Chinese innovative pharmaceutical companies welcome the New Year: GlaxoSmithKline buys Hengrui pipeline rights for $1.4 billion

Blue Whale Finance Tu Jun

2024 may be a big year for the BD of China's pharmaceutical industry.

Following AstraZeneca's announcement in December last year that it would acquire Gracell Biologics, becoming the first example of MNC to fully acquire a Chinese innovative pharmaceutical company, on January 9, GSK (GlaxoSmithKline) issued a statement on its global official website saying that it had reached an acquisition agreement with Aiolos Bio, a clinical-stage biopharmaceutical company, and the acquisition would be carried out with an upfront payment of $1 billion and milestone payments of up to $400 million.

GSK said the acquisition gave GSK access to one of Aiolos' drug candidates, AIO-001. It is worth noting that AIO-001 was introduced by Aiolos Bio from Hengrui Pharmaceutical.

China's innovation pipeline has been acquired at a premium one after another

According to public information, Aiolos Bio was established in 2023 and is a very new company, headquartered in San Francisco, California, USA, with an office in London. According to the information on Aiolos' official website, AIO-001 is the only pipeline it has publicly announced.

According to the GSK press release, the AIO-001 drug was introduced by Aiolos Bio from Hengrui Pharmaceutical.

In August last year, Aiolos Bio entered into an agreement with Hengrui Pharmaceutical to obtain exclusive rights to develop and commercialize the drug globally outside of Greater China for an upfront payment of US$21.5 million (and potential milestones of over US$1 billion), while Hengrui Pharmaceutical retains the commercialization rights in the Greater China market.

Shortly after the agreement with Hengrui Pharmaceutical, in October last year, Aiolos Bio received a $245 million Series A funding round, the second-largest Series A funding round in 2023, after Orbital Therapeutics' $270 million Series A financing for RNA drug development in April. The financing was co-led by Atlas Venture, Bain Capital, Forbion, Sofinova Investments, and RA Capital Management.

Coupled with GSK's huge investment this time, Aiolos Bio has achieved huge returns before promoting the successful commercial listing of AIO-001 overseas, which can be described as the biggest winner.

As for why GSK is so bullish on AIO-001?

AIO-001 is a potential best-in-class long-acting anti-thymic stromal lymphopoietin (TSLP) monoclonal antibody, which has been shown to be potent in triggering inflammation, including asthma, and TSLP inhibition is the only biological approach at this stage that has demonstrated clinical benefit in patients with moderate to severe asthma.

Tezspire (tezepelumab), the only anti-TSLP antibody currently on the market for the treatment of patients with severe asthma, comes from Amgen and AstraZeneca, and was approved by the FDA in December 2021.

The data showed that the drug significantly reduced the annualized rate of asthma exacerbations at 52 weeks, with a benefit in all subtypes, including blood eosinophil counts, but Tezspire needed to be injected subcutaneously every four weeks. However, due to the different efficacy and long half-life, AIO-001 only needs to be taken twice a year, which has a significant dosage advantage over other similar drugs.

Some industry insiders pointed out that on the one hand, the acquisition shows that the R&D capabilities of Chinese pharmaceutical companies are being seen by multinational pharmaceutical companies, and on the other hand, for Hengrui, the overseas R&D of the follow-up pipeline is taken over by GSK, which is more secure in terms of R&D progress and follow-up capital investment, and the probability of subsequent milestone payments will also increase.

In fact, this is not the first time this year that multinational pharmaceutical companies are targeting innovation pipelines, and most industry views believe that this year will be a big year for China's innovative pharmaceutical companies.

On December 26, 2023, AstraZeneca announced the acquisition of Gracell Biologics, becoming the first example of an MNC fully acquiring a Chinese innovative pharmaceutical company, with a total upfront payment plus valuable payments of approximately US$1.2 billion, representing an 86% premium to Gracell's closing price on December 22, 2023, and a 192% premium to the volume weighted average price (VWAP) in the 60 days prior to the announcement. It is worth mentioning that Gracell is the fourth Chinese CAR-T cell therapy company to land on the capital market.

Then, on January 8 this year, the second Chinese Biotech acquired by MNC was born, and SanReno Pharma announced that it was acquired by Novartis, an international pharmaceutical company. With the completion of the acquisition, SanReno became an indirect wholly owned subsidiary of Novartis. SanReno has exclusive rights to two innovative drug projects for immunoglobulin A nephropathy (IgAN) in China and Singapore: atrasentan and zigakibart.

The core products of HIV are facing patent expiration, and GSK has thickened its investment in the respiratory field

For GSK, in 2022, GlaxoSmithKline spun off its consumer healthcare business. After the completion of the spin-off, GSK's current business sources are divided into three segments: vaccines, specialty drugs and general medicines.

According to its third quarter report for 2023, its revenue in the third quarter was 8.147 billion pounds, a year-on-year increase of 10% (at constant exchange rates), of which the vaccine sector was the strongest, with sector revenue of 3.2 billion pounds, the specialty medicine sector revenue of 2.6 billion pounds, and the weakest general medicine sector at 2.3 billion pounds.

In the vaccine sector, its herpes zoster (Shingrix) and RSV (Arexvy) are its core products, which are the most prominent. Among them, Arexvy, as the world's first RSV vaccine, has achieved sales of 709 million pounds in the first quarter (Q3) since it was approved for marketing in May last year, and its single-quarter sales are only slightly lower than that of the star product herpes zoster vaccine Shingtix.

In the specialty drug sector, HIV products are the mainstay, among which Dolutegravir is its best-selling product, and previously, in 2020, the overall revenue of dolutegravir's products accounted for more than a quarter of the total sales of GlaxoSmithKline Pharmaceutical. However, the patent for dolutegravir expires in 2027, after which it will have to bear the pressure of generics.

This may be the main reason why GSK has increased its investment in the respiratory sector to ensure that there are other popular products in addition to vaccines to ensure its revenue growth.

In fact, this partnership with Aiolos Bio is not the first time GSK has invested in the respiratory sector, in April last year, GSK announced an acquisition agreement with BELLUS Health, GSK will pay $14.75/ for a total transaction value of US$2 billion (£1.6bn) to acquire BELLUS' core product, camlipixant, which is currently in a Phase III clinical trial for the first-line treatment of patients with refractory chronic cough (RCC).

It is worth mentioning that, according to a number of media reports, with the adjustment of the business structure of the headquarters, GlaxoSmithKline China has also reorganized the original business, and from January 1, 2024, it will be established into three core business units: specialty drugs, vaccines, and respiratory. This also means that the original general medicine, core prescription drugs, and HIV will all face structural and personnel changes after being merged into the new department.