In 2023, there will be both challenges and opportunities for biopharma companies. On the one hand, the valuation of the biomedical sector is at a relatively low historical level, and on the other hand, as the overall medical insurance policy has entered the optimization stage, the aging trend has intensified, and the public health awareness has improved, the pharmaceutical industry is also continuing to release recovery signals.
Recently, listed biopharmaceutical companies have successively handed over their 2023 "report cards". As of the close of trading on April 29, according to the preliminary statistics of the 21st Century Business Herald reporter, a total of 201 A-share listed companies in the two major sectors of chemical pharmaceuticals and biological products have released their 2023 annual reports. Among them, more than seventy percent of enterprises are profitable.
Under the same indicator, a total of 56 companies in the Hong Kong stock market have released their 2023 annual reports. In 2023, profitable companies will account for more than 41% of the total. In the chemical and pharmaceutical sector, CSPC Pharmaceutical Group achieved a net profit attributable to the parent company of RMB 5.873 billion, and in the biological products segment, WuXi Biologics achieved a net profit attributable to the parent company of about RMB 3.4 billion, ranking first among their respective sectors.
2024 may be the starting point of a new pharmaceutical cycle in the next three years. Guosen Securities analyzed in the research report that with the gradual realization of R&D investment of domestic pharmaceutical companies, taking A-share pharmaceutical listed companies as an example, it is expected that the revenue growth in the next three years will be between 10% ~ 15%, and if the non-profit margin is increased by 2 points, the non-profit deduction of the pharmaceutical industry is expected to increase by 75% in the next three years, with an annualized compound growth rate of more than 20%. Innovative pharmaceutical companies and companies with international capabilities and potential will become the focus of attention.
Zhang Xiaolin, chairman and general manager of Dizhe Pharmaceutical, told the 21st Century Business Herald reporter that the research and development of innovative drugs has the characteristics of high investment, high risk and long cycle. In recent years, from the national level to the local level, many support and encouragement policies have been introduced for the high-quality development of biomedicine. Recently, a series of incentive policies have been introduced in Beijing and Guangzhou, which will help promote innovative pharmaceutical companies to accelerate R&D and reduce financial pressure.
"High quality" has become one of the key words for the development of the biopharmaceutical industry. From April 23rd to 24th, Li Li, Secretary of the Party Leadership Group of the State Drug Administration and Director of the State Drug Administration, emphasized during the inspection and investigation of relevant pharmaceutical enterprises in Shanghai that "biomedicine is the key direction of the new round of global scientific and technological revolution and industrial transformation, an important component of new quality productivity, and an important field to promote high-quality economic development." ”
Increase R&D investment
In 2023, enterprises with insufficient innovation capabilities will face greater challenges to survive, and the development of innovative products at the source will accelerate, which will also require real money investment from enterprises. In 2023, the total R&D expenses of the above-mentioned A-share biopharmaceutical listed companies will be as high as 70.893 billion yuan. Among them, more than 140 pharmaceutical companies have increased their R&D investment.
In the A-share chemical and pharmaceutical sector, Hengrui Pharmaceutical achieved a net profit attributable to the parent company of 4.302 billion yuan and R&D expenses of 4.954 billion yuan, both of which ranked first. In the biological products sector, Zhifei Biotech achieved a net profit of 8.07 billion yuan, and BeiGene invested 12.813 billion yuan in R&D, ranking first in their respective indicators.
The high R&D investment in the biopharmaceutical industry is gradually paying off. According to data from the Center for Drug Evaluation of the National Medical Products Administration, in 2023, a total of 40 Category 1 innovative drugs will be approved for marketing throughout the year, of which 9 varieties will be approved for marketing through the priority review and approval process, 13 varieties will be conditionally approved for marketing, 8 varieties will be included in the breakthrough therapy program in the clinical research stage, and 4 new crown treatment drugs will be approved for marketing through the special approval process.
Among them, Hengrui Pharmaceutical has a total of 3 Class 1 innovative drugs (adebelimab, repagliptin phosphate, oticonazole) and 4 Class 2 new drugs (dexmedetomidine hydrochloride nasal spray, abiraterone acetate nanocrystal, irinotecan hydrochloride liposome, and hengpagliflozin metformin extended-release tablets) approved for marketing in 2023.
BeiGene's 2023 annual report shows that the average R&D investment in the same industry is 1.571 billion yuan, and BeiGene's R&D investment is eight times that of that figure. Currently, BeiGene has three proprietary and approved drugs, including BRUKINSA ® (zanubrutinib), tislelizumab ® (tislelizumab) and Baihuize ® (pamiparib). Among them, BRUKINSA ® achieved an operating income of 9.138 billion yuan (about 1.3 billion US dollars), becoming the first domestic innovative drug with annual sales of more than one billion US dollars.
Differentiated layouts
From the perspective of the R&D pipeline, anti-tumor drugs will remain the top priority of global drug R&D in 2023. The innovative R&D capabilities of local pharmaceutical companies have also been gradually recognized, and external licensing transactions have contributed an important source of cash flow to many listed pharmaceutical companies. Among them, the drug types represented by ADCs will shine in 2023.
For example, in 2022, Columbus Robotay exclusively licensed its innovative TROP2-targeting ADC drug "SKB264 (MK2870) Project" with independent intellectual property rights to Merck & Co., Ltd. for research, development, manufacturing and commercialization outside of China, with a total cooperation amount of more than US$10 billion.
In addition, in December 2023, Baili Tianheng entered into an exclusive license and cooperation agreement with Bristol-Myers Squibb (BMS) for an anti-tumor drug (BL-B01D1), an anti-tumor drug independently developed by Baili Tianheng, with a potential total transaction value of up to US$8.4 billion. This transaction set a new record for the total transaction price of a single ADC drug in the world. The annual report disclosed that it had received an upfront payment of US$800 million from BMS in March 2024.
Wang Jin, a global senior managing partner of McKinsey, said in an interview with the 21st Century Business Herald reporter that in 2023, about half of the external licensing transactions of China's innovative products will focus on a new generation of technology platforms (such as ADCs). Another data also validates China's strength in global technology platform innovation, with antibody drug conjugates (ADCs) originating from China contributing 10 of the 33 out-licensing deals for the ADC technology platform worldwide.
"China's outstanding advantages in technology platforms come from two aspects: one is the engineering advantage, that is, the rapid iteration of existing technology, relying on a strong reserve of science and engineering talents and technical capabilities, and the other is China's speed and scale, adopting a resilient and efficiency-first working model to quickly generate clinical and PoC data at 'China speed'. I believe that Chinese companies have the potential to extend their competitive advantages to other technology platforms and drug mechanisms, such as bispecific/multi-specific antibodies, cell and gene therapy (CGT), etc. Wang Jin said.
In 2023, as GLP-1 develops into a popular "Internet celebrity" drug for weight loss in the world, many domestic listed pharmaceutical companies will lay out this track. On July 4, 2023, the "liraglutide injection" of Sino-US Huadong, a subsidiary of Huadong Pharmaceutical, was approved for a new indication for obesity or overweight, becoming the first GLP-1 weight loss indication drug approved for marketing in China. In the 2023 annual report disclosed by Huadong Medicine, although no specific sales were shown, Huadong Medicine bluntly said that "the sales momentum of the product has been good since its launch, which will lay a solid foundation for the company's subsequent commercialization of GLP-1 products".
Take the path of "going to sea".
In order to seek more profits and markets, "going out" has become a recognized development strategy for domestic pharmaceutical companies.
According to the 21st Century Business Herald reporter, since the second half of 2023, a total of 3 innovative drugs in mainland China have been approved by the FDA for marketing, proving that they are clinically differentiated and have the ability to enter the U.S. market for products with unmet clinical needs overseas. These include Junshi Biosciences' toripalimab (PD-1 monoclonal antibody, Loqtorzi), Chi-Med's fruquintinib (VEGFR1/2/3 inhibitor, Fruzaqla), and Yifan Therapeutics' ibergostim α injection (Ryzneuta).
Based on the 2023 annual reports of these three companies, during the reporting period, toripalimab achieved sales revenue of approximately RMB919 million, a year-on-year increase of approximately 25%, market sales of fruquintinib increased by 15% to US$107.5 million, and Yifan Pharma said that Ibergostim α injection, as the company's first innovative biologics approved in China, the United States and Europe, will enter a critical year of commercialization in 2024.
The road to "going to sea" is "high and turbulent", and it is very important to choose a suitable way to go to sea, among which shipbuilding to go to sea, license-out (borrowing ships to go to sea), and joint going to sea are three common ways.
In an interview with 21st Century Business Herald, Chi-Med Senior Vice President Cui Yu-chun bluntly said, "At first, HUTCHMED was 'building a ship to go to sea', and in the first two years it tried to establish a clinical and sales team in the United States, but later judged that it was more suitable to 'borrow a ship to go to sea' in the short term. In addition, the approval standards of the U.S. Food and Drug Administration are different from those in China, and the establishment of a commercialization team is not achieved overnight, requiring both a grasp of local access policies and an understanding of the U.S. hospital and health insurance system. ”
With this in mind, Chi-Med and Takeda have entered into an exclusive license agreement to further develop, commercialize and manufacture fruquintinib globally. HUTCHMED's 2023 Annual Report disclosed that HUTCHMED's Oncology/Immunology consolidated revenue increased 223% to US$528.6 million, approaching the upper end of its financial guidance, including the recognition of US$280 million of the down payment received from Takeda.
More innovative pharmaceutical companies are accelerating their "going global" layout. Zhang Xiaolin told the 21st Century Business Herald reporter that with the improvement of the profitability of most innovative pharmaceutical companies, the "industry winter" will eventually come to an end. For innovative pharmaceutical companies, if they want to take the lead in the future competition, they must not only have high-quality innovation strength oriented by clinical value at the R&D end, develop products with differentiated competitive advantages, but also have efficient commercialization capabilities at the market end.
However, while the overseas strategy brings synergies, many pharmaceutical companies have encountered practical problems in the process of internationalization. For example, on February 15, 2023, InnoCare announced that Biogen has notified the Company to terminate the collaboration and license agreement between the two parties for the global development and commercialization of orelabrutinib for convenience. InnoCare's 2023 annual report shows that it has completed the transition of relevant rights and interests with Biogen in May, and during the reporting period, the sales of orelabrutinib were 671 million yuan, a year-on-year increase of 18.52% over 2022.
There is a long way to go for innovative drugs to "go overseas", but it is foreseeable that taking the road of globalization is still the only way.
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