Source: 21st Century Business Herald

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Recently, there has been a frequent wave of business development (BD) cooperation transactions between Chinese and foreign pharmaceutical companies.

On October 9th, Baiaotai announced that it has reached an authorization license, production, supply, and commercialization agreement with Gedeon Richter Plc. for BAT2206 (ustekinumab) injection solution. According to the agreement, Baiaotai will license the exclusive commercial rights of the injection in the EU, UK, Switzerland, Australia, and other European markets to Gedeon Richter Plc for a fee.

The amount involved in this transaction includes a down payment of $8.5 million, milestone payments up to a cumulative total of $101.5 million, and revenue sharing based on a double-digit percentage of net sales.

In addition to Baiaotai, several Chinese pharmaceutical companies have also recently received positive news regarding BD transactions, such as Yilian Biotechnology, Auspicion Pharmaceutical, Zhengda Tianqing, and Shiyao Group.

McKinsey's analysis shows that, based on historical data, about one-third of global innovative drug revenue comes from "internal research and development" of companies, while the remaining two-thirds come from mergers and acquisitions and collaborations (including licensing).

A pharmaceutical company executive revealed to 21st Century Business Herald reporters that for the top 20 multinational pharmaceutical companies in the world, an average of 55% of their current clinical stage products come from "internal research and development", while 45% come from "external innovation". It is worth noting that some companies have a much higher dependence on external innovation than the average, reaching 60% to 70%.

In history, these external innovations mainly originated from biotechnology companies in Europe and America. However, since 2023, our sensitivity to Sino foreign BD cooperation has significantly increased, as Chinese innovative products and companies are frequently appearing in the news of cross-border pharmaceutical companies' transactions. These transactions not only include asset authorizations between multinational pharmaceutical companies and Chinese companies for the global market, but also include acquisitions between local Chinese pharmaceutical companies, aiming to jointly explore the global market, "said the executive of the pharmaceutical company.

The global pharmaceutical industry has officially kicked off large-scale BD trading activities.

Innovative drugs are surging in sales

With the booming development of the health industry, mergers and acquisitions of pharmaceutical companies have become increasingly frequent, especially this year, where large-scale acquisition events have emerged one after another. Many multinational pharmaceutical companies are turning their attention to high-quality local assets and actively seeking opportunities for resource integration to enhance their competitiveness in the market. At the same time, large local pharmaceutical companies are not willing to fall behind and are actively seeking high-quality projects to make up for the shortcomings in their product lines.

On October 8th, Xinda Biotechnology and Oseikang Pharmaceutical jointly announced an exclusive commercial cooperation on Lirotinib tablets (trade name: Aoyixin). According to the agreement, Cinda Biology will be responsible for the exclusive promotion and sales of Leonitine in Chinese Mainland, and pay relevant funds to Otaikang. And Aosaikang is responsible for the commercial production and supply of the product, and pays sales promotion service fees to Xinda Biotechnology. The cooperation between the two parties aims to jointly promote the marketization process of this innovative drug.

On the same day, Mestag Therapeutics signed a licensing and collaboration agreement with Merck to develop new targets for the treatment of inflammatory diseases. Mestag, with its new understanding in the field of fibroblast immune interactions, is committed to developing influential treatments for cancer and inflammatory diseases. In addition, Yilian Biotechnology has announced a global clinical research and drug supply cooperation agreement with Anjin. Both parties will jointly evaluate Yilian Biotechnology's B7-H3 antibody conjugate drug YL201 and Anjin's bispecific T cell junction protein (BiTE) targeting DLL3 and CD3 ®） The potential of IMDELLTRA in the treatment of extensive stage small cell lung cancer (ES-SCLC).

In addition, China Biopharmaceutical's subsidiary, Zhengda Tianqing Pharmaceutical Group Co., Ltd., has signed an exclusive license and cooperation agreement with Wuhan Youzhiyou Biopharmaceutical Co., Ltd. Chia Tai Tianqing will obtain the exclusive license for the development, registration, production and commercialization of the M701 developed by Youzhiyou Biology in Chinese Mainland. According to the terms of the agreement, Zhengda Tianqing will pay the down payment, R&D milestone payment, and sales milestone payment to Youzhiyou Biotechnology, as well as pay a tiered privilege usage fee. The potential amount of this transaction exceeds 1 billion yuan, demonstrating the investment and determination of domestic pharmaceutical companies in the field of innovative drugs.

In addition, just the day before (October 7th), AstraZeneca announced an exclusive licensing agreement with Shiyao Group to jointly promote the development of a preclinical innovative small molecule lipoprotein (a) (Lp (a)) inhibitor. This drug will be used to develop novel lipid-lowering therapies, as well as monotherapy or combination therapy for various cardiovascular diseases. According to the agreement, Shiyao Group will receive a down payment of $100 million from AstraZeneca, in addition to potential development milestone payments of up to $370 million and potential sales milestone payments of up to $1.55 billion, as well as tiered sales bonuses calculated based on the annual net sales of the product.

According to data from the Medical Magic Cube in the first half of 2024, Chinese domestic pharmaceutical companies reached a total of 60 cross-border BD transactions during this period, of which 43 were cross-border license out transactions. These transactions involve multiple fields such as anti-tumor, chronic disease, immune disease, and anti infection, demonstrating the close cooperation between multinational pharmaceutical companies and local pharmaceutical companies. Major multinational pharmaceutical buyers include well-known companies such as AstraZeneca, Novartis, Johnson&Johnson, and Takeda.

Currently, domestic pharmaceutical companies are generating cash flow through BD transactions, accelerating the transformation of innovative drugs, and actively expanding into global markets. This trend not only promotes the innovative development of domestic pharmaceutical companies, but also strengthens their connections and cooperation with the international market.

Is the wave of mergers and acquisitions approaching?

Chinese local innovative pharmaceutical enterprises frequently appear on the M&A list, which indicates that their innovative strength is gradually gaining widespread recognition in the international market, and also opens up a new development path for local pharmaceutical enterprises.

However, for Chinese local innovative pharmaceutical enterprises, does being acquired mean their ultimate destination? In response, a pharmaceutical industry analyst from a securities firm pointed out to 21st Century Business Herald reporters that from the demand side perspective, multinational pharmaceutical companies will face the challenge of patent cliff in the next five years, and urgently need to find new business growth points and technological barriers during the patent protection period, thus opening up a global M&A boom. On the other hand, traditional pharmaceutical companies in China are also under heavy pressure of transformation. Faced with the continuous dilution of profits, they tend to quickly accumulate technology, talent, and product lines through mergers and acquisitions.

Based on this background, there has been a significant increase in the number of external authorization transactions and acquisitions of Chinese biotechnology companies' products in the past year, which has attracted widespread attention from the industry.

"We regard this as a positive signal," said the analyst.

For highly anticipated innovative products, multiple industry insiders have pointed out that products with technological innovation and clinical value have always been the darlings of the market, demonstrating enormous development potential. In the fields of traditional macromolecular drugs, small molecule targeted drugs, and monoclonal antibody drugs, new breakthroughs are constantly emerging; In emerging fields such as ADC, bispecific drugs, CGT, significant achievements have also been made in technological innovation and clinical progress. For example, the field of gene therapy has reached a milestone event - in 2023, Casgevy, the world's first CRISPR-Cas9 gene editing therapy, received approval from both the MHRA and FDA for market launch.

McKinsey previously conducted in-depth research on 1000 biotechnology companies worldwide, of which only 203 companies have products in the commercial stage (the remaining 797 companies' products are still in the preclinical or clinical development stage). It is worth noting that among these 203 companies, only 67 have established their own commercialization teams (of which 24 have also established teams in multiple regions such as the United States, Europe, and Asia), while the remaining 136 companies have achieved product commercialization through external authorization transactions.

In addition, biotechnology companies and biopharma companies each have their own focus on value chain layout and core capabilities, which helps maximize the value creation of the entire industry. For biotechnology companies, building their own commercial teams and production bases is not an inevitable choice. In most cases, due to limitations in product portfolio size and experience, building commercial marketing and production capabilities may not be the most efficient choice.

If biotechnology companies decide to promote commercialization on their own after evaluating external cooperation paths, "the analyst suggested, in addition to recruiting industry leaders to form teams, they should also fully utilize technology and digital means to empower business development. In addition, although the digital empowerment of omnichannel marketing for traditional large pharmaceutical companies is a complex project, some leading enterprises have achieved significant transformation results. For biotechnology companies that are determined to independently lay out commercialization, they should actively adopt artificial intelligence and digital solutions to transmit information about innovative products to the target group of doctors in a more efficient way.