Three License-in Deals Worth Over RMB 2.8 Billion in Three Days Signal Traditional Chinese Pharma Giants' Accelerated Innovation Transformation

The Innovation Strategies of China’s Leading Traditional Pharmaceutical Companies Are Accelerating.

On February 18, Huadong Medicine announced that its subsidiary, Zhongmei Huadong, had entered into a strategic cooperation agreement with U.S.-based Provention Bio to acquire the exclusive rights for the development and commercialization of Provention’s bispecific antibody drug in the Greater China region for $189.5 million.

On February 17, Hansoh Pharma and pharmaceutical company Scynexis signed an exclusive licensing agreement.

On February 16, Qilu Pharmaceutical signed a collaboration agreement with U.S. biotechnology company Cend Therapeutics, securing exclusive rights to Cend’s novel anticancer drug in the Greater China region for up to $235 million.

“At a time when the global pharmaceutical industry is accelerating its globalization, the era of focusing solely on domestic competitors, trailing behind international originator giants, and relying merely on first-to-file or aggressive generic launches to conquer the market has passed,” said Li Yan, President of Qilu Pharmaceutical Group, in an interview with the media.

Leading traditional pharmaceutical companies entered the Year of the Ox with a series of license-in deals, signaling their more proactive engagement in China’s pharmaceutical innovation landscape. In 2021, the competition among Big Pharma, Biopharma, and Biotech on the same stage will become even more compelling.

01 Lost the Initiative

“At a price of RMB 1.54 per tablet for metformin hydrochloride, even capturing the entire Chinese market would not be sufficient to sustain your business.” There is only one path forward: innovation. “Lack of innovation means death, while innovation means survival. This is particularly critical for generic drug manufacturers with relatively strong cash flows; they should leverage their current financial resources to accelerate transformation and pivot toward innovative drugs.”

Cai Dongchen, Chairman of CSPC Pharmaceutical Group, articulated the dilemmas and pathways forward for China’s leading traditional pharmaceutical enterprises.

The volume-based procurement (VBP) program launched in 2018 has unleashed unprecedented turbulence in China’s pharmaceutical industry. Amidst this profound transformation, leading traditional pharmaceutical companies have undoubtedly been the main protagonists. Unlike many multinational pharmaceutical corporations, these domestic firms have adopted a more proactive stance toward VBP, aligning with policy directives, voluntarily reducing prices, and striving to secure winning bids. The VBP has ushered in an era of razor-thin margins for generic drugs, representing a choice that was both voluntary and inevitable as they adapted to the changing landscape. In retrospect, although the transition involved growing pains, it has ultimately stabilized the situation.

Following the fourth round of centralized procurement, leading traditional pharmaceutical companies have widened their gap with small and medium-sized enterprises in terms of both the number of selected products and the selection rate. In the recently concluded fourth batch of centralized procurement, leading traditional pharmaceutical companies ranked at the forefront in the number of winning bids, with Qilu Pharmaceutical, Yangtze River Pharmaceutical Group, CSPC Pharmaceutical Group, China National Pharmaceutical Group (Sinopharm), and Fosun Pharma each having six varieties selected. In the third batch of centralized procurement, which featured the largest number of varieties, CSPC and Qilu had all eight of their varieties selected, while Huahai Pharmaceutical, Salubris, and Hisun Pharmaceutical also achieved a 100% selection rate. Meanwhile, Hansoh Pharmaceutical had five out of six varieties selected, Kelun Pharmaceutical had four out of five, and Shanghai Pharmaceuticals had six out of eight. In terms of both volume and selection rate, leading traditional pharmaceutical companies demonstrated strong performance.

Leveraging their larger scale and more mature experience, leading traditional pharmaceutical companies have managed to remain “undefeated” in centralized volume-based procurement (VBP). However, as Cai Dongchen pointed out, the “volume” brought by VBP is ultimately not the path to victory; prioritizing R&D to win through quality and innovation is the way forward for the future.

In this regard, PD-1 serves as a pertinent example.

As the fastest-growing and most sought-after target in immunotherapy, the race for PD-1 is fiercely competitive and time-sensitive. By late 2017, when Innovent Biologics submitted the first marketing application for a domestically produced PD-1 inhibitor in China, there were already 16 PD-1 candidates that had filed for registration in the country. However, looking back, very few of these 16 candidates belonged to traditional pharmaceutical companies, with most still lingering at the stage of applying for clinical trials. Only Hengrui Medicine had made significant progress.

Among the four domestic manufacturers of PD-1 inhibitors currently on the market, Hengrui remains the only one classified as a traditional pharmaceutical company. This 25% proportion reflects the relative weakness of traditional pharmaceutical companies compared to Chinese biopharma firms in research and development innovation.

It is not merely a race in terms of timing, but also a contest of innovative R&D strategies and clinical research capabilities. In an exclusive interview with E-Pharma Manager in 2018, Zou Jianjun, Chief Medical Officer of Hengrui Medicine, stated that although Hengrui was not the first domestic company to file for clinical trials, it had made comprehensive preparations within the competitive landscape, maintaining a leading position in terms of the number and diversity of studies as well as the breadth of indication coverage. Its proactive approach to innovation-driven transformation has also helped Hengrui, as a representative of traditional large pharmaceutical companies, become the leader in market capitalization within China’s pharmaceutical industry.

However, taking an overall view of China’s traditional pharmaceutical enterprises, they have undoubtedly lost the initiative.

02 Accelerate, Accelerate, and Accelerate Again

Amid Adversity, Leading Traditional Pharmaceutical Companies Embark on “Self-Rescue” Paths, with Speed and Efficiency at the Core.

Qilu Pharmaceutical, which has led the pack in the number of successful bids and consistently issued good news with every volume-based procurement, has recently been making frequent moves in its innovation strategy.

On February 16, coinciding with the Lunar New Year, good news arrived from San Diego. Cend Therapeutics Inc. and Qilu Pharmaceutical announced the signing of a collaboration and license agreement for the development and commercialization of CEND-1, an investigational drug in Cend’s pipeline, within the Greater China region. Qilu Pharmaceutical will pay Cend a $10 million upfront licensing fee, and Cend will be eligible to receive up to $225 million in milestone payments, as well as tiered double-digit royalties on product sales in the region.

CEND-1 (also scientifically known as iRGD) is a tumor-penetrating peptide that specifically activates drug transport mechanisms in solid tumors. To date, more than 200 studies using Cend’s proprietary technology have provided unprecedented preclinical validation/proof of concept. When combined with standard chemotherapy, CEND-1 demonstrated favorable safety/tolerability and clinical activity in patients with metastatic pancreatic cancer, with an objective response rate (ORR) of 59% (benchmark: 23%) and a median treatment duration of 7.4+ months (vs. 3.9 months).

It is understood that Cend Therapeutics plans to conduct a randomized Phase 2 study in pancreatic cancer and trials of other combination therapies in 2021, and intends to initiate studies for additional indications in 2021 and 2022.

Independent development and external introduction/collaboration are the two pathways for pharmaceutical companies to build R&D competitiveness.

In late July 2020, Qilu Pharmaceutical licensed in a drug for the treatment of bladder cancer for approximately USD 35 million. As disclosed at the time, Qilu Pharmaceutical entered into an exclusive licensing agreement with SesenBio, a U.S.-based company, officially securing the rights to develop and commercialize SesenBio’s novel drug, Vicineum, in the Greater China region.

It is reported that Vicinium is a novel antibody-drug conjugate (ADC) indicated for the treatment of non-muscle-invasive bladder cancer (NMIBC) and other potential tumors. In 2018, Vicinium was granted Fast Track designation by the U.S. FDA. On February 16 this year, Sesen Bio announced that the FDA had accepted its Biologics License Application for the aforementioned indication and granted Priority Review, with a PDUFA target action date of August 18, 2021.

Currently, the treatment of non-muscle-invasive bladder cancer has attracted more than 20 companies worldwide to enter this field, including Roche, Merck & Co., BMS, Eli Lilly, AstraZeneca, BeiGene, Fudan-Zhangjiang, and RemeGen.

In October of the same year, Qilu Pharmaceutical acquired the Greater China rights to firibastat, a novel antihypertensive drug from Quantum Genomics, for $50 million, for the treatment of refractory/resistant hypertension. Statistical data indicate that the population suffering from difficult-to-treat and resistant hypertension in the licensed regions is estimated to be between 25 million and 30 million. At the time the collaboration was finalized, Quantum Genomics was preparing to initiate a Phase III clinical trial to evaluate the efficacy of firibastat as an antihypertensive agent, in preparation for its market launch. Qilu Pharmaceutical plans to incorporate its Chinese trial on refractory hypertension into the global study.

A review of these three transactions reveals visible changes. In terms of the development stages of in-licensed drugs, Qilu Pharmaceutical’s product acquisitions are shifting toward earlier stages, moving from drugs at the New Drug Application (NDA) filing stage to those in Phase 3 clinical trials, and further to those preparing for Phase 2 clinical trials. This transition is occurring among leading traditional pharmaceutical companies that are accelerating their innovation efforts.

Coincidentally, Huadong Medicine kicked off the year with a “double whammy” for investors.

On February 18, Huadong Medicine issued two announcements. One was for $189.5 million to obtain exclusive clinical development and commercialization rights in the Greater China region for two indications of the global investigational innovative drug PRV-3279; the other was to acquire 100% equity of High Tech, a Spanish energy-based medical aesthetics company under EBD, for up to €85 million.

According to data from Hithink RoyalFlush, the company’s stock price has surged by more than 30% over the five trading days preceding the press release date, significantly outperforming its peers.

PRV-3279 is a bispecific antibody targeting CD32B and CD79B. To date, clinical trials of PRV-3279 for the treatment of systemic lupus erythematosus (SLE) are underway in the United States and are currently in Phase I. Additionally, PRV-3279 shows potential for preventing or reducing the immunogenicity of biologic therapies and remains in the preclinical stage. Beyond its pharmaceutical portfolio, Huadong Medicine is the domestic aesthetic medicine manufacturer with the most comprehensive pipeline of non-surgical products. This acquisition will enable the company to achieve full coverage of mainstream non-surgical aesthetic medical products.

Not long ago, Huadong Medicine acquired from ImmunoGen the exclusive rights for clinical development and commercialization in mainland China, Hong Kong, Macao, and Taiwan of an investigational Phase III ADC product for ovarian cancer. The total transaction value exceeds USD 300 million, including a USD 40 million upfront payment and USD 265 million in potential milestone payments.

In fact, as early as 2018, Huadong Medicine began implementing its second major transformation. That year, the company established joint research offices in Boston and Silicon Valley in the United States, respectively, and publicly stated that it would continue to increase R&D investment, accelerate the development and external introduction of innovative drugs, and strive to introduce 1-2 overseas new drug varieties annually.

In 2019, Huadong Medicine focused on building its in-house R&D capabilities. According to disclosures, the company’s R&D expenditure that year amounted to RMB 1.055 billion, a year-on-year increase of 49.14%, accounting for 10% of its pharmaceutical industry revenue. The number of R&D personnel rapidly expanded from 550 to 1,078.

In 2020, the company shifted its focus slightly toward external in-licensing and collaborations. Data showed that its R&D investment in Q3 2020 decreased slightly year-over-year, yet it achieved significant progress in business development (BD), rapidly enriching its pipeline by in-licensing multiple products. It is reported that the company established its BD team in the first half of 2020 and completed the in-licensing of several products in the second half, including the aforementioned α-ADC product, a semaglutide biosimilar (with an IND submission expected in 2021), and a ustekinumab biosimilar (planned to initiate Phase III clinical trials at the beginning of this year).

Driven by the dividends of innovation, it is not only the traditional pharmaceutical giants that have gradually awakened in recent years that are undergoing change; even Hengrui Medicine, which has always prioritized research and development, feels the pressure of competition.

On February 8, Hengrui Medicine announced a $20 million equity investment in Yingli Pharmaceutical to secure joint development rights and exclusive commercialization rights for its Class 1 novel drug, the PI3Kδ inhibitor (code: YY-20394), in the Greater China region. The product’s indication for follicular lymphoma has reached Phase III clinical trials in China, recently entered Phase II in the United States, and three additional indications have all progressed beyond Phase I.

According to Hengrui’s announcement, three PI3Kδ inhibitors have been approved for marketing abroad, but none of these products have been approved for marketing in China. At least seven pharmaceutical companies in China, such as CSPC Pharmaceutical Group, Innovent Biologics, Sanhome Pharmaceutical, Chia Tai Tianqing, and Hutchison China MediTech, are conducting clinical trials on PI3Kδ inhibitors, with the majority in Phase II clinical trials. Bayer’s PI3Kδ inhibitor copanlisib for the treatment of non-Hodgkin lymphoma has entered Phase III clinical trials in China.

Intensive License-in: Will This Become the New Normal for Accelerating Innovation in Traditional Pharmaceutical Companies?

Multiple industry insiders have previously stated that in-house R&D and license-in will definitely complement each other and coexist over the long term, serving as a fundamental model for Chinese innovative drug companies in the foreseeable future.

Will 2021 Become a Pivotal Year for Traditional Pharmaceutical Companies’ Innovation Strategies? Xu Jiaxi, Chief Analyst of the Pharmaceutical Industry at Industrial Securities, stated in his outlook at the beginning of this year: “In 2021, China’s Big Pharma, Biopharma, and Biotech sectors will shine together.”

He stated that Chinese-style Big Pharma companies currently remain primarily focused on the domestic market, giving due consideration to overseas operations while fully leveraging their domestic channel and resource advantages. The key focus for future development is to expand into the R&D and sales rights in China for high-quality products from overseas biotech firms and other companies, thereby helping to consolidate their leading market position.