typography/leeks under the stars

In May 2023, the World Health Organization (WHO) announced the end of the new crown epidemic, bringing to an end a historical event that lasted for several years and profoundly changed the world. For the field of bio-innovative drugs in China, 2023 is also a year of special significance. In October of this year, Junshi Bio's PD-1 drug Treplimumab was successfully approved by the US Food and Drug Administration (FDA), becoming China's first bioinnovative drug to successfully go to sea. This also echoes the pace in the field of innovative drugs. The industry's overall vision is indeed gathering from traditional small molecule drugs to large molecule drugs.

in the capital market, CXO and original research drug companies related to the field of bio-innovative drugs are also stars. However, in the time when A + H shares were sluggish, they also became a model of standing higher and falling harder. The stock price of Yao Ming Bio (02269) in the past six months can be described as precarious. First, it lowered its revenue forecast at the end of the year. At the beginning of this year, it suffered a strong impact from the black swan of geopolitical games. The share price fell sharply, withdrawing more than 70%.

stock price chart of yaoming biology source: network

CXO's performance and market popularity can be regarded as a barometer in the field of medicine. in 2024, when people expect medicine to usher in the dawn and start the repair market, bio-innovative drugs seem to have some misfortunes.

1. go to sea to achieve good results

macromolecular drugs are still an emerging field for domestic pharmaceutical companies, and there are almost no domestic antibody drugs before 2015. However, in recent years, the field of bio-innovative drugs in China has made rapid progress and achieved a lot. Especially in 2023, license out events are intensive and the amount is considerable.

Top 10 transactions of authorized amount of Chinese assets in 2023 Source: Company's official website, Hua'an Securities Research Institute

This not only reflects that the level of domestic bio-innovative drugs has been unanimously recognized, but also provides manufacturers with a much larger commercial space than the domestic market. For example, the first mentioned in the article, Junshi Bio's Treplimab is priced at 1912 yuan per bottle in China, while the first price in North America is 8892USD per bottle, a 33-fold difference. Therefore, if innovative drugs want to make up for high investment by obtaining high returns, it is necessary to dig into the overseas market with high ability to pay.

there is also the first place on the list, Bailey Tianheng (688506), whose EGFR/HER3 ADC drug was authorized to Bristol-Myers Squibb, and the potential total amount of the agreement disclosed in the announcement is as high as $8.6 billion. You know, Bailey Tianheng has been losing money for three consecutive years, with accumulated losses exceeding 1 billion yuan. After the deal was reached, Baili Tianheng received a down payment of US $0.8 billion in March this year. In a single quarter, it also realized 5.462 billion yuan's operating income, up 4325.45 year on year!

Bailey Tianheng's key accounting data and financial indicators for the first quarter of 2024 Source: Company Announcement

This is an interesting phenomenon for small and medium-sized innovative pharmaceutical companies. Burn cash flow into research and development, bet on a fist drug, do everything possible to commercialize up and down resources. As long as the opening for listing or even going to sea is opened, it will no longer be a dream for salted fish to turn over.

2. Macromolecular Drug Sales Grow Rapidly

with the strength of many manufacturers, the sales volume of bio-innovative drugs has indeed risen head-on. In 2023, a total of 7 macromolecular drugs achieved sales of more than 1 billion yuan, including 4 PD-1 products owned by Baiji Shenzhou, Cinda Biology, Hengrui Medicine and Fuhong Hanlin.

domestic class 1 macromolecular drugs with sales exceeding 1 billion yuan in 2023 source: company announcement, network channel arrangement

It can be seen that the progress in the level of domestic bio-innovative drugs is obvious. This is inseparable from the careful care of the regulatory level. After all, the biomedical industry can be described as a core industry that relies on many places. Moreover, in super first-tier areas such as Beijing, Shanghai and Guangzhou, the support efforts are still being optimized and increased. On April 7, a number of support policies for biomedical innovation were issued intensively.

From the perspective of policy content, it is still very close to reality. For example, in the Beijing document, the overall time taken to start clinical trials is compressed within 28 weeks, and the time limit for various approvals is also significantly compressed, which should play a role in accelerating the quality and efficiency improvement of clinical research. In addition to the research and development side, commercialization is a big headache for innovative drugs. The Beijing document lifted the restriction on the total budget target for diagnosis and treatment projects involving state-owned drugs. Eligible new drugs can also be paid separately without counting the DRG disease group payment criteria. DRG has a huge impact on the payment methods of medical institutions, and this move is really hard work for health insurance to tilt towards high-quality innovative drugs.

3. commercialization still has pain points, black swans continue to hover

Why do you say that?

because it is difficult for domestic innovative drugs to expand the domestic market. besides accepting soul bargaining if they want to enter the medical insurance, it is actually not smooth to enter the hospital. According to a report released by IQVIA, a market research organization, at the end of 2022, only about 10% of the 3300 3A hospitals in the country have purchased innovative drugs listed in the medical insurance reimbursement catalogue, and the admission situation in 2023 is not as good as that in 2022.

Therefore, although we have cultivated some innovative drugs with sales of more than 1 billion yuan, they are only the best among a large number of newly listed innovative drugs. In the country where commercial insurance is lame, admission to the hospital is almost the only way out for commercial success. At present, the channel dilemma faced by a large number of innovative drugs has undoubtedly poured cold water on the enthusiasm of pharmaceutical companies for research and development.

There are many factors contributing to this situation, and here is a brief mention. There is generally a quantitative limit on the varieties that hospitals include in the drug list, and no more than 1500 varieties for tertiary general hospitals before 2019 is a hospital grade assessment indicator. Although it has been removed from the hard conditions of the review, hospitals generally follow this procedure. When new drugs are included, a corresponding number of old drugs must be transferred out. The game behind this can be imagined. Therefore, it is not uncommon for domestic hospitals to still use drugs that have been listed for many years.

Comparison of drug sales ratio Source: BCG, compiled by Soochow Securities Research Institute

The additional negative factors facing bioinnovative drugs can worry investors even more.

or take yaoming organisms as an example. in February 2022, the unverified list (UVL) incident caused yaoming organisms to drop by 22.77 on the same day. On January 26 this year, a small essay on the proposed "Biosafety Bill" on the other side collapsed in the medicine section. After the performance was lowered, the medicine and biology, which had been shaky, fell by 18.17.

Whether they are in biological drug CXO or biological innovative drugs, domestic related companies must avoid the global market if they want to achieve commercial success. And biological drugs are far more sensitive to the other side than small molecules, so such black swans hovering overhead have become an inevitable disturbance factor in the industry. Morgan Stanley just lowered the target price of Yao Ming Bio from HK $63.1 to HK $32 on April 24, which undoubtedly reflects the concerns of international capital about the game situation.

the pace of life and death in China's innovative pharmaceutical industry has never slowed down, and there are practical difficulties in selling under the pressure of medical insurance control fees and difficult admission to hospital. Bioinnovative drugs should have a higher ceiling than small molecule racetracks, but their production barriers are higher and production energy is more scarce. For manufacturers, from research and development to commercialization, every link is like walking on thin ice.

Note: This article does not constitute any investment advice. The stock market is risky and you need to be cautious when entering the market. No sale, no harm.

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