"This will be the most comprehensive and powerful document ever supported by the state for the development of innovative drugs."
In March of this year, a document entitled "Implementation Plan for Supporting the Development of Innovative Drugs in the Whole Chain (Draft for Comment)" was circulated on the Internet, which caused extensive discussion in the industry.
Although it has not been officially confirmed, some insiders have revealed to Jianwen Consulting that it is very likely that the document will land. A number of local policies released in April are the prelude to the document’s landing.
Since the beginning of this year, the innovative medicine industry in China has been surging. Before multinational pharmaceutical companies dropped one blockbuster after another, AstraZeneca, Novartis and Johnson & Johnson successively acquired domestic Biotech companies for billions of dollars, opening a new landing channel for trapped investors; Later, the government has continuously introduced new policies, and comprehensively discussed issues from innovative drug pricing to promoting high-quality development of the industry.
BD (business development) transactions are still hot. When the domestic IPO channel gradually narrows and the capital flow in the primary market gradually dries up, innovative pharmaceutical companies have to turn overseas to seek a way out.
The government is also aware of the dilemma faced by enterprises and tries to untie innovative drugs from the policy level. For example, in the document issued by the Beijing Municipal Medical Insurance Bureau on April 17, it was proposed that "the medical treatment projects involved in talking about drugs and innovative medical devices are not limited by the total budget indicators of medical institutions", so that innovative drugs can get rid of the restrictions of medical insurance policies.
China’s innovative medicine industry is facing unprecedented new changes and opportunities. How does Biotech grasp the new course in the era of going to sea?
Foreign pharmaceutical companies snapped up China Biotech.
2023 is called "the first year of China’s innovative drugs going to sea".
After experiencing the haze that pharmaceutical companies frequently went to sea in 2022, the innovative drug pipeline in China finally reached the harvest season: according to the statistics of the Medical Rubik’s Cube, there were nearly 70 innovative drug License-out transactions in China in 2023, with the number increasing by 32% compared with 2022; The total transaction amount exceeded $46.5 billion, an increase of 69% compared with 2022.
Among them, Bailey Tianheng authorized the development and commercialization rights of HER3/EGFR dual-antibody ADC product BL-B01D1 to BMS, setting the highest transaction record in the industry before: 8.4 billion US dollars; Chengyi Bio cooperated with AstraZeneca on the authorization of small molecule GLP-1 receptor agonist (GLP-1RA)ECC5004, with a total transaction amount exceeding 2 billion US dollars; In addition, WuXi Bio has cooperated with GSK, Hengrui Pharma and Merck, Henry Medicine and Novo Nordisk for more than ten times, with the total transaction amount exceeding US$ 1 billion.
In the first quarter of 2024, BD transactions continued to be hot. According to incomplete statistics, a total of 24 License-out transactions were reached, of which 10 transactions have been disclosed with a total amount of nearly $15 billion.
Compared with going out to sea independently, License-out "going out by boat" has become the "main channel" for most local innovative pharmaceutical companies to enter the global market.
"License-out can be said to be the best choice for biotech." Jing Wong (pseudonym), a senior practitioner in the medical field, said. Since Genentech, the first biotech company in the world, was born in 1976, countless biotech companies have emerged in the industry, and few of them can develop independently for a long time.
Many biotech companies had the dream of becoming biopharma at the beginning of their establishment, but the R&D ability needed in the early stage of the pharmaceutical industry chain can not be equated with the clinical ability and production and sales ability needed in the middle and late stage, and most biotech companies do not have the latter.
Jing Wong pointed out that for biotech, the final destination is to sell the project and sell the company. "It would be great if the company can sell billions of dollars."
China’s innovative medicine industry is moving from pipeline external authorization to company merger and acquisition.
From the end of 2023 to the beginning of 2024, there were three innovative pharmaceutical mergers and acquisitions in China in just half a month: AstraZeneca announced the acquisition of Genxi Bio on December 26, 2023, Novartis announced the acquisition of Sinopharm on January 5, 2024, and Johnson & Johnson announced the cash acquisition of Ambo Bio on January 8.
After the spring, on March 25th, NuvationBio, an American biopharmaceutical company, announced the acquisition of Baoyuan Medicine by all-stock trading. On April 3rd, Genmab, a Danish biotechnology company, announced the acquisition of Pfeiffer Bio.
Among them, Genxi Bio, Pufang Bio, Anbo Bio and Sinopharm, which disclosed the transaction amount, sold high prices of $1.2 billion, $1.8 billion, $2 billion and $3.3 billion respectively.
It is worth noting that the acquirers of these remarkable large-scale mergers and acquisitions are all foreign pharmaceutical companies, and the BD transactions that have been in full swing since 2023 have caused some practitioners to worry about the loss of high-quality assets of domestic innovative drugs.
The one-sided situation makes BD and M&A from overseas almost the only way out for innovative pharmaceutical companies in China, and we should start with the current development stage and market environment of innovative pharmaceutical industry in China.
On July 22, 2015, National Medical Products Administration issued an announcement on the verification of clinical trial data (No.117, 2015), and organized the self-inspection and verification of clinical trial data for drugs that have been declared for production or import.
In his speech, the leaders of the Food and Drug Administration pointed out that the problems in drug clinical trials are serious, the problems of non-standardization and incompleteness are very common, and the problems of unreliability, truthfulness and fraud do exist, which have seriously affected the normal progress of drug approval.
Starting from the "July 22" incident, the state began to reform the new drug approval system and introduced a series of favorable policies, which led to a clearer path for the development of innovative drug industry in China.
On the other hand, a group of Chinese who went abroad to study and engage in medical work in 1980s and 1990s have accumulated rich industry experience during this period. After 2010, they returned to China to start businesses or join domestic pharmaceutical companies, becoming the backbone of the domestic innovative pharmaceutical industry.
For example, Baekje Shenzhou, which created Zebutini, was founded by Wang Xiaodong, the first academician of the American Academy of Sciences in China; Yu Dechao, founder of Cinda Bio, has worked for many American biopharmaceutical companies. Chen Bo, founder of Junshi Bio, once worked in Lilly and other large pharmaceutical companies.
By April 2018, Chapter 18A of the new listing rules of the Hong Kong Stock Exchange, "Allow biotech companies with no income and no profit to submit listing applications", has aroused a thousand waves among domestic biotech companies, opening a hole for unprofitable enterprises; Science and technology innovation board followed closely, allowing qualified unprofitable enterprises to apply for listing in science and technology innovation board after its establishment was announced in November 2018.
Non-profit enterprises can go public, which has a clearer exit path for capital, completely opens up the closed loop of investment in biomedicine and pushes the investment in innovative drugs to the peak in 2021. With the strong support of the capital market, the development of innovative drugs has entered the fast lane.
According to the data of Medicine Rubik’s Cube, the amount of primary market financing in innovative drugs in China jumped from 14.6 billion yuan in 2017 to 30.6 billion yuan in 2018 and 34.4 billion yuan in 2019, and then to 86.9 billion yuan in 2020 and 87.7 billion yuan in 2021. In the same period, the amount of secondary market financing was 1.9 billion yuan, 21.5 billion yuan, 23.5 billion yuan, 88.8 billion yuan and 70 billion yuan respectively.
In the past few years, Cinda Bio, Junshi Bio and Baekje Shenzhou have been listed one after another. At this time, no one in innovative pharmaceutical companies wants to License-out. As Wang Jing said, becoming biopharma is the dream of almost every biotech company. The short-term prosperity of the capital market has given innovative pharmaceutical companies the courage to pursue their dreams, build factories, expand production capacity, and recruit sales teams. The commercialization of drugs is not fake.
However, prosperity always has an end. Since the second half of 2021, the secondary market of innovative drugs has been frequently broken, and Cinda Bio has dropped from the highest point of HK$ 107/share to about HK$ 40/share today; Junshi Bio dropped from the highest point of HK$ 220/share to about HK$ 30/share; Baekje Shenzhou’s share price is the strongest, and it can’t escape the fate of breaking the market, from the issue price of HK$ 177 per share to HK$ 130 per share today.
Capital began to flee from the innovative drug market. In 2022, the financing amount in the primary and secondary markets of innovative drugs in China dropped to 43.3 billion yuan and 38.1 billion yuan respectively, and in 2023 it was only 30.9 billion yuan and 21.5 billion yuan respectively.
Pharmaceutical companies have to continue to lay off employees, sell pipelines and cut projects in order to control costs and realize cash quickly to cope with the endless cold winter of the industry.
On November 15, 2022, three pharmaceutical companies, Platinum Pharmaceutical, Cornerstone Pharmaceutical and Hutchison Pharmaceutical, successively announced the sale of factories, the suspension of factories and the contraction of pipelines.
Multinational pharmaceutical companies seized the opportunity and began to enter the market.
Biotech Prostitution: A New Way for Investors to Go ashore
"The popularity of BD is the result of the joint action of the buyer’s market and the seller’s market." Analysis of Li Cong (pseudonym), a pharmaceutical investor.
For a long time, the innovative pharmaceutical industry has a recognized law of "R&D cycle of 10 years, cost of 1 billion US dollars, and success rate of less than 10%". New drug research and development is a long-term battle with unknown success or failure. The funds needed for pharmaceutical companies’ R&D come from the financing of primary and secondary markets and the profits of listed drugs.
In the case of shortage of funds, License-out is obviously a better choice than selling assets. As an authorized party, pharmaceutical companies can continue to obtain more milestone benefits.
For the seller, financing is difficult at present, and it is urgent to obtain funds for the company to continue its life through License-out; For the buyer, pipeline authorization can be obtained at a cheaper price during the downturn of the industry.
Behind the buyers and sellers, there is another role that drives these transnational transactions — — Investors.
Investor Jiang Min once inspected an innovative drug project, but did not participate in the investment. After the company went public, its stock rose all the way, and then fell at the top of the cliff.
The leader of the investment institution asked Jiang Min why he didn’t invest in this project. Jiang Min bluntly said that he was not optimistic about this company and thought that they couldn’t make medicine. "Every investor’s motivation for entering the market is not the same. Some people want to make long-term investments, they have to bear industrial responsibilities, and some people frankly admit that they are entering the market to cut leeks." Jiang Min admits that some investment institutions move fast enough. At the most prosperous stage of the industry, innovative pharmaceutical companies quit in time after earning money in the process of raising their valuations.
The remaining investors are stuck in the gambling game. "There are always a few people who can make money in the capital market." Li Cong said that investors behind innovative pharmaceutical companies are seeking new exit opportunities. However, with the gradual tightening of IPO policies, it is difficult to reproduce the prosperity of Hong Kong stocks 18A and science and technology innovation board a few years ago.
Then, investors can no longer consider the secondary market as the core exit path. "But investment institutions still have to invest and make money, so they can only seek exit opportunities such as mergers and acquisitions and equity transfer in the primary market. For investors, it is better for pharmaceutical companies to get a License-out or a chance to collect mergers and acquisitions than to be trapped inside, but the income will not be high. " License-out and acquisition and merger have become the "landing channel" pursued by innovative pharmaceutical companies.
Take Chengyi Bio as an example. According to public information, Chengyi Bio has obtained three rounds of financing in 2018, 2020 and 2023, with financing amounts of 100 million yuan, over 100 million yuan and 180 million yuan respectively.
In 2023, Chengyi Bio granted AstraZeneca the right to develop and commercialize the small molecule GLP-1 receptor agonist (GLP-1RA)ECC5004 for potential treatment including obesity, type 2 diabetes and other complications. Through this authorized cooperation, Chengyi Bio will receive a down payment of US$ 185 million, future milestone payment of US$ 1.825 billion for clinical, registration and commercialization, and graded royalties for net sales.
The down payment from AstraZeneca alone has exceeded the sum of all financing amounts since Chengyi Bio was established. Compared with the primary market that is currently in the cold winter, License-out obviously returns blood faster.
In terms of acquisition, Pufang Bio, a Biotech company, was acquired by Danish pharmaceutical company Genmab in an all-cash transaction of $1.8 billion at the beginning of April this year. Before that, it had completed at least four rounds of financing, with investors including Xianfeng Qiyun, Gaorong Capital, Changan Capital, Sequoia China, Yuanhe Holdings, Lilly Asia Fund and other institutions.
Among them, the latest financing occurred in February this year, two months before it was acquired by Genmab. According to industry sources, the valuation of Pufang Bio after this round of financing is about 300 million US dollars. For investors in the last round of financing, the return came so quickly.
Unlike the highly volatile secondary market, the above exit path occurs in the primary market. Li Cong believes that "the primary market is a market that emphasizes value more. Before trading, the buyer will repeatedly consider whether this asset is really valuable, beneficial to the coordinated development of its own business and whether it can create cash flow. On this premise, the valuation of Biotech will be very close to reasonable."
Two ends of the balance: medical insurance cost control and the development of innovative drugs
In the innovative drug market, China pharmaceutical companies have changed their roles from License-in to License-out, which is behind the accelerated transformation and upgrading of China pharmaceutical industry. From the perspective of commercialization, it is also the only way for domestic innovative pharmaceutical companies to go to sea.
According to the data quoted by BCG from EvaluatePharma, the global innovative drug market is about 830 billion US dollars in 2021, of which the US market accounts for 55%, while China’s innovative drug market only accounts for 3% of the global market.
According to BCG data, in 2021, the sales of innovative drugs in the United States accounted for 79% of all drug sales, while the sales of innovative drugs in China only accounted for 11% of the national drug sales. Obviously, the market of innovative drugs in overseas developed countries is broader.
Comparing the medical security systems of China and the United States, the commercial medical insurance in the United States accounts for 40.14% of the total health insurance expenses. According to the Circular on Further Enriching the Supply of Life Insurance Products issued by China Banking and Insurance Regulatory Commission in 2023, the payment of commercial health insurance in 2022 only accounts for 5.3% of the total national health expenditure.
At present, China’s medical insurance is still dominated by social medical insurance, and the medical insurance fund needs to cover the medical and drug needs of about 1.334 billion people, so the payment for innovative drugs is still limited. In the domestic market, innovative pharmaceutical companies are bound to face the pressure of centralized procurement and medical insurance negotiations, resulting in the pricing space of innovative drugs being compressed.
Judging from the local innovative drugs listed overseas in the past, the pricing of zebutinib, Cedactylosin, Benvimod, Trepelizumab and furosemide in the United States can be several times to dozens of times higher than that in China. Choosing innovative drugs that go out to sea has obviously achieved a higher profit return on single products.
In the domestic market, innovative pharmaceutical companies are bound to face the game of medical insurance negotiation.
Zhou yun (a pseudonym), an industry insider with rich experience in medical insurance, told Jianwen Consulting that in recent years, the price reduction of drugs involved in national medical insurance negotiations is usually more than 60% or even higher. In order to master more chips in the negotiation, pharmaceutical companies often raise the price of drugs, leaving room for an average price reduction of 60%. "Even if there are reviews and consultations before the negotiation, it is difficult for the medical insurance bureau to determine the reasonable price of drugs through cost, and the calculation result is not accurate."
On February 5 this year, the National Medical Insurance Bureau issued the Notice on Establishing the Initial Price Formation Mechanism of Newly Listed Chemicals to Encourage High-quality Innovation (Draft for Comment) to clarify the pricing of innovative drugs.
At the same time, in the face of industry changes in the field of innovative drugs, the state has continuously introduced relevant policies this year to promote the development of the industry.
In March of this year, a document entitled "Implementation Plan for Supporting the Development of Innovative Drugs in the Whole Chain (Draft for Comment)" was circulated on the Internet, which caused extensive discussion in the industry. The document lays out the main tasks, including accelerating the research and development of innovative drugs and the transformation of results, optimizing the review and approval mechanism of innovative drugs, accelerating the deployment and use of innovative drugs, improving the multi-payment ability of innovative drugs, and enriching the investment and financing support channels of innovative drugs.
"This will be the most comprehensive and powerful document ever supported by the state for the development of innovative drugs." Zhou yun introduced that, according to his understanding, the "Implementation Plan for Supporting the Development of Innovative Drugs in the Whole Chain (Draft for Comment)" is very likely to be implemented, and a number of local policies released in April are the prelude to the implementation of this document.
On April 1st, 7th and 9th, Zhuhai, Guangzhou and Beijing successively issued relevant documents on several measures to promote the high-quality development of innovative medicine. On the 17th, Beijing Medical Insurance Bureau issued a document again, proposing 32 measures to promote the development of innovative medicine from eight aspects, including research and development of innovative medical equipment, clinical trials, review and approval, manufacturing, circulation and trade, and clinical application.
In the document issued by Beijing Medical Insurance Bureau on April 17th, there is a very breakthrough clause: the medical treatment projects involved in talking about drugs and innovative medical devices in China are not limited by the total budget index of medical institutions; For medical institutions that need to carry out performance appraisal and quality evaluation of total budget management (BJ-GBI), the influence of national drug discussion and innovative diagnosis and treatment projects on per capita drug expenses, per capita medical expenses and other related indicators should be excluded.
"This is a statement that has never appeared in the previous medical insurance policy." Zhou yun said, "This means that innovative drugs will completely get rid of the various restrictions of the medical insurance policy and be really used in clinic, solving the problem that hospitals used to be afraid to use drugs because of the limitation of reimbursement ratio."
The control of medical insurance fees and the high-quality development of innovative medicine industry are hung at both ends of the scale.
In the European market where the innovative pharmaceutical industry started earlier, the market pricing model similar to that of the United States was initially adopted, which greatly promoted industrial innovation and made Europe become the research and development center of the global biopharmaceutical industry in the mid-20th century. Under the pressure of high drug prices and aging, the medical security system in various European countries began to come under pressure and had to introduce new policies to control prices.
"The medical insurance bureau is in any country ‘ Scold ’ The role. " Zhou yun pointed out, "The main purpose of a series of policies adopted by the China government, such as purchasing with quantity, medical insurance negotiation and payment mode reform, is to solve the sustainability problem of the national medical insurance fund. However, with the deepening of the aging process in China, the contradiction between the finiteness of medical insurance funds and the infinity of people’s health needs will inevitably intensify. "
Under this situation, commercial insurance will become the only solution to make up for the gap between national basic medical insurance and social insurance.
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