Hengrui Appoints Ex-J&J BD Veteran as Global Head to Accelerate Overseas Expansion

Wei Xiaoning | Author

Wang Chen | Editor

An industry insider who worked at Hengrui years ago saw the news overseas that Hengrui had hired a "Head of Global Development Affairs": the position is held by Jens Bitsch-Norhave, a veteran of Johnson & Johnson’s BD, as the company's vice president, and the workplace is in Boston, USA. Familiar with Hengrui's employment style, he remarked: "Hengrui is investing real money, treating BD as an important strategic direction."

Although the title varies, considering Jens Bitsch-Norhave's previous professional experience, his position should also be an overseas BD executive. Previously, the head of Hengrui's overseas BD was the industry veteran BD Zhang Su, who was appointed as Hengrui's Global BD Head in May 2023. Since then, she has led a series of impressive BD deals for Hengrui, especially the recent newco project. It is reported that Zhang Su has recently resigned.Jens Bitsch-Norhave took over her position.‍‍‍

Jens B-Norhave previously served as the Vice President of Innovative Partnerships at Johnson & Johnson Innovation Center, where he worked for 19 years. During his time at Johnson & Johnson, he was primarily responsible for BD affairs and led multiple transactions.

This means that Hengrui's BD business leader is, for the first time, held by a foreign national. The aforementioned person judged,"Joining Hengrui at this level, the total annual income should be very high, which means Hengrui is starting to double down on overseas BD."

He vaguely remembered that many years ago, Sun Piaoyang resolutely increased investment in new drug research and development. However, when some international pharmaceutical companies showed interest in licensing some of Hengrui's promising projects, his attitude was very nonchalant, believing that Hengrui "was not short of money." "But now that Hengrui has started to actively embrace 'BD,' it certainly reflects a shift in Sun Piaoyang's stance."

In recent years, Hengrui has continuously increased its investment in BD. Since last year, Hengrui's several BD deals have been very successful. Recently, especially with a "newco" project, Hengrui licensed out a product, not only gaining 19.9% equity in the new company but also receiving a $100 million upfront payment and potential future sales royalties amounting to billions of dollars.

"Hengrui's Newco project has set a benchmark for domestic pharmaceutical companies, with many regarding this deal as a model."An overseas BD professional said, "I am under a lot of pressure."

Sources familiar with the matter said that Jens B-Norhave is an "insider" in the US BD circle and is highly regarded in the industry. Even before taking a position at Hengrui, he had been involved in several BD projects of Hengrui, possibly in a role close to that of an advisor.

With nearly 20 years of BD experience in multinational large pharmaceutical companies, and moving to a major Chinese pharmaceutical company that aims to expand internationally, Jens B-Norhave’s global perspective is expected to bring fresh momentum to Hengrui. His appointment also signifies that Hengrui has further clarified its direction of "global development."BD cooperation, instead of building another ship on our own.

-01-

Hengrui "Newco" Ignites Enthusiasm in the Primary Market

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Compared with the five deals reached last year, Hengrui's BD speed this year seems to have slowed down, with only one deal so far: the authorization of its GLP-1 product portfolio to U.S.-based Hercules in May.

But the impact of this deal continues to this day, and it could even be said that it has changed the main theme of China's pharmaceutical enterprises' BD:From "license out" to "newco," collaborating with dollar funds to establish new companies, sharing equity, and then transferring the original company’s pipeline into the new entity to earn licensing fees and future equity returns.

Hercules, a new company with core assets from Hengrui's GLP-1 portfolio, clearly reveals the "newco intention" behind Hengrui's deal. Hengrui holds 19.9% equity in the new company and will also send representatives to participate in its daily management.

And some participants also explicitly stated that Hengrui's approach was modeled after Pfizer, which spun off its pipeline to establish the subsidiary Cerevel, followed by an IPO and subsequently being acquired by AbbVie, resulting in Pfizer gaining over $2 billion from its 25% stake.

Both Hercules and Cerevel's largest shareholder is Bain Capital, a "newco veteran."

In May, Hengrui's deal with Hercules sparked a wave of enthusiasm for creating new companies in China.

In July, ConnaMed authorized two new drugs to Belenos Biosciences. A subsidiary of ConnaMed holds a 30% stake, and ConnaMed's chairman, Dr. Bo Chen, will also join Belenos' board of directors, confirming the newco model. OrbiMed, a fund, is the controlling shareholder of Belenos with over 50% ownership.

Starting from August, Genor BioPharma licensed its pipeline to TRC 2004, EpimAb Biotherapeutics licensed its pipeline to Vignette Bio. Subsequently, a new company, Candid, integrated the assets of these two newly established companies. Behind Candid, multiple dollar funds are visible, and it has secured $370 million in financing.

The premise for "newco" to be established is that dollar funds must have mature pipeline operation capabilities, which can advance the local R&D progress of pipelines. Afterwards, the new company can be sold to MNCs or go public on the U.S. stock market. This process relies heavily on the mature M&A market in the U.S. and a smooth path to IPO. Meanwhile, China’s biotech industry has entered a winter period, where many companies have failed to secure financing and lack sufficient capital to continue investing. Moreover, the ceiling of the domestic payment market in China is clearly visible, making going overseas an inevitable choice. Partnering with a veteran player in an overseas market is currently the optimal option.

Compared to earning only an upfront payment from a license out deal, with future milestone payments still uncertain, the "newco" takes a more proactive stance by establishing a new company and participating in future operations, with the potential for attractive equity returns. After all, Roivant set a fine example by selling its subsidiary Telavant to Roche for a profit of at least $5 billion.

If it is somewhat risky for small companies to spin off their core pipelines into a newco, then for large companies, the newco model is more suitable:There are sufficient pipelines to allow for trial and error, and with some international endorsement, it’s possible to bring in savvy dollar fund players to build the company together, avoiding the awkward situation where Chinese companies struggle with R&D, registration, and commercialization in the U.S. due to incompatibility.

When A-share IPOs were still tightening and exits were hopeless, the primary market once turned icy cold. However, the newco model reignited the enthusiasm of some primary market investors: although they couldn't take the initiative to form a syndicate like dollar funds, become major shareholders, or expect equity returns from the U.S. market, their shares in some pharmaceutical companies could be transferred to the corresponding newco, waiting for dollar funds to purchase these shares and achieve an alternative form of exit.

“There are no specific conditions for the transfer; it is merely a financial technique and legal operation, similar to the process of domestic enterprises' shareholders converting into a VIE structure."Sheng Lijun, a member of the Pilot Capital team, said, 'This offers more liquidity and a higher rate of return compared to cashing out in the Chinese and Hong Kong stock markets.'"

Newco's enthusiasm has also infected the primary market across the shore. Following the case of Hengrui, American investors have become "addicted" to finding assets for newco, and China's large quantity of inexpensive pipelines are the focus, which has even squeezed the opportunities for American start-up pharmaceutical companies to obtain financing.

Recently, there is new news about Hengrui's newco: Hercules CM NewCo renamed to Kailera Therapeutics, raising 400 million US dollars, with Ron Renaud serving as President and CEO.

Ron Renaud is no small figure, with extensive experience in the industry, having held positions in multiple pharmaceutical companies, and also serving as a partner at Bain Capital. The aforementioned Pfizer subsidiary, Cerevel, was led by him as President and CEO, where he helped Pfizer achieve an extraordinary return of $2 billion within half a year. With Bain Capital as the largest shareholder and Ron Renaud as the mastermind, Hengrui's Kailera may become the next Cerevel in the near future.

-02-

The Direction of Hengrui's Overseas Expansion Seen from Its Talent Recruitment

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In terms of internationalization, the evolution of Hengrui's hiring practices in recent years reveals some pivotal shifts in the company’s development direction.

The most renowned foreigner previously hired by Hengrui should be Scott Filosi, the CEO of its overseas subsidiary Luzsana. He was appointed in April 2021 and has comprehensive management experience in several biopharmaceutical companies, holding positions such as CEO and CCO.

Scott Filosi is familiar with the entire management process of R&D, registration, and commercialization. It can be seen that Hengrui wanted to replicate the process of incubating innovative drug companies in China to foreign markets, thus requiring a versatile manager.

After joining, Scott Filosi established Hengrui's overseas subsidiary Luzsana, with a team of over 150 members covering the United States, Europe, and Japan. The company manages 11 projects, including PD-1, ADC, PARP, and KRAS G12D, with an annual budget of 100 million US dollars.

But 19 months later, in October 2022, Scott Filosi left, and there has been no more news about Luzsana company.

Industry insiders analyze that Hengrui's route of establishing subsidiaries overseas to independently advance R&D, registration, and commercialization is not feasible. Unlike BeiGene, which has inherent internationalization genes, Hengrui faces problems in management style and cultural identity at the R&D level. For registration and commercialization, it would need to rebuild a team and adapt to entirely different local rules, making it extremely challenging.

Two months after Scott Filosi's departure, in January 2023, former founder of CStone Pharmaceuticals, Jiang Ningjun, joined as the Vice General Manager and Chief Strategy Officer. Together with Sun Piaoyang and Zhang Lianshan, they formed the company's strategic decision-making team, breaking Hengrui's long-standing tradition of promoting executives internally, which to a certain extent demonstrates Hengrui's determination to change.

After Jiang Ningjun joined, Hengrui's BD style changed abruptly. Although there were definitely some accumulated negotiations from before, Jiang Ningjun’s presence at least facilitated the finalization of these deals. In 2023, Hengrui, which had seen few BD developments in recent years, consecutively completed five license-out transactions.

This includes the continuation of Hengrui's past"Unknown company, small down payment amount"Small routine deals may also have down payments reaching $25 million, as well as transactions with large companies like Merck, which have down payments of 160 million euros.

In 2023, Hengrui also hired a new Global BD head, Zhang Su, at the VP level. She previously worked at Pfizer for five years and later drove Hengrui to emulate Pfizer, successfully closing the NewCo deal that influenced the BD trends across China's pharmaceutical industry. After fulfilling this mission, as mentioned earlier, Zhang Su recently left the company.

Jens Bitsch-Norhave, who succeeded her"Global Development Director", with an MNC's BD background, indicates one direction of Hengrui's overseas transformation: flexible collaboration to enter the mainstream US pharmaceutical circle.

-03-

Comprehensively Adjust Overseas Strategy

Since 2021, amid the changes in international affairs leadership, Hengrui has continuously reflected on its overseas strategy, repeatedly overturning previous approaches, and presenting to the industry a paradigm of how a traditional pharmaceutical company adapts to a new world through self-renewal.

When traditional genes weigh too heavily and it's hard for overseas subsidiaries to adapt, it's time to learn from the practices of emerging biotechs in China, taking small and quick steps in business development (BD).Despite the low transaction amounts and the difficulty in considering the partner companies as powerful, experience in overseas expansion has been accumulated through each deal.

Such a BD strategy later dealt Hengrui a heavy blow. The TSLP monoclonal antibody deal, with an upfront payment of $25 million, was once a source of pride for Hengrui—until earlier this year, when its partner company One Bio (later renamed Aiolos) used this product as the core asset to sell itself at 40 times the amount of the upfront payment, following the Newco model.

Hengrui reportedly had the opportunity to invest in One Bio but hesitated. After missing the chance for high profits brought by the new model, Hengrui finally decided to take action and establish a new company (Newco) on its own.

Hengrui Medicine's Director and Deputy General Manager, Zhang Lianshan, recently admitted to the media that the previous approach of exporting the Camrelizumab and Apatinib combination ("Double-A" combination) would not be taken now due to the high costs.

The "Double Ai" combination reached clinical phase III before collaborating with Elevar for development. Moreover, Elevar is the U.S. branch of a South Korean company, not a well-known multinational corporation (MNC), and industry insiders question its commercialization capabilities in the U.S.

Later, the "Double Ai" combination did indeed experience a tumultuous journey to market in the U.S. Due to issues such as inspection deficiencies at the production site, in May this year, the FDA announced a delay in the approval of the "Double Ai" combination for first-line treatment.

"Any product, at any clinical stage, will seek to collaborate on development overseas."Zhang Lianshan mentioned that Hengrui's overseas strategy has been adjusted. If the "Double Ai" combination can actively seek overseas cooperation in the early stages of clinical trials and take the initiative, there may be an opportunity to achieve better results with lower R&D costs.

Hengrui has over a hundred pipelines under research and development, and its high R&D efficiency is well-known in the industry. For multinational corporations (MNCs), it is a "pipeline supermarket" with a comprehensive product range and guaranteed quality. However, the drug development process is lengthy, and the number of products that can be launched annually is limited. Moreover, the capacity of the Chinese market is constrained by pricing and payment capabilities. It is extremely challenging for the company to independently enter the U.S. market. Therefore, seeking overseas collaborations for its numerous pipelines represents the approach with the highest return on investment (ROI).

It is not difficult to achieve BD, but how to achieve high-level BD and establish connections with "insiders" requires not only a high upfront payment, but also certain control over subsequent R&D participation and equity returns. Hengrui is attempting this path. In terms of BD, it is no longer the slow "elephant turning around."

In Hengrui's latest semi-annual report, the revenue from the sales of more than a dozen innovative drugs amounted to 6.61 billion yuan. Excluding this portion, the upfront payment from the licensing of two products to Merck in the first half of the year was 1.26 billion yuan, highlighting the difference between overseas licensing and self-sales income.

Combined, the sales and BD portions of Hengrui's innovative drug revenue now exceed 50%, while the revenue from generic drugs is declining. The performance evaluation indicators for the employee stock ownership plan are directly tied to the IND, NDA, and sales revenue of innovative drugs, as Hengrui is fully committed to achieving its innovation transformation.

Whether Kailera, this newco, can eventually become "the next Cerevel" remains to be seen. Whether Hengrui's overseas expansion can maintain high-density and high-level operations will be a crucial step in its innovative transformation.

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