The Path Forward for Biotech Firms Achieving Profitability with Hundreds of Millions in Semi-Annual Revenue

In early 2022, confronted with a rapidly deteriorating investment climate, many biopharmaceutical investors reluctantly advised the founding teams of their portfolio companies that the era of high liquidity had passed and urged them to prioritize cash flow management.

Today, this anticipation has found its echo.

Prior to this, biopharmaceutical innovation companies had only one mission: to integrate high-quality global resources and pursue an aggressive, high-profile strategy to fill clinical gaps that have long plagued humanity. By 2023, however, the industry’s orientation began to shift. In early July, Shanghai Henlius Biotech, Inc. released its earnings forecast, expecting to achieve profitability for the first time in the first half of 2023, with a net profit of approximately RMB 200 million. This impressive figure serves as an initial validation of biopharmaceutical innovation under a cash-flow-driven logic.

The following day after the announcement, shares of Shanghai Henlius Biotech, Inc. surged by 17.91%. The secondary market also responded positively to the profitability achieved by this innovative biopharmaceutical company.

Ten days later, Harbour BioMed also released a positive earnings forecast, projecting total revenue of approximately $40 million for the first half of 2023, representing a year-on-year increase of about 44.9%, with net profit turning from loss to gain. This news likewise drove an increase in its market capitalization. On July 14, Harbour BioMed’s stock opened higher and continued to rise, with intraday gains exceeding 30% at the peak, and its total market capitalization rebounding by more than one-third from previous lows.

Moreover, based on the sequentially released earnings forecasts, revenue growth and enhanced profitability were the predominant trends in the first half of 2023. However, compared to the emergence of positive cash flow, what may draw greater attention is whether this shift signifies the maturation of biopharmaceutical companies or merely represents their stress response to the new environment.

At this stage, biosimilars remain the only products capable of helping companies achieve profitability. In China, the wave of innovative drugs has swept through the pharmaceutical industry for nearly a decade, with original innovation being repeatedly emphasized and high expectations placed upon it. During periods of relatively loose external funding conditions, investors heavily bet on first-in-class new drugs. However, the reality is that the development of original innovative drugs is exceedingly lengthy, whereas the monetization cycle for biosimilars has arrived sooner.

As of now, the only innovative biopharmaceutical companies that have explicitly issued profit warnings and achieved profitability for the first time in the first half of 2023 are Henlius and Harbour BioMed. Interestingly, they represent two different paths to profitability: one by increasing the sales volume of a single product, and the other by quickly achieving profitability through the out-licensing of their R&D pipeline.

The earnings forecast indicates that Henlius’s profitability was primarily driven by sales revenue from its two core products, Hanquyou® and Hansizhuang®. Neither of these drugs is an original innovative drug developed by Henlius; rather, they are based on overseas originator drugs, with minor innovations made in aspects such as dosage form and indications. Each product benchmarks against two earlier-launched blockbuster oncology drugs.

Indeed, Hanquyou and Hansizhuang are biosimilars that carry inherent commercial value upon market launch, yet their market window is relatively short.

Specifically, Hanquyou is a biosimilar of trastuzumab. The originator product of trastuzumab is the well-known Herceptin, which is currently the best-selling breast cancer drug worldwide. The introduction of Herceptin has transformed the clinical treatment landscape for patients with highly aggressive HER2-positive breast cancer.

Henlius’s incremental innovations in trastuzumab are primarily reflected in its patient-centric dosing design, which has led to the launch of dual-strength formulations better suited for Chinese patients. Hanquyou is the only trastuzumab product in China available in 150 mg and 60 mg strengths and free of preservatives, thereby ensuring its efficacy and safety. The flexible combination of the 150 mg and 60 mg strengths allows Hanquyou to more closely align with the common weight range of Chinese women. Patients can achieve more flexible dosing regimens by combining different strengths of Hanquyou for immediate preparation and use. Furthermore, the dual-strength formulation of Hanquyou eliminates the need for storing leftover solution, which undoubtedly enhances clinical management efficiency.

Data shows that in 2022, Hanquyou generated approximately RMB 1.7 billion in sales, nearly doubling year-on-year. In the first quarter of 2023, Hanquyou maintained a strong growth momentum, with domestic sales revenue reaching approximately RMB 538.6 million, representing a two-thirds increase compared to the same period last year.

Henlius’s other biosimilar, Hansizhuang (serplulimab), is the company’s first independently developed innovative drug and belongs to the class of PD-1 monoclonal antibodies.

In China, the PD-1 monoclonal antibody market is characterized by intense competition, with more than ten similar drugs having been launched successively. Amidst the high degree of homogenization in PD-1 monoclonal antibody therapies, indication expansion has become a key strategy for pharmaceutical companies to gain a competitive edge over their peers. Data shows that since its approval and launch in March 2022, Hansizhuang has received approval for three indications: MSI-H solid tumors, squamous non-small cell lung cancer (sqNSCLC), and extensive-stage small cell lung cancer (ES-SCLC). Among these, squamous non-small cell lung cancer represents a major indication with significant clinical value, while Hansizhuang’s indication for small cell lung cancer secures a unique clinical position as the first globally approved PD-1 monoclonal antibody for first-line treatment.

In commercial settings, HANSIZHUANG’s differentiated clinical trial design, combined with robust clinical data, has translated into strong sales performance. By the end of March 2022, just four working days after its market approval, HANSIZHUANG completed its first commercial shipment, reaching over 100 cities across approximately 30 provinces in China. Within one week of approval, the first prescription was filled nationwide, marking its official entry into clinical practice.

Just nine months after its market launch, cumulative sales of Hansizhuang reached RMB 339 million. By 2023, sales of Hansizhuang continued to ramp up significantly. Data show that in the first quarter of 2023, Hansizhuang generated domestic sales revenue of approximately RMB 249.8 million. Notably, in March 2023, Hansizhuang achieved monthly domestic sales exceeding RMB 100 million for the first time.

In fact, for most biopharmaceutical innovation companies that have achieved profitability or generated substantial revenue from their core businesses at the current stage, blockbuster products driven by incremental innovation are an indispensable strategy. In addition to Shanghai Henlius Biotech, Inc., 3D Medicines and Ascletis Pharma have also demonstrated significant growth in single-product sales in their previously announced earnings forecasts.

According to the announcement, 3D Medicines estimates that its total revenue for the first half of 2023 will reach approximately RMB 343.8 million to RMB 361.4 million, representing a year-on-year increase of 66.1%–74.6%. Although specific net profit figures were not disclosed, 3D Medicines anticipates that gross profit will surge by more than 60%, reaching approximately RMB 319 million to RMB 335.8 million. The forecast indicates that the growth in total revenue and gross profit is primarily driven by a substantial increase in revenue from Envafolimab (a PD-L1 monoclonal antibody).

As a biosimilar within the PD-1 monoclonal antibody family, 3D Medicines’ incremental innovations for Envafolimab are primarily reflected in its formulation. Envafolimab is distinctive as the world’s first subcutaneously injected PD-L1 inhibitor, enabling completion of treatment in just 30 seconds and offering greater convenience than conventional intravenous administration. In the initial period following its market launch in 2022, Envafolimab achieved sales revenue of RMB 160 million. Furthermore, the substantial increase in Ascletis Pharma’s net profit was driven by sales of its oral COVID-19 combination product containing ritonavir, which is also a biosimilar of a blockbuster originator drug.

As can be seen, the spring of biosimilars has arrived somewhat earlier than that of original innovative drugs, but its sustainability remains to be demonstrated.

Within China’s biopharmaceutical community, the rare instances of substantial financial investments and surprisingly high salaries—deployed to attract different types of industry talent at various stages of the pharmaceutical ecosystem’s development—often become widely discussed topics.

Around 2015, when the concept of innovative drugs first gained traction, top-tier investment firms aggressively poured capital into recruiting heads of R&D from multinational pharmaceutical companies to establish new enterprises and develop novel drugs, a trend that became widespread. By around 2020, as these newly founded companies progressively advanced their R&D pipelines into clinical stages, the hot topic of the day was the recruitment of Chief Medical Officers (CMOs) with million-yuan annual salaries. Currently, the most sought-after talent in China’s innovative drug ecosystem is none other than business development (BD) professionals with exceptional deal-making capabilities.

In addition to biosimilars, out-licensing high-quality pipelines in development is another key revenue stream for innovative biopharmaceutical companies.

According to the announcement, Harbour BioMed achieved its first-ever turnaround from loss to profit. In addition to enhancing operational efficiency and improving cost control, the out-licensing of high-quality pipeline assets under development, such as HBM7008 and HBM9161, served as a key revenue source.

According to Harbour BioMed’s 2022 annual report, its operations are divided into two segments: Harbour Therapeutics and Nona Biosciences. Harbour Therapeutics is dedicated to the discovery, development, and commercialization of innovative antibody therapies in the fields of oncology and immunology. Both HBM7008 and HBM9161 originate from the Harbour Therapeutics segment and serve as the core pillars for Harbour BioMed’s current profitability.

As an international innovative biotechnology company under Harbour BioMed, Harbour Biosciences is dedicated to providing global partners with comprehensive preclinical drug development services, covering target validation and the discovery-to-clinical-trial-approval pipeline for drug molecules in diverse formats. In line with Harbour BioMed’s strategic plan, the business operations of Harbour Biosciences are positioned as the company’s second growth curve; however, their contribution remains limited in the current profit forecast.

According to reports, HBM7008, which has recently been granted authorization, is a bispecific antibody targeting B7H4 x 4-1BB, a pair of targets with relatively low development density. HBM7008 was developed using Harbour BioMed’s innovative HBICE® (Harbour Immune Cell Engager) platform and is currently in Phase I clinical development.

In February 2023, Harbour BioMed announced the execution of a license and collaboration agreement with Cullinan Oncology, granting the latter exclusive rights to develop and commercialize HBM7008 in the United States. Under the terms of the agreement, Harbour BioMed received a $25 million upfront payment and is eligible for up to $600 million in milestone payments. Additionally, Harbour BioMed will receive tiered royalties on net sales at percentages reaching up to nearly 20%.

The high-premium transaction once sparked widespread attention across the industry.

The out-licensing of HBM9161 occurred even earlier. In October 2022, Harbour BioMed issued a series of announcements, declaring that it had licensed batoclimab (an FcRn monoclonal antibody), which was in late-stage clinical development, to CSPC Enbipu Pharmaceutical Co., Ltd., a subsidiary of CSPC Pharmaceutical Group. The total value of the transaction amounted to RMB 1 billion.

HBM9161, with the generic name batoclimab, is indicated for the treatment of generalized myasthenia gravis. HBM9161 is the first project to advance into Phase III clinical trials since the establishment of Harbour BioMed. It is reported that the Phase III trial of HBM9161 successfully achieved positive results in the first half of 2023, and its Biologics License Application (BLA) was accepted by the National Medical Products Administration. Consequently, batoclimab has become the first product from Harbour BioMed to have its BLA approved since the company’s inception.

Despite having been out-licensed, batoclimab signifies that Harbour BioMed has finally completed all stages of new drug development. This comprehensive experience has also enhanced the competitiveness of Harbour BioMed’s independently developed pipeline in the asset transaction market.

In fact, bolstered by robust business development (BD) teams, out-licensing has become a stable component of the business models for domestic biopharmaceutical companies. According to statistics from Huachuang Medicine, nearly 10 out-licensing deals for pipelines in development were completed by several Chinese innovative drug companies, including Conmed Biopharma, Harbour BioMed, Hutchison MediPharma, and Sinocelltech, between January and February 2023 alone. This figure far exceeds the number of such transactions recorded during the same period in previous years among Chinese biopharmaceutical innovation enterprises.

Interestingly, many innovative pharmaceutical companies have made business development (BD) a core element of their operations, positioning themselves within the value chain of clinical innovation services.

For instance, in August 2022, Everest Medicines announced the transfer of exclusive rights for the development and commercialization of Trodelvy (sacituzumab govitecan) to Immunomedics, a wholly-owned subsidiary of Gilead Sciences. This move came less than 100 days after Trodelvy received regulatory approval for market launch in China. It is understood that through this return of drug rights, Everest Medicines stands to gain up to $330 million, representing a 3.6-fold premium over the upfront and milestone payments previously made by the company. This transaction will support Everest Medicines’ cash flow until at least 2026.

By deconstructing the business models of the aforementioned biopharmaceutical companies that have turned losses into profits, it is not difficult to see that even though they have achieved profitability at this stage, they still have a long way to go before becoming truly competitive pharmaceutical enterprises with long-term viability.

First, relying solely on a single blockbuster product severely limits a company’s long-term competitiveness in the market. The design of clinical treatment regimens and the application of drugs are processes of continuous iteration, and any specific drug ultimately faces the risk of being replaced. For biosimilars, which inherently possess weaker core innovation capabilities, the cycle of commercial success is undoubtedly even shorter.

Taking Henlius’s Hanquyou as an example, in addition to competing with the originator drug, it also faces competition from trastuzumab biosimilars launched by multiple pharmaceutical companies such as Anke Biotechnology, Hisun Pharmaceutical, and Chia Tai Tianqing, making the competitive pressure evident.

Secondly, most domestic biopharmaceutical innovation enterprises do not have self-built sales networks, which is the final step for these companies to complete the new drug development pathway. In fact, due to the short commercialization period and the relatively single product structure of marketed products, more biopharmaceutical innovation enterprises tend to partner with channel partners to jointly promote product sales. After all, building a sales team is a huge management project involving significant cost expenditures.

Against this backdrop, although large global pharmaceutical commercial companies play a significant role in driving the rapid clinical adoption of innovative drugs, building an in-house sales team remains an indispensable strategy for innovative drug enterprises seeking to establish long-term market influence. Indeed, the success of Hanquyou and Hansizhuang in standing out from competitors is largely attributable to the sales team of Shanghai Henlius Biotech, Inc.

Finally, platform-based product capabilities constitute a core element of long-term operational success for biopharmaceutical companies. Previous media analyses compiling the global top 15 pharmaceutical companies by sales revenue from 2000 to 2020 revealed that, aside from shifts in individual rankings, few companies dropped off the list over this 20-year period, and even fewer new entrants broke into it.

Meanwhile, from 2000 to 2020, more than 10 global blockbuster drugs were launched, with each listed company having more than one star product. In other words, only by possessing the ability to continuously rotate star products can a pharmaceutical company achieve sustainable and stable operations, thereby enabling its commercial value to rise.

Over the past two years, the innovative drug industry has gradually returned to rationality from its peak, with both primary and secondary markets under significant pressure. The disclosure of numerous favorable developments in mid-2023 helped restore confidence in the sector. However, current achievements represent only the initial commercial validation for domestic biopharmaceutical innovation companies, falling far short of the anticipated blueprint. We have merely completed the first half; greater determination is required as we advance into the second half.