Overseas biotechs have played an important role in BD transactions this year. According to statistics from Guosheng Securities, from 2019 to 2023, the proportion of overseas biotechs in domestic BD transaction transferees increased from 14% to 35%.

The latest entrant is RAPT Therapeutics. On December 23, it announced the introduction of overseas rights to JYB1904, a long-acting anti-IgE antibody under Jimin Trust, at a cost of an advance payment of US$35 million and future milestone payments of up to US$673 million. IgE is an important target for allergic diseases. Omalizumab has been on the market for more than 20 years, and there is still a lack of more effective iterative drugs. JYB1904 is expected to achieve long-term replacement in the post-omalizumab era.

Before the introduction of JYB1904, RAPT was a star player in the CCR4 field. In the field of CCR4 targets, only one macromolecular drug, Mogamulizumab, has been approved for marketing in the world for the treatment of T-cell lymphoma. RAPT's previous core pipeline, Zelnecirnon, is an oral small molecule CCR4 antagonist, and its development direction is autoimmune diseases.

Zelnecirnon's differentiation and excellent early clinical data advantages once made RAPT unrivaled. However, in February this year, it was stopped by the FDA due to serious adverse reactions in patients. In November, RAPT completely abandoned Zelnecirnon, which resulted in its only CCR4 inhibitor tivumecirnon in the direction of cancer in its clinical pipeline. However, in this field, Mogamulizumab has monopolized the market for many years.

Under the influence of this news, RAPT's stock price continued to hit new lows, and since December it has fallen below $1, hovering on the edge of delisting. The story after that is that RAPT took out half of its assets to buy JYB1904. As of the end of the third quarter, RAPT had a total cash of $97.91 million. Obviously, it regards JYB1904 as a lifeline. On the day when BD announced the news, its stock price soared 110.86%, and it completed a round of financing of US$150 million.

RAPT is not the only one who hopes to turn things around with domestic innovative drugs. On December 20, Aadi announced a cooperation with WuXi Biologics/Duoxi Bio to jointly develop three new ADC drugs at a cost of US$44 million in advance payment, US$265 million in development milestones, and US$540 million in commercial milestones and sales share. As of the end of the third quarter, Aadi had only US$62.62 million in total cash on its account. Albumin-bound sirolimus was Aadi's previous core pipeline, and it also successfully promoted the launch of a product (trade name: Fyarro) in a rare cancer, but the commercialization performance was poor.

What's more, in August, because the Phase II clinical data of sirolimus failed to reach the efficacy threshold required to support accelerated approval, Aadi decided to suspend clinical trials and lay off 80% of its R&D staff. Obviously, turning to ADC has become Aadi Bioscience's last gamble. At the same time as announcing the above transaction, Aadi also plans to sell its existing pipelines and related infrastructure for $100 million, and raised about $100 million through PIPE financing; there have also been changes in management, and Zhao Boteng, the former founder of Pufang Bio, has also joined the company's board of directors. Affected by these strategic transactions, Aadi's stock price has soared by more than 46%.

Earlier, Aclaris and Instil were also in the same situation. They encountered setbacks in their original fields and got into trouble. After introducing overseas rights and interests of domestic innovative drugs this year, their stock prices have risen one after another. Instil has benefited from the breakthrough in the field of PD-1/VEGF dual antibodies, and its stock price once hit $12 to $92. At a time when domestic innovative drug assets are intensively going overseas, the scene of Chinese assets saving US-listed biotech is constantly being staged. Just as overseas biotech plays an important role in BD transactions, domestic biotech has also become an important licensor. Among this year's blockbuster BD projects (with a down payment of more than $200 million or a total amount of more than $1 billion), companies established after 2020 accounted for 35%. Most of the remaining licensors, except for old pharmaceutical companies such as Hengrui Medicine, were established after 2015.

This shows that behind these intensive license outs, the new generation of biotech research and development results have begun to emerge, and the fresh blood of innovative drugs has emerged rapidly. They have embarked on the road of license out in the context of complex economic conditions and the capital winter era, saving others and saving themselves. For the entire Chinese innovative drug industry, it has changed from the previous license in to the current license out.

Behind this is the change in the role played by Chinese innovative drug assets in the global market. According to data from Huatai Securities, as of November 18, the number of domestic innovative drugs with external BD reached 71, a year-on-year increase of 16%, and the total amount reached US$40.5 billion, a year-on-year increase of 54%. During the same period, the number of projects of domestic innovative drugs with external BD accounted for 14% of the global BD, and the total amount accounted for 30%. China has become an important player in global innovative drugs. The Chinese market has gradually been recognized as a new force in the research and development of innovative drugs. As research and development progresses, domestic innovative drugs that have reached external authorization are expected to gradually enter the commercialization stage and share overseas market benefits.

Moreover, at the 2024 (41st) National Pharmaceutical Industry Information Annual Conference, the relevant person in charge of the Science and Education Department of the National Health Commission gave the following data: my country's innovative drug research and development capabilities and levels have been greatly improved, and my country's ranking in the global innovation index has risen from 34th in 2013 to 12th in 2023. At present, my country's R&D investment and output are among the best in the world, the number of high-level international journal papers ranks first in the world, and the number of new drugs under development has jumped to second in the world.

Of course, although the number of papers and patents in my country ranks among the best in the world, the transformation of scientific and technological achievements needs to be improved. At present, the conversion rate of biotechnology achievements in my country is only 5.6%, which is a big gap compared with the 21.6% in the United States. This means that we still have a lot of room for improvement. However, when overseas pharmaceutical companies and overseas capital continue to introduce domestic innovative drugs or acquire domestic innovative pharmaceutical companies, the market is inevitably worried that in the past few years, we have invested hundreds of billions, and the fruits or good seedlings we have grown have been picked. What should we do with our innovative drug industry?

On the surface, it is a pity that the fruits were plucked by others, but if we start from the innovation ecology of the entire industry, we will find that this may not be all bad. On the one hand, this shows that domestic innovative pharmaceutical companies have come up with some lottery tickets that are liked by overseas pharmaceutical companies, and the domestic soil cannot support these innovative drugs for the time being, so being able to sell them is also a return on shareholders. On the other hand, this is also a realistic choice.

According to statistics from Huatai Securities, as of November this year, the first payment income of domestic innovative drug BD and M&A has reached US$6.27 billion, surpassing the investment and financing amount of innovative drug companies of US$3.98 billion in the same period. In the capital winter, many biotech companies have a tight cash flow and are almost unable to continue operating. There are actually not many choices in front of them.

Objectively speaking, overseas large pharmaceutical companies and capital regard domestic high-quality biotech as "prey", and while overseas biotech regards domestic innovative drug assets as "life-saving straws", domestic biotech also regards them as the hope of survival? From a business perspective, this is a two-way rush for each to get what they need. Of course, licensing the pipeline to overseas biotech companies that are already in trouble is still a matter for discussion.

If we only look at the development of a new drug, when going overseas becomes a must, the best situation for pharmaceutical companies is that they can develop it with all their strength, such as the story of BeiGene and Zebutinib. However, everyone knows that this is not realistic at all. So, in this case, license out as soon as possible; at the same time, the choice of BD objects is also very critical. Simply dividing the BD objects into different situations, the best choice is to be able to sell to large pharmaceutical companies and be promoted as a key project; the second is to sell it to dealers as a key project, which is the hot NEWCO model at the moment. Dealers usually develop the largest indication with all their strength, and then wait for data to be read out and sell it to large pharmaceutical companies at a higher price; the third is to sell it to large pharmaceutical companies but not as a key project, and the worst is to keep it in their own hands and slowly depreciate.

This is not difficult to understand. If a good drug is unable to develop overseas by itself, then it is critical to license the BD to large pharmaceutical companies. Because they have the ability and financial resources to develop at full speed, open multiple registered clinical trials at the same time, and enroll thousands of people to maximize the value of new drugs. The only way to develop new drugs is to be fast. It can even be said that if you are unable to develop overseas, then as time goes by and the competitive landscape evolves, the value of new drugs may continue to shrink. Therefore, if you have enough early data, you should try to license it out as quickly as possible.

At this stage, whether it is domestic innovative pharmaceutical companies that complete financing in the cold winter against the market by relying on their own value, or indirectly complete financing by license out, they will get tickets for survival in the next stage. For enterprises, only by surviving can there be a tomorrow.

For the industry, there must be investment, exit and return, so that financing can continue, and there will be a steady stream of primary market funds to support innovation. In the future, there will be a steady stream of innovative forces. Of course, when more and more fruits mature or surface, perhaps we should also expect that domestic pharma can speed up its pace and become a gold digger.

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