On the evening of December 29th, Hengrui Pharmaceutical (600276. SH) announced that it has reached an agreement with American biotechnology company IDEAYA Biosciences to license the exclusive rights to develop, produce, and commercialize the Class 1 injectable drug SHR-4849, which has independent intellectual property rights, to IDEAYA Biosciences worldwide for a fee, except for Greater China.

Public information shows that SHR-4849 is an antibody drug conjugate (ADC) targeting DLL3, and its payload is a topoisomerase inhibitor (TOPOi). DLL3 is expressed in various solid tumors, including small cell lung cancer and neuroendocrine tumors, but its expression is limited in normal tissues. SHR-4849 exhibits strong proliferative inhibitory activity against different tumor cell lines with high expression of DLL3. SHR-4849 has a significant bystander effect and can kill DLL3 overexpressing cells by releasing toxins.

Currently, there are no DLL3 ADC products approved for market worldwide. According to the announcement from Hengrui Pharmaceutical in June this year, SHR-489 has been approved by the National Medical Products Administration to conduct clinical trials. The drug is currently undergoing phase 1 clinical trials in China for advanced solid tumors (NCT06443489). As of the announcement date, Hengrui Pharmaceutical's cumulative R&D investment in the SHR-4849 project is 26.32 million yuan.

IDEAYA Biosciences, a clinical stage precision oncology company, was founded in 2015 and is headquartered in South San Francisco, California, USA. In 2019, IDEAYA Biosciences was listed on the NASDAQ exchange in the United States, with a total market value of $2.175 billion. IDEAYA Biosciences' partners include well-known multinational pharmaceutical companies such as Pfizer, Gilead, and GSK. In July 2024, IDEAYA Biosciences also partnered with BioNTech (02315. HK) to obtain exclusive global licensing options for their B7H3/PTK7 topoisomerase inhibitor payload bispecific antibody coupled drug (BsADC) project.

According to the agreement, IDEAYA Biosciences will pay a down payment of $75 million (approximately RMB 547 million) to Hengrui Pharmaceutical, which is nearly 20 times the R&D investment of Hengrui Pharmaceutical alone. In addition, Hengrui Pharmaceutical can also obtain a cumulative R&D milestone payment of no more than $200 million and a cumulative sales milestone payment of no more than $770 million from IDEAYA Biosciences, with a potential total payment of up to $1.045 billion. In addition to down payments and milestone payments, Hengrui Pharmaceutical will also charge a sales commission of one to two digit percentage of actual annual net sales.

This is the 12th overseas authorization of innovative drugs achieved by Hengrui Pharmaceutical in its history. Although Hengrui Pharmaceutical is one of the earliest traditional pharmaceutical companies to initiate innovation transformation and internationalization, it has not been interested in the License out pipeline for a long time. After 2023, with the wave of Chinese innovative pharmaceutical companies going global, Hengrui Pharmaceutical's attitude has also undergone significant changes.

The change in Hengrui Pharmaceutical's attitude and situation towards external business development (BD) is partly due to the company's abundant R&D pipeline reserves, with over 90 innovative products in the clinical development stage and more than 300 clinical trials conducted domestically and internationally.

On the other hand, in terms of personnel appointments and dismissals, Hengrui Pharmaceutical is continuously increasing its internationalization efforts and introducing "fresh blood". In 2023, Jiang Ningjun joined Hengrui Pharmaceutical as Vice General Manager and Chief Strategy Officer. Before joining Hengrui Pharmaceutical, Jiang Ningjun served as the founding CEO and chairman of the board of directors of Cornerstone Pharmaceutical (02616. HK), and had professional experience in multinational pharmaceutical companies such as Eli Lilly and Sanofi, with profound experience in global innovation and international business.

In the same year, Zhang Su, who had previously worked at Pfizer, joined Hengrui Pharmaceutical as the Global BD Manager. Industry media "Deep Blue View" reported that the NewCo transaction of Hengrui Pharmaceutical was later led by Zhang Su. But currently Zhang Su has resigned. In October 2024, Jens Bitsch Norhaven from Johnson&Johnson joined Hengrui Pharmaceuticals as the "Global Development Affairs Head".

In January 2024, GlaxoSmithKline (GSK) announced the acquisition of a clinical stage biopharmaceutical company, Aiolos Bio, for which GSK will pay a $1 billion advance payment and up to $400 million in milestone payments. This biopharmaceutical company, which made GSK willing to spend a lot of money, only had one core pipeline AIO-001 at the time, which was a project introduced from Hengrui Pharmaceuticals. The down payment and recent milestone payments for the transaction were only $25 million. Aiolos Bio's resale prepayment is 40 times the price. Therefore, some comments joked that Hengrui Pharmaceutical was "profiting from the price difference".

Hengrui Medicine may have reflected and summarized on these BD cases. Because in recent years, the level of Hengrui Pharmaceutical International BD has also significantly improved.

In 2024, Hengrui Pharmaceutical contributed a benchmark case of innovative model for biopharmaceutical external authorization. In May of this year, the company licensed its GLP-1 class innovative drugs HRS-7535, HRS9531, and HRS-4729, which have independent intellectual property rights, to Kailera Corporation (formerly known as Hercules) in the United States, with a cumulative down payment of up to 6 billion US dollars. Unlike the traditional license out transaction model, Hengrui Pharmaceutical not only obtains various potential cash payments, but also acquires 19.9% equity of Kailera Company.

Hengrui Pharmaceutical previously responded to an interview with Time Finance, stating that Hengrui Pharmaceutical can participate in Kailera's decision-making through shareholding and voting rights. Kailera Company's payment obligation to Hengrui Pharmaceutical occurs at the company level, and Hengrui Pharmaceutical, as a shareholder, does not need to share the payment obligation. If the company generates revenue in the future, Hengrui Pharmaceutical's income can not only include the income from authorized agreement products, but also participate in the company's profit distribution to shareholders or the capital gains brought by the company's own value enhancement.

This trading model was later referred to as the "NewCo" model in discussions. Although Hengrui Pharmaceutical is not the pioneer of the NewCo model, this transaction has ignited the enthusiasm of the industry. In the following six months, NewCo quickly became popular in the Chinese biopharmaceutical industry.

According to Time Weekly, since the beginning of this year, seven Chinese pharmaceutical companies, including Hengrui Pharmaceutical, Kangnuo'a (02162. HK), Jiahe Biotechnology (06998. HK), Anmai Biotechnology, Lingkang Pharmaceutical, Nanjing Weili Zhibo, and Shengnuo Pharmaceutical (02257. HK), have reached a total of eight NewCo transactions. According to the disclosed data, the total transaction amount of these transactions has exceeded 60 billion yuan.