Going overseas is not only a dream, but also a big adventure that Hengrui Medicine has to take. Even under the new measurement standards, there is such a voice that the success of going overseas will be the key to determining whether Hengrui Medicine can maintain its "number one" status. Indeed, Hengrui Medicine, which has accelerated its innovation transformation, has come to a crossroads. First, relying on the domestic market in the past, Hengrui Medicine may not be in a hurry to layout overseas markets. However, with the involution of domestic innovative drugs and pharmaceutical companies going overseas to find incremental growth, internationalization has also been raised to a more important level. Although Hengrui Medicine proposed the direction of "internationalization" as early as in its 2020 annual report, its internationalization has not been smooth in the past few years.

Secondly, carrelizumab has already fallen behind, and the internationalization of PD-1 has become a battle that it must win. If this gamble is successful, it is not impossible for carrelizumab to return to glory and change its overseas dilemma. Therefore, Hengrui Medicine has high hopes for the overseas launch of the dual-ai combination (carrelizumab + apatinib). According to the terms of the transaction, Hengrui Medicine cooperates with its partner Elevar. Hengrui Medicine is actually responsible for managing overseas clinical trials, and all research costs outside China are shared equally by both parties. In addition, there is no down payment. Only when the product is successfully listed and reaches a certain sales volume can Hengrui Medicine get a milestone payment, up to 600 million US dollars; the sales share is related to Elevar's net profit, with a ratio of about 20.5%.

To some extent, this is a risk-free transaction for Elevar. The reason why Hengrui Medicine did this may be out of confidence in the product, hoping to lead overseas clinical trials, accelerate listing, and get a high share. After all, the global liver cancer market is large enough. In February last year, Hengrui Medicine stated in a survey that one of the focuses of its overseas work was the overseas application of the dual-ai combination; in May, Elevar submitted an application for listing.

In May this year, the FDA rejected the dual-ai combination due to factors such as CMC and travel restrictions. Five months later, Hengrui Medicine announced that it had resubmitted the application for the dual-ai combination to the FDA. Although the phase III clinical results were published in the top medical journal The Lancet, the clinical trial was not perfect. For example, 83% of the subjects were Asians, and less than 17% of the white people in the trial were white. In this case, it is still unknown whether the dual-ai combination can be successfully approved.

At present, Hengrui Medicine has reflected on and adjusted its overseas strategy. In an interview with "Pharmaceutical Magic Cube", Zhang Lianshan said that the overseas strategy has been adjusted, and now every product is willing to seek cooperation. "In the past, the overseas way of the combination of carrelizumab and apatinib would not be done now because the cost is too high. We changed our strategy. Any product, at any clinical stage, will seek cooperation with overseas development. In addition to cost, foreign cooperation is also a risk-removal model. In the past, domestic companies have reached some cooperation with overseas companies. The so-called return of goods is actually very normal. The money is received and the risk is removed. But realistically speaking, not every product of ours has the opportunity for foreign cooperation." In other words, Hengrui Medicine wants to go overseas, but does not want to continue to take risks.

Speaking of which, Hengrui Medicine's transformation also began in 2023. In January, Jiang Ningjun joined Hengrui Medicine and was responsible for the company's innovative drug internationalization, clinical research and business development. At the same time, a strategic decision-making group composed of Sun Piaoyang, Zhang Lianshan and Jiang Ningjun was responsible for the company's strategy and R&D decisions. Since February, Hengrui Medicine has kicked off the acceleration of going overseas, including EZH2 inhibitor SHR2554, TSLP monoclonal antibody SHR-1905, HER1/HER2/HER4 targeted drug pyrotinib maleate, PARP1 inhibitor HRS-1167, Claudin-18.2 ADC SHR-A1904 were authorized, with a total transaction amount of more than US$4 billion.

Among them, it reached a BD transaction of up to 1.4 billion euros with Merck for pipelines such as HRS-1167 and SHR-A1904. This is also the first time that Hengrui Medicine has reached cooperation with MNC. According to the agreement, Hengrui Medicine will receive a down payment of 160 million euros, technology transfer fees and exercise fees of up to 90 million euros, and R&D milestone payments and sales milestone payments, with a total amount of up to 1.4 billion euros.

Before 2023, Hengrui Medicine was generally cautious or conservative about overseas cooperation; after 2023, it promoted the listing of the double Ai combination while accelerating the adjustment of its overseas strategy. So, what caused the change? On the one hand, Hengrui Medicine's determination to transform and innovate has not changed. In recent years, its R&D investment has accounted for more than 20% of its revenue. However, it should be pointed out that it is somewhat conservative in some aspects, such as the timing and rhythm of developing BD. In short, Hengrui Medicine's internationalization was not late in form, but it was late in real internationalization.

On the other hand, compared with biotech, Hengrui Medicine seems a bit "big but not refined". More than 90 pipelines are under development, and the R&D department applies for nearly 20 new molecules each year. The overall R&D investment is huge, but the screening optimization and verification degree of each molecule is not high. One conceivable reason why Hengrui Medicine cannot invest freely in R&D is that it spends the money it earns from selling drugs and needs to consider the balance of income and expenditure.

If financing is not considered, the premise of high R&D and high investment in drugs should be high returns. But in the domestic market, this is almost impossible to do, so it is necessary to go overseas. For the big brother, even if the R&D is completed overseas, the sales model it is good at may not work overseas. Like BeiGene, it is difficult to build a complete R&D, registration and sales team overseas from scratch under different cultural contexts and regulatory requirements; what's more, the actual financing environment does not allow it. Seeing that it is difficult to advance independently going overseas, there may be only one way to break the dilemma of going overseas, and that is to open up cooperation. Zhang Lianshan once said frankly, "Selling drugs in China at the US market price is not what we should do as a Chinese company. But we are not a charity organization, we are a company. Innovation requires returns. We need to give returns to investors and pay employees, so we must take the products to the overseas value market." As for how to get to the overseas market, he also said: Any product, at any clinical stage, will seek to cooperate with overseas development. Because the cost is low and the risk is low. After paying the "tuition fee", Hengrui Medicine has also explored a new form of going overseas. Through technology investment, it will build a game with overseas capital. While reducing risks, it can also lock in long-term returns.

In May this year, Hengrui Medicine authorized the overseas rights of its GLP-1 and other product portfolios to Hercules, a US company. Through the initial R&D investment of about 156 million yuan, it leveraged a total transaction of US$6 billion, of which the down payment alone reached US$100 million. In addition to the down payment, milestones, etc., Hengrui Medicine will also obtain 19.9% of Hercules' shares. Even if it fails in the later clinical trials, it has received a guaranteed minimum of US$100 million. Through this kind of cooperation, the high cost investment in the later stage is reduced, the R&D risk is dispersed, and the right to obtain future benefits is retained through equity.

It seems that you can kill two birds with one stone. However, there are gains and losses. Going overseas in the form of license out transactions may mean losing an excellent opportunity to practice overseas. Behind this transformation, it is very realistic and true. "With the realization of external licensing of multiple products, we can realize the return of overseas markets relatively quickly, which is very important." Zhang Lianshan said.

In the first half of 2024, Hengrui Medicine's innovative drug revenue was 6.612 billion yuan and external licensing revenue was 160 million euros. Not only Hengrui Medicine, but also large pharmaceutical companies such as Hansoh Pharmaceuticals have chosen this path. This may mean that most domestic pharmaceutical companies are not ready to go overseas and need greater "ambitions". Compared with short-term income, some market insiders believe that Hengrui Medicine, as the leader, should have fundamentally different BD goals from biotech.

Chinese pharmaceutical companies must go out, and China has also reached the time when it needs world-class pharmaceutical companies. And referring to the rise of Japanese pharmaceutical companies is very meaningful for domestic pharmaceutical companies. The dilemma faced by innovative pharmaceutical companies today is similar to that faced by Japanese pharmaceutical companies in the 1980s. Under the trend of internal circulation and medical insurance cost control, many domestic pharmaceutical companies are anxious. At the same time, the country is vigorously encouraging real innovation. This is a challenge and an opportunity. Faced with the continued trend of cost control, more and more Japanese pharmaceutical companies are looking overseas and embarking on the road to going overseas. And the form is not just the foreign patent licensing model that guarantees income regardless of drought or flood, but also includes the establishment of joint ventures, especially the latter. The first step for Takeda Pharmaceutical to go overseas is to establish a joint venture with overseas pharmaceutical companies. After accumulating rich wealth and experience through joint ventures, Takeda Pharmaceutical began to go global alone. In 1998, it began to establish its own independent subsidiary in the United States for drug sales, and expanded its pipeline by continuously acquiring high-quality overseas pharmaceutical companies.

In 2020, Takeda ranked among the top ten global pharmaceutical companies, which is also the best performance of Asian pharmaceutical companies. In addition to Takeda, pharmaceutical companies such as Astellas and Shionogi have achieved overseas expansion by establishing joint ventures with large pharmaceutical companies. Compared with directly selling overseas rights, this method requires greater initial investment and is more difficult, but it can also help domestic pharmaceutical companies accumulate experience. These Japanese pharmaceutical companies have both confidence and ambition to go beyond Japan. Back to China, in the cold winter, most biotech companies do not have many choices and can only survive through license out. But what about the traditional large pharmaceutical companies with more confidence? On the one hand, they have a solid foundation and can withstand the toss. As of the end of June this year, Hansoh Pharmaceutical had a total of 23.497 billion yuan in cash and financial assets on its account; Hengrui Medicine had 23.285 billion yuan in cash and financial assets.

Such a reserve of funds is enough to support the internationalization of large domestic pharmaceutical companies. On the other hand, their pipeline reserves are also sufficient. For example, Hengrui Medicine, SHR-A1904 is ahead in clinical progress, and is expected to compete with other players on the road to surpassing Claudin18.2 FIC. At this year's ESMO meeting, Hengrui Medicine announced the data of SHR-A1904 for the first time. In a Phase I study of patients with gastric or gastroesophageal junction cancer, in patients evaluated at baseline and ≥1 post-baseline, the ORR and DCR were 55.6% and 88.9% in the 6.0 mg/kg dose group, and 36.7% and 86.7% in the 8.0 mg/kg dose group.

The overall safety is acceptable and patients can tolerate it. Most AEs are common in tumor chemotherapy drugs, and the clinical potential is promising. The two pipelines licensed by Hansoh Pharmaceuticals at the end of last year both have FIC potential. Among them, there are 9 drugs in the clinical stage of the B7-H3 target worldwide. Hansoh Pharmaceuticals' HS-20093 is in Phase II clinical trials and is the second in the world; there are only 4 B7-H4 ADCs in the clinical stage, and HS-20089 is the first in the world. If they don't try, where will our "China Roche" come from?

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