement and NASH resolution as co-primary endpoints.

The FDA recently signaled in a guidance document that success on either NASH resolution, fibrosis improvement or the combination of the two are acceptable endpoints for potential approval of a NASH therapy. Still, there's been debate about which endpoint, and really which drugs, will prove most useful in the field's early days.

Allergan sees the greatest need for treatment among patients with advanced liver fibrosis, hence the design for AURORA.

"You want to reduce fibrosis to reduce cirrhosis. And we think that the payers will absolutely want reduction in fibrosis for later-stage disease," said David Nicholson, Allergan's chief medical officer, in an interview with BioPharma Dive.

GenFit, meanwhile, argues that if it's NASH driving the liver fibrosis, then having a drug that delivers NASH resolution is useful across the entire population.

"The advantage of starting with drugs that are able to resolve NASH is that you have the choice of whether to use an anti-neoplastic drug as a monotherapy, or you may decide to combine that with an antifibrotic drug," Dean Hum, the company's chief operating officer, told BioPharma Dive.

NASH and fibrosis progress slowly, meaning longer-term data may be needed to show the true impact of NASH resolution on liver scarring. However, Allergan, GenFit and other NASH developers generally agree that different therapies will be needed to address such a large patient population with varying degrees of disease severity.

On a broader level, drugmakers are also trying to remedy some of the more problematic aspects of clinical NASH investigations. Diagnosing the disease currently requires an invasive liver biopsy, which has been a deterrent to enrollment.

NASH is largely asymptomatic until late, too, making the potential side effects from investigational therapies a tough pill to swallow for patients. Nicholson notes this challenge doesn't just affect NASH, but rather all "silent" illnesses. Glaucoma, for which there are FDA-approved therapies, is one such example.

"Glaucoma is the second leading cause of blindness, but people don't wander around feeling like, 'Oh, my intraocular pressure is too high,'" he said. "So it's not unique to NASH ... these silent diseases are more difficult to recruit."

'Waves of approval'

While JPM didn't bring data updates for the later-stage NASH pipeline, drugmakers did give more color on their mindset heading into such a pivotal year.

John McHutchison, Gilead's head of R&D, told investors at JPM he anticipates "waves of approval," with the first being highly potent treatments for patients who have more advanced fibrosis, and then subsequent waves that work on less severe NASH and have better safety profiles.

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