Drug Approval Triggers Stock Plunge: The Collapse of Innovative Drug Valuation Logic

June 17,NorthlandThe chairman’s remark, “I’m quite depressed!” quickly went viral in the pharmaceutical industry.

Northland, a pharmaceutical company listed on the Beijing Stock Exchange, received approval on May 29 for the market launch of its Cedormin injection, indicated for limb ulcers caused by severe lower extremity ischemia in patients who are not suitable for revascularization surgery or have poor surgical outcomes.According to the CompanyTitle, the research and development of this drug spanned a total of2022, is currently the only gene therapy drug promoting angiogenesis in China.

The company had originally hoped to make a splash with this new drug, but unexpectedly, its stock price suffered a sharp decline after the approval announcement: on the day of approvalOn the 29th, NorthlandStock PricePlunged 25.22% in a single day, down 52.76% as of June 17, a direct 50% drop compared to pre-approval levels.

Some analysts believe that the approved indication for the product is limited to patients with "critical limb ischemia," lacking the broad applicability to the general population as previously anticipated. Coupled with the company's mediocre financial performance, institutional investors seized the opportunity to offload their holdings.

While this technical analysis does explain part of the reason for the stock price decline, the sheer depth of the drop and the prolonged, one-sided capital exodus suggest that the situation is likely far more complex.The Market Environment for Innovative Drugs Has Changed: Investors Seek Greater Certainty, While the Monetization Logic for Pharmaceuticals Remains Unchanged.

Innovative Drugs: “Nipped in the Bud”?

Northland is a relatively pure innovative drug company engaged in gene therapy, with its sole marketed naked plasmid gene therapy product, Sedomingji Injection, primarily targeting patients with severe lower limb arterial ischemia.

This condition typically presents as refractory ulcers, with surgery being the primary first-line treatment. Northland has entered the market with a novel therapeutic approach, garnering significant confidence in the product. According to Frost & Sullivan data, there are at least 5.66 million patients with this disease in China, corresponding to a market worth tens of billions of yuan.A brokerage research report predicts that the peak sales of Cedormine Injection will reach RMB 5.5 billion.

No One Expected the Reckoning to Come So Quickly.

On May 29, the injection of Sedominji was approved.However, the actual indication is not for the entire population with severe lower limb ischemia, but rather for a restricted subset comprising approximately 20%–30% of patients who are “unsuitable for revascularization surgery or have poor surgical outcomes.”

In terms of indication wording, this implies that the total addressable market for the product will correspondingly shrink.

But the market collapsed disproportionately, with issues beyond the approved indications.

The company's chairman, Xu Songshan, publicly disclosed to the media thatSales of Sedominji Injection During the Self-Pay Phase Are Expected to Be “Very Difficult”，The chances of entering hospitals are very low, and the sales scenario mainly relies on DTP (Direct-to-Patient) pharmacies; currently, it cannot even enter hospitals.

With the narrowed scope of application, the company is also uncertain about the future patient population. Investors find it even harder to gauge the commercialization potential of the drug.

In other words, the label of “the first in China” alone cannot support Sedomingji’s complete commercialization story. This has been sufficient to shatter industry investors’ confidence in it.

This aligns closely with the shifting criteria by which capital currently evaluates the innovative drug industry: market expectations have become fully tied to the commercialization and real-world implementation of products.

Recently, the frenzy over clinical data and the collapse of pharmaceutical companies’ stock prices have unfolded simultaneously; Northland is not an isolated case.

At the recently concluded ASCO Annual Meeting, Chinese innovative pharmaceutical companies had 13 studies selected for Late-Breaking Abstracts and over 90 oral presentations, marking a historic high in data representation. The result? During the conference, Akeso’s stock price fell for three consecutive days, while CStone Pharmaceuticals plummeted by 32.42% in a single day.Baili Tianheng、Dizal Pharmaceuticalsall fell by more than 10%.

Ultimately, no cash was received.

What’s Happening in the Innovative Drug Market? The core logic is that investors’ expectations for these already-launched new drugs or those still in clinical stages have changed:The sole focus is on whether it can generate substantial cash flow in the short term.

Sedominji Injection represents a class of high-value innovative drugs already on the market, which inherently face long-standing challenges in payment and commercialization.。On one hand, high-priced drugs are inherently difficult to sell; without inclusion in the national medical insurance reimbursement list, they often struggle even to gain access to hospitals.

On the other hand, even with hospital access, market penetration remains challenging. Currently, mechanisms such as DRG-based bundled payments are compelling hospitals and departments to control costs. Given that the full course of treatment with Sedomingji costs approximately RMB 200,000 per patient, hospitals are virtually unable to approve its use for patients.

Additionally, persuading physicians to issue prescriptions is also a significant challenge.Academic promotion and marketing capabilities are weaknesses for innovative drug companies; no matter how good the drug is, doctors will not use it, dare not use it, or find it ineffective.FinallyIt is all in vain.

The predicament has always existed. Previously, innovative drugs like the injection of Nadolol were estimated for sales based on models. Now, with the collapse of scale, the anticipated cash flow has vanished, and market expectations can no longer be sustained.

Innovative drugs in clinical stages have historically relied on business development (BD) deals to secure immediate financial gains and boost market expectations in the short term. However, a longer-term perspective reveals that this logic is no longer viable.

Previously, most investors could still believe in the logic of "clinical data attracting BD deals to drive up expectations." However, since the beginning of this year, BD transactions have failed to make any splash in the market because the majority of cash payments are not received in a timely manner, even in the case of large-scale cross-border collaborations involving well-known pharmaceutical companies.The industry has long passed the days when sky-high business development (BD) deals could boost pharmaceutical companies’ valuations; the conventional logic breaks down when BD activities are translated into market expectations.

The inertia of current market thinking is too powerful; the chasm between the technological value and commercial value of innovative drugs shows no sign of bridging in the short term. Valuation restructuring will continue. As for those companies still touting narratives centered on clinical trials and first-to-market status, they are likely to remain, like the Chairman of Northland, “quite distressed.”