Hengrui Medicine Secures Potential $12 Billion Deal with GSK, Riding the Wave of Chinese Innovative Drug Globalization

Hengrui Pharma announced on July 28 that the company has reached an agreement with GSK to grant the latter the global exclusive rights (excluding mainland China, the Hong Kong Special Administrative Region, the Macao Special Administrative Region, and Taiwan) of the HRS-9821 project under a paid license. GSK will pay Hengrui Pharma an upfront payment of 500 million US dollars for this transaction, and Hengrui Pharma will be eligible to receive potential payments totaling approximately 12 billion US dollars subsequently. After the announcement, the A-share and H-share innovative drug sectors continued to strengthen, with Hengrui Pharma’s A-shares hitting the daily limit, and its H-shares rising by 24.54%.

Since the beginning of this year, multiple China-produced innovative drugs have been densely licensed overseas. According to research reports, 2025 is expected to be a significant year for the licensing of China's innovative drugs abroad. Since the implementation of the national drug procurement policy in 2018, China's innovative drugs are expected to gradually enter the payoff period, with some pioneering innovative drug companies likely to achieve break-even and turn profits positive.

Large Transactions Frequent

Hengrui Pharma's announcement revealed that HRS-9821, a best-in-class PDE3/4 inhibitor for the treatment of chronic obstructive pulmonary disease (COPD), is currently in clinical development. The other 11 projects involved in this transaction encompass innovative drugs across multiple therapeutic areas, including oncology, respiratory, autoimmune, and inflammation, all of which are currently in the preclinical research stage. Hengrui Pharma will lead the development of these projects, at the latest until the completion of Phase I clinical trials, including data from overseas participants.

According to the terms of the agreement, Hengrui Pharma will receive an upfront payment of 500 million US dollars, including the authorization of the PDE3/4 inhibitor HRS-9821. If all projects are exercised and all milestones are achieved, Hengrui Pharma could potentially receive a total amount of approximately 12 billion US dollars in future success-based development, registration, and sales milestone payments. Hengrui Pharma will be entitled to receive tiered sales royalties from GSK.

Currently, some innovative drug varieties in China have achieved a positive cycle of R&D investment returns. Large BD deals between Chinese pharmaceutical companies and multinational pharmaceutical enterprises frequently occur, with some deal values reaching several billion to tens of billions of US dollars.

On June 26, Mabwell announced that it had entered into an "Exclusive License Agreement" with CALICO for the IL-11 targeted therapy. The agreement grants CALICO exclusive rights to develop, manufacture, and commercialize the licensed products in all regions outside Greater China. Mabwell is entitled to receive an upfront payment of $25 million and milestone payments of up to $571 million, as well as tiered royalties based on the net sales of the licensed products.

On June 2, Hansoh Pharma announced that it had granted Regeneron an exclusive overseas license for its GLP-1/GIP dual receptor agonist HS-20094 under development. According to the agreement, Hansoh Pharma will receive an upfront payment of $80 million and is eligible to receive milestone payments of up to $1.93 billion based on the product’s development, regulatory approval, and commercialization progress, as well as double-digit percentage royalties on future potential product sales.

On May 30, CSPC announced that the Group is currently in talks with several independent third parties regarding three potential transactions. The potential upfront payment, potential development milestone payments, and potential commercialization milestone payments that the Group may receive are expected to reach a total of US$5 billion.

On May 20, 3SBio and Pfizer reached a licensing agreement for the PD-1/VEGF bispecific antibody. Pfizer will obtain exclusive rights to develop, manufacture, and commercialize SSGJ-707 globally (excluding mainland China). 3SBio will receive an upfront payment of $1.25 billion and up to $4.8 billion in development, regulatory approval, and sales milestone payments, as well as tiered sales royalties in double-digit percentages.

R&D Potential Continuously Unleashed

From the reform of the drug and medical device review and approval system in 2015 to the implementation of the national drug centralized procurement policy in 2018, companies in China began transitioning from generic drugs to innovative drugs. Through continuous breakthroughs in quantity, quality, and technological level, some pioneering innovative drug companies have gradually entered the payoff period.

Hansoh Pharma's 2024 financial report shows that the company's innovative drug and collaboration product sales revenue reached approximately 9.477 billion yuan, increasing by about 38.1% year-on-year, with the proportion of total revenue rising to 77.3%.

Baili Tianhe Achieves Total Revenue of 5.823 Billion Yuan in 2024, Up 936.31% Year-on-Year; Non-GAAP Net Profit of 3.636 Billion Yuan, Successfully Turning Loss into Profit from the Previous Year.

When interviewed by reporters, Zhu Yi, chairman of Baili Tianheng, mentioned that for Baili Tianheng, any project is based on achieving breakthrough innovation when it is initiated.

"It has been 12 years from the launch of the first innovative drug research and development project in 2014 to the expected commercialization of the company's innovative drugs in China next year," Zhu Yi said, "We plan to initiate the global commercialization process between 2028 and 2029."

Continuous policy support, a complete and comprehensive industrial chain, enhanced basic research capabilities, and ongoing corporate R&D investment have all provided a favorable environment for the development of innovative drugs produced in China.

According to a research report by TF Securities, in 2015, there were only 9 first-in-class drugs independently developed by Chinese companies that entered clinical trials, accounting for less than 10% of the global total. By 2024, China will have 120 first-in-class drugs under development, accounting for 24% of the global total, second only to the United States. The potential of China's innovation in drug research and development continues to be unleashed.

Leading international pharmaceutical companies, represented by Merck, Eli Lilly, Pfizer, and Sanofi, are actively engaging in BD transactions with Chinese innovative drug companies to acquire global development and commercialization rights for relevant drugs. According to DealForma data, in 2024, 31% of the innovative drugs introduced by multinational enterprises came from China.

Data from Founder Securities shows that the total amount of overseas licensing transactions for China's innovative drugs in 2024 increased by 26% year-on-year. The upfront payments for the first half of 2025 have exceeded 2.5 billion US dollars, with the total transaction amount surpassing 500 billion US dollars.

According to an analysis by Soochow Securities, as the quality of China's innovative drug pipelines continues to improve, the value of outbound licensing deals for Chinese innovative drug companies is expected to maintain growth. Upfront payments, milestone payments, and subsequent sales royalties after product launches will continue to contribute profits to pharmaceutical companies in China.

Policy Support Breaks Through Industry Bottlenecks

Due to the long R&D cycle, high investment, and late profitability of innovative drugs, the current innovative drug industry still requires policy support and patient capital.

"Even in the U.S. market, companies following the first-in-class model are extremely rare. At present, China has already established certain advantages in the efficiency of fast-follow research and development. It is time to nurture more domestic pharmaceutical companies capable of innovating from 0 to 1," said Zhu Yi. "But currently, long-term investment in the industry remains relatively scarce."

Since 2025, the Chinese government has repeatedly promoted the long-term development of innovative drugs by issuing policies to optimize drug procurement and support innovative medicines.

On July 11, the adjustment of the 2025 National Basic Medical Insurance Drug Catalog was launched, with the first inclusion of a directory for innovative drugs covered by commercial health insurance. On July 15, the National Healthcare Security Administration published an article stating that for innovative drugs temporarily not covered by basic medical insurance, a "commercial insurance first, then medical insurance" tiered access closed loop can be formed. This means that after a new drug is launched, it will first be included in the commercial insurance catalog to accumulate real-world data, and once sufficient clinical value evidence is available, it will be considered for inclusion in the basic medical insurance catalog through negotiations. These measures are expected to provide significant support for the commercial promotion of innovative drugs in China.

To improve the approval efficiency of innovative drugs, on June 16, the National Medical Products Administration (NMPA) released a draft for public comment regarding the optimization of the review and approval process for clinical trials of innovative drugs. It mentioned that, to further support the development of innovative drugs guided by clinical value and enhance the quality and efficiency of clinical research and development, the review and approval of clinical trial applications for eligible innovative drugs will be completed within 30 working days.

Everbright Securities believes that, in the short term, the improvement in approval efficiency will accelerate the value release of high-quality pipelines and boost market risk appetite for the innovative drug sector. In the medium to long term, policies will facilitate the upgrade of China's innovative drugs from "imitation and innovation integration" to "global original research" through a "supporting the excellent and eliminating the inferior" mechanism, which is of great significance to leading companies with a closed-loop capability of "rapid R&D - internationalization - commercialization" and core segments of the industry chain.