Baiji Shenzhou has demonstrated excellent technical strength, but still faces multiple challenges.

Xue Yu/Wen

on the evening of August 2, baiji shenzhou (688235.SH) released its main financial data and unaudited financial results for the first half of 2023. During the reporting period, the company achieved total operating income of 7.251 billion yuan, an increase of 72.2 percent over the same period last year, of which product income was 6.696 billion yuan, an increase of 82.2 percent over the same period last year, and a net loss of 5.219 billion yuan, which was narrowed compared with the loss of 6.664 billion yuan in the same period last year.

The rapid release of core independent research and development products is the main reason for the company's revenue growth. In 2022, Baekje Shenzhou's Zebutinib "head-to-head" defeated Ibutinib and became the best of its kind, which has proved the company's excellent technical strength. But at the same time, the company still faces patent lawsuits from competitors and long-term dependence on external financing. The company still has a long way to go on the road of internationalization.

Technical strength recognized

Baiji Shenzhou currently has 3 independently developed and approved drugs, including Baiyueze®(Zebnitinib), Baizean®(Trellizumab) and Parkway Ze®(Pamiparly). Baiyueze®It has been approved for listing in the United States, China, the European Union, the United Kingdom, Canada, Australia and other international markets.®and Parkway Ze®It is also currently listed in China.

From 2020 to 2022, the total operating income of Baiji Shenzhou increased rapidly from 2.12 billion yuan to 9.566 billion yuan. In addition to 2021, the company's technology licensing, research and development services and intellectual property licensing revenue accounted for a relatively high (46.11), other years the company's operating income is mainly from the sale of core products. In 2020, Baiyueze®and Bazaan®The sales revenue is 0.286 billion yuan and 1.118 billion yuan respectively, 1.406 billion yuan and 1.647 billion yuan in 2021, 3.829 billion yuan and 2.859 billion yuan in 2022, of which Baiyueze®The release is particularly rapid. In the first half of 2023, Baiyueze®Global sales totaled 3.612 billion yuan, up from 1.514 billion yuan in the same period last year, of which U.S. sales totaled 2.519 billion yuan, up from 1.015 billion yuan in the same period last year. Bazaan®The growth was more stable, with sales in China totaling 1.836 billion yuan in the first half of 2023, compared with 1.251 billion yuan in the same period last year.

The company stated that Baiyueze®The increase in sales in the United States was mainly due to the rapid increase in the use of CLL or SLL indications and the continued expansion of the use of FDA-approved indications.

Baiyueze®It is the first anti-cancer drug independently developed in China that has been approved by the US FDA and recognized as a breakthrough therapy. It is a second-generation BTK inhibitor. It has been approved for multiple indications in more than 65 markets including the United States, China, and the European Union. October 2022, Baiyueze®In the "head-to-head" comparison of Yike.®(Ibrutinib) for the treatment of R/R CLL/SLL adult patients in the global clinical phase III ALPINE trial, the analysis showed that Baiyueze.®In terms of progression-free survival (PFS) and overall response rate (ORR).®All demonstrated superiority and lower rates of cardiac function-related adverse events.

The so-called head-to-head test is a clinical trial that uses clinically used therapeutic drugs or treatment methods as a control. It is a direct comparative study of the effectiveness and safety of two drugs. In the history of innovative drugs in China, head-to-head trials are very rare, and only pharmaceutical companies with strong technology and financial strength and technical confidence dare to implement them. It can be said that the head-to-head test is the most direct way to prove the clinical value of a drug. Once successful, there will be a great chance to seize the market share of the challenged.

in addition to baiji shenzhou, AstraZeneca's second-generation BTK inhibitor acatinib has also been tested over-head versus ibrutinib. however, unlike baiji shenzhou's superiority study, AstraZeneca has conducted a non-inferiority study, and the results show that acatinib is not inferior to ibrutinib.

This also means that Baekje Shenzhou's Zebutinib is a "best-in-class" drug. In view of the efficacy and safety advantages of zebutinib, the 2023 National Comprehensive Cancer Network (NCCN) guideline V1 upgraded zebutinib from the previous 2A category to 1 category, which is the highest level of recommendation. Specifically, for CLL/SLL patients with del(17p)/TP53 mutation, zebutinib has become the "preferred recommended regimen" in first-line and second-line treatment and subsequent treatment, while ibrutinib has been transferred to "other recommendations", thus zebutinib has established its priority in first-line and second-line treatment of CLL/SLL.

Due to the efficacy advantages of BTK inhibitors, the market size has continued to grow rapidly in recent years. Data show that the global BTK inhibitor market size increased from $2.2 billion in 2016 to $7.2 billion in 2020. According to Frost & Sullivan's analysis, this market is expected to continue to expand in the future, reaching $20 billion in 2025 at a compound annual growth rate of 22.7 per cent and expanding to $26.1 billion in 2030 at a compound annual growth rate of 5.5 per cent. Since ibrutinib was approved by FDA in November 2013, it has monopolized the BTK market for five years, and global sales have increased to a maximum of US $9.777 billion in 2021. There are currently six BTK inhibitors on the market worldwide, of which acatinib and zebutinib have grown strongly in the past two years, with global sales reaching $2.057 billion and $0.565 billion respectively in 2022, while ibutinib sales have fallen to $8.352 billion. As a best-in-class drug and preferred treatment regimen, Zebutinib is expected to continue to capture a larger market share of BTK inhibitors in the future.

In the face of Baekje Shenzhou's fierce offensive, AbbVie quickly launched a counterattack, pointing to Baekje Shenzhou's patent infringement.

Encountered patent litigation

on June 13, 2023, AbbVie's Pharmacyclics filed a lawsuit against Baekje Shenzhou and its subsidiary BeiGene USA,Inc. Complaint, claiming that the company's products Baiyueze®infringed one of its patents granted on June 13, 2023, and requested a court ruling to determine the infringement and grant compensation and other remedies.

To this, Baiji Shenzhou said, Baiyueze®Is the company's original research drugs, the company for Baiyueze.®An original and innovative global intellectual property system has been established, and such patent infringement allegations will be vigorously defended.

As a means of commercial competition, patent lawsuits between large multinational pharmaceutical companies often occur, and the "king of medicine" K drug (Pabolizumab) has not escaped the patent dispute with its rival O drug (Nivolumab).

on July 7, 2015, Bristol-Myers Squibb (BMS) filed a patent infringement lawsuit against Mercadon, accusing Mercadon of infringing the rights protection required by its US9073994 patent for pembrolizumab (drug k) used to treat metastatic melanoma. Prior to this, Mercadon also initiated patent infringement lawsuits against Gilead's hepatitis C treatment drugs Sohuadi (sofosbuvir) and Xia Fanning (retpavir/sofosbuvir), and Johnson & Johnson had sued Abbott for patent infringement.

Mercadon v. Gilead's case lasted eight years from 2013 until 2021. Patent litigation is time-consuming and cost-consuming, why do multinational pharmaceutical companies enjoy it?

AbbVie is currently facing a huge "patent cliff" pressure. On January 31, 2023, Amjin announced that its research and development of Xiumile biosimilar Amjevita officially entered the U.S. market. This is also the first Xiumile biosimilar approved by FDA. In addition, nearly ten pharmaceutical companies plan to successively launch Xiumile biosimilar in the U.S. market. The launch of the bio-similar drug marks the official end of AbbVie's 20-year market monopoly period for Xomelo, after AbbVie's cumulative sales revenue from Xomelo was nearly $200 billion. In 2022, Abel Maintenance Merlot's sales revenue will reach $21.237 billion billion, still accounting for 36.58 percent of its total operating income.

Xiu Mei Le's main patent actually expired in 2016. Through continuously strengthening the patent protection network, as well as litigation and negotiation, Xiu Mei Le has obtained another six-year market monopoly period. Among AbbVie's several blockbuster drugs, iboutinib ranks third in sales revenue, contributing nearly one-tenth of its operating income. Under the background that the sales of major products will decline sharply, it is obviously unwilling to see the market share of another important product being seized.

As mentioned earlier, the Pharmacyclics patent used to sue Baekje Shenzhou for infringement received the authorization notice on June 13, 2023, and the lawsuit was filed on the same day, which shows its urgency. According to the analysis of industry insiders, the scope of patent protection of Pharmacyclics did not include zebutinib before. It used the unique continuing application system of the United States to expand the scope of protection of claims, and only recently included zebutinib into the scope of patent rights.

There is great uncertainty as to the outcome of the verdict that Baekje Shenzhou will face. According to the experience of other patent litigation cases, the result or settlement may also win the case. For example, BMS's lawsuit against Mercadon lasted two years. In January 2017, BMS finally won the lawsuit and reached a settlement with Mercadon. According to the settlement agreement, Mercadon will pay BMS a sales share of 6.5 per cent of the total global sales revenue of K drugs from 2017 to 2023. The sales share will be paid at 2.5 from 2024 to 2026. Mercadon v. Gilead Patent Infringement and Johnson & Johnson v. Abbott Patent Infringement awarded damages of up to US $2.54 billion and US $1.67 billion respectively in the first instance, but they were later reversed after appeal by the defendant and were not actually implemented.

Even if the case is lost, it does not mean that the product sales will be adversely affected. Although K Drug lost the case, its sales have maintained rapid growth due to excellent clinical data and continued commercialization. Until 2017, the global market sales of O drugs have been ahead of K drugs. After the patent dispute, the global sales of K-drug surpassed that of O-drug for the first time in 2018. Since then, the sales growth rate of K-drug has continued to be higher than that of O-drug. By 2022, the global sales of K-drug will exceed US $20 billion, while the global sales of O-drug will still not exceed US $10 billion.

Minsheng securities believes that the pharmaceutical companies that have taken the lead in research and development have strong first-mover advantages, and they are more likely to apply for a wider range of rights protection requirements according to the structure and use of drugs, so as to limit the catch-up of latecomers in research and development. In the process of drug optimization, improvement and drug development, latecomers should always pay attention to the layout of existing patents in the track and be cautious against falling into "patent trap. Minsheng Securities said that if you accidentally fall into a patent dispute, paying for a patent settlement is a reasonable solution.

Regardless of the response, the patent litigation encountered by Baekje Shenzhou may be viewed from another perspective. As a pioneer in the sea, Baiji Shenzhou has successfully opened the door of the global market with its hard power, but at the same time it is facing multi-level and all-round challenges, which is not a growth opportunity.

Facing multiple challenges

Baekje Shenzhou's other main product is Baekje®(Trellizumab), which is currently approved for eleven indications in China. Although the approved indications for trellizumab are in the forefront, the domestic competition pattern is not as good as that of zhebtinib due to the increasingly fierce competition in the PD-(L)1 inhibitor track. 2020-2022, Baizian.®Sales revenue was 1.118 billion yuan, 1.647 billion yuan and 2.859 billion yuan respectively, although the growth rate was faster but not as good as Ze.Boutinib. However, Baekje Shenzhou has implemented an extensive global clinical layout for Trellizumab, including clinical trials in 31 countries and regions. At present, the US FDA is reviewing the impact on Baizean.®New drug marketing approval applications for second-line treatment of esophageal squamous cell carcinoma, if approved, may further accelerate product release.

according to soochow securities, as of March 23, 2023, FDA has approved four PD-1 monoclonal antibodies: pembrolizumab, nivolumab, simeplimab and Dostarlimab. Approved three PD-L1 monoclonal antibodies: avelimab, atirizumab and duvalimumab. The global sales of the core four products will reach US $36 billion in 2022, maintaining a year-on-year growth rate of more than 15% for five consecutive years. However, the FDA has not yet approved domestic PD-1/PD-L1 monoclonal antibodies.

On the other hand, the research and development of Baiji Shenzhou's products under research is not smooth, and it has recently been "returned" by its partners ". On July 11, 2023, the Company announced that it had previously granted Novartis an exclusive license to develop, produce and commercialize the company's TIGIT inhibitor Osellizumab in several countries and regions, and that Novartis would pay the Company a down payment of $0.3 billion and subsequent payments of up to $2.595 billion. However, based on strategic and financial considerations, the two sides agreed to terminate the agreement on July 10.

Oseperizumab is an in-process monoclonal antibody against TIGIT that is currently being evaluated in two global Phase III clinical trials. However, the failure of a number of core clinical trials targeting TIGIT targets around the world has put its prospects in doubt. In March 2022, Roche announced that SKYSCRAPER-02, a phase III clinical trial of Tiragolumab combined with Atillizumab for first-line treatment of extensive small cell lung cancer (ES-SCLC), did not reach the primary endpoint of PFS. Two months later, the data of phase III SKYSCRAPER-01 study of Tiragolumab combined with Atillizumab for first-line treatment of PD-L1 high-expression NSCLC did not reach the common primary endpoint of PFS. In February 2023, Bristol-Myers Squibb announced the termination of the Phase II clinical trial of TIGIT inhibitor BMS-986207 due to safety issues. In March 2023, Mercadon announced that the non-registered Phase II clinical study MK-7684A the treatment of metastatic NSCLC KeyVibe-002 not reached the primary endpoint of PFS, and its efficacy was not as good as docetaxel. Novartis's "return" to Baiji may also indicate that it is not optimistic about the prospects of TIGIT targets.

The research and development of innovative drugs has never been smooth sailing. The risks are extremely high but there may be opportunities. The success of the research and development of Baekje's oselizumab remains to be tested by time.

at present, there are more than 60 preclinical research projects in baiji shenzhou. the company said that about half of them have the potential to become the first of its kind or the best of its kind. however, due to the huge research and development expenses and commercial promotion expenses, the accumulated undistributed profit of baiji shenzhou as of the first half of 2023 is -53.419 billion yuan. although the loss in the first half of 2023 has narrowed, at present, unless the company's core products can be greatly expanded, I'm afraid it will take some time for the company to turn around.

as of the end of the first quarter of 2023, the company had 17.82 billion yuan of monetary funds, 6.499 billion yuan of trading financial assets and 2.234 billion yuan of other current assets, totaling 26.553 billion yuan. Short-term loans are 1.834 billion yuan, non-current liabilities due within one year are 0.76 billion yuan, long-term loans are 1.419 billion yuan, and interest-bearing liabilities total 4.013 billion yuan. In 2022, the company's total operating income is 9.566 billion yuan, the total management and sales expenses are 8.692 billion yuan, and the research and development expenses are 11.152 billion yuan. The company still has certain financial pressure. According to statistics, from 2011 to 2015, Baiji Shenzhou has obtained three rounds of financing through the primary market, including in the United States NASDAQ, Hong Kong Stock Exchange, Shanghai Stock Exchange Science and Technology Board, the cumulative amount of funds raised reached 70 billion yuan, has been more dependent on external financing.

However, from the semi-annual report, the ability of Baiji Shenzhou's operating income to cover expenses has improved. In the first half of 2023, the Company's total operating income was $1.043 billion, while research and development expenses were $0.831 billion and sales and management expenses were $0.724 billion; in the first half of 2022, the Company's total operating income was $0.648 billion, research and development expenses were $0.768 billion and sales and management expenses were $0.626 billion.

the future growth of the core product zebutinib is very important for the company. Baekje Shenzhou has demonstrated its technical strength, but it still faces multiple challenges.