An innovative drug pushed the actual controller to the throne of "the richest man on the Science and Technology Innovation Board", Baili Tianheng (688506. SH) can also take the opportunity to join the A+H ranks?

In December 2023, Baili Tianheng won a cooperation agreement with a potential total transaction value of US$8.4 billion with the innovative drug BL-B01D1, which not only broke the record of a single project of a domestic innovative drug going overseas, but also drove the stock price to soar. As a result, the net worth of the company's actual controller has doubled, and it has successfully secured the throne of "the richest man on the science and technology innovation board".

Baili Tianheng struck while the iron was hot and submitted a prospectus to the Hong Kong Stock Exchange in July 2024, intending to achieve A+H dual listing. However, only 10 days after the submission of the prospectus expired, on January 21 this year, that is, on the eve of the Chinese New Year, Baili Tianheng submitted the statement for the second time.

For Baili Tianheng, which has turned losses into profits with the cooperation agreement of this innovative drug, it may be the best time for it to hit the Hong Kong stock market.

You must know that before the down payment of 800 million US dollars in the agreement arrived, Baili Tianheng had lost money for three consecutive years, and the loss margin continued to expand. Without this agreement, Baili Tianheng may still struggle to turn around losses in the first three quarters of 2024. The potential transaction value of the agreement is high, but it will not be available until the relevant milestones are met, and the final milestone payment is uncertain. In other words, the growth of the innovative drug may not be sustainable until it is commercialized.

In addition, in the BL-B01D1 clinical trial, 95% of patients experienced treatment-related adverse events (TRAEs), of which 29% had serious TRAEs, and 8 patients died due to TRAEs. BL-B01D1 may have a higher rate of treatment-related adverse events compared with its competitors.

On February 12, on the sustainability of the company's performance growth, the resignation of core technical personnel, the safety of core products and other issues, Times Business Research Institute sent a letter to Baili Tianheng and called the office of the secretary of the board of directors to inquire, and the staff said that they were studying. On February 25, Times Business Research Institute called the office of the secretary of the board of directors of Baili Tianheng again, and the staff said that the public information shall prevail.

Relying on the authorization of innovative drugs to turn around losses, the 61-year-old actual controller became the "richest man on the Science and Technology Innovation Board".

On January 21, on the same day that Baili Tianheng submitted the statement to the Hong Kong Stock Exchange for the second time, the performance forecast released by it showed that in 2024, the company is expected to achieve revenue of 5.8 billion yuan, a year-on-year increase of 932.27%; It is estimated that the net profit attributable to the parent company will be 3.6 billion yuan, an increase of about 4.380 billion yuan year-on-year, and the loss will be turned into a profit.

As for the reasons for the significant improvement in performance in 2024, Baili Tianheng said that it was mainly due to the irrevocable and non-deductible down payment of 800 million US dollars (about 5.332 billion yuan) paid by Bristol-Myers Squibb (BMY.N), an overseas partner of the core product BL-B01D1, based on the cooperation agreement during the reporting period, and the company's revenue increased significantly.

Baili Tianheng officially landed on the Science and Technology Innovation Board on January 6, 2023, and from 2021 to 2023, the company's revenue continued to decline and the net loss continued to intensify.

According to the prospectus, from 2021 to 2023, Baili Tianheng's revenue will come entirely from drug sales, which will be 795 million yuan, 702 million yuan, and 560 million yuan respectively, of which from 2022 to 2023, its revenue will grow by -11.71% and -20.15% year-on-year respectively; The net profit was -108 million yuan, -282 million yuan and -780 million yuan respectively, with a cumulative net loss of 1.170 billion yuan in three years.

This is related to Baili Tianheng's "imitation of cultivation" model.

Baili Tianheng is a company that started with generic drugs, and it was not until 2010 that it made a strategic decision to enter the innovative drug business. At present, its innovative drugs have not yet been commercialized, so its revenue comes almost entirely from the sale of generic drugs and proprietary Chinese medicines before the licensing of Bristol-Myers Squibb.

According to the prospectus, in the first three quarters of 2024, the sales revenue of Baili Tianheng Pharmaceutical will further drop to 327 million yuan, and the sales revenue will continue to decline, mainly because some of its products have been included in the national or provincial volume procurement plan.

It should be noted that the prospectus of Baili Tianheng's application for the IPO of the Science and Technology Innovation Board shows that as of January 14, 2021, the company's two main products have been unsuccessful in the national centralized procurement. In the prospectus (registration draft) of the IPO of the Science and Technology Innovation Board, Baili Tianheng said that the company's related products lost more market share due to the failure to win the bid, so the company's revenue has continued to decline sharply since 2019.

At the same time as the revenue fell sharply, the R&D expenses of Baili Tianheng surged. As of the Latest Practicable Date, Baili Tianheng's innovative drug pipeline has 14 clinical-stage drug candidates, which requires significant funding to support its research and development. In the first three quarters of 2021-2024, its R&D expenditure will be 279 million yuan, 375 million yuan, 746 million yuan, and 932 million yuan respectively, showing a significant surge trend.

Among them, in the first three quarters of 2024, Baili Tianheng's R&D expenditure is close to 3 times of the drug sales revenue, which shows that if it fails to obtain the license fee income from Bristol-Myers Squibb, Baili Tianheng will suffer a huge loss in the first three quarters of 2024.

With the successful passage of BL-B01D1 through the Licence-out (external licensing) model, Baili Tianheng's share price soared, born in December 1963, and the current 61-year-old actual controller Zhu Yi also ushered in a "wealth creation feast".

According to the data, on December 11, 2023, Baili Tianheng closed at 109.26 yuan / share, and before the opening of the next day, Baili Tianheng announced that it had reached a cooperation agreement with Bristol-Myers Squibb, and the opening stock price rose on the same day, and on December 3, 2024, the stock price once rose to a record high of 246.31 yuan / share, closing at 240 yuan / share, an increase of 871.66% relative to the issue price (before the right to reset).

The soaring stock price also pushed up the market value of Zhu Yi's holdings, and once made him the "richest man on the science and technology innovation board". According to the prospectus, Zhu Yi holds 74.35% of the equity of Baili Tianheng, and according to the total market value of 96.240 billion yuan at the close of trading on December 3, 2024, the market value of Zhu Yi's equity is 71.554 billion yuan, far exceeding other natural person shareholders on the Science and Technology Innovation Board, ranking first.

With the Cambrian (688256. SH) stock price skyrocketed, and the "richest man on the Science and Technology Innovation Board" changed hands. According to the total market value of 84.226 billion yuan at the close of February 24, the market value of the equity in Zhu Yi's hands was 62.622 billion yuan, and Chen Tianshi, the controller of Cambrian, held 28.63% of the equity of Cambrian, and as of the close of trading on February 24, the equity market value was 93.267 billion yuan.

There are as many as 20 competing core products under development, and 8 people died due to treatment-related adverse events

Behind the huge cooperation agreement won by BL-B01D1, it is inseparable from the success of the ADC drug Youshe (generic name is trastuzumab for injection, and the development code is DS-8201).

At present, ADC has become a key modality of cancer treatment, and BL-B01D1 is the world's first and only bispecific antibody ADC targeting EGFR×HER3 in the clinical stage, mainly targeting non-small cell lung cancer and breast cancer, and there are many competing products in these two fields.

According to the prospectus, in terms of the treatment of non-small cell lung cancer, DS-8201 of Daiichi Sankyo Co., Ltd. has been approved in the United States and the European Union for the treatment of HER2-mutant non-small cell lung cancer.

In addition, as of the Latest Practicable Date, more than 20 ADC candidates for non-small cell lung cancer are in clinical development. Among them, a total of 6 bispecific antibody ADCs have entered Phase III clinical trials, and BL-B01D1 is the world's first and only bispecific antibody ADC to enter Phase III clinical development.

In terms of breast cancer treatment, as of the Latest Practicable Date, more than 20 ADC drug candidates are in clinical development for breast cancer, of which a total of 17 have entered Phase III clinical trials, including BL-B01D1 and BL-M07D1 of Baili Tianheng.

For innovative drugs, the first drugs to be marketed can gain first-mover advantages in terms of market share occupation and pricing power. There are many competing products under development, especially those that have entered phase III clinical trials like BL-B01D1, which means that it is difficult for BL-B01D1 to achieve a first-mover advantage.

From the perspective of safety, the incidence of treatment-related adverse events of BL-B01D1 may be higher than that of competing products, which may delay its development progress and make it more difficult to obtain a first-mover advantage.

According to the prospectus, as of August 17, 2023, among the 369 enrolled patients with non-small cell lung cancer, nasopharyngeal carcinoma and other solid tumors, 351 patients (95%) developed TRAEs, 226 patients (61%) developed TRAEs of grade 3 or above, 115 patients (31%) developed TRAEs of grade 4 or above, 108 patients (29%) developed severe TRAEs, and 8 patients died of TRAEs.

Baili Tianheng concluded that BL-B01D1 has a manageable safety profile and encouraging clinical anti-tumor activity in multiple advanced solid tumors. Importantly, encouraging anti-tumor activity was found in patients with previously treated solid tumors, suggesting that BL-B01D1 has great potential as a treatment option for previously treated patients.

However, as a comparator of BL-B01D1, according to the DS-8201 application materials published by the National Healthcare Security Administration, compared with enmetrazuzumab, the information included in the label of DS-8201 did not increase the incidence ≥of grade 3 and above adverse reactions (56.4% vs 51.7%) and serious adverse reactions (25.3% vs 22.2%) compared with enmetuzumab.

It can be seen that the incidence of treatment-related adverse events of BL-B01D1 may be higher than that of competing products. On the one hand, this may lead to a slowdown in its R&D progress, increase R&D costs, and even lead to an increase in the risk of R&D failure. On the other hand, it can also lead to a decrease in its market competitiveness, an increase in market access, and may even damage the company's reputation and generate huge financial losses.