The 'Open Secret' of China's Innovative Drug BD: Strategic Positioning and Market Catalyst

Halfway through 2025, the total amount of BD transactions for innovative drugs in China has reached 500 billion US dollars, approaching the total transaction volume for the entire year of 2024.

This is backed by a dual increase in both the number of transactions and the amount per transaction, with the collaboration between 3SBIOINC and Pfizer setting a new high for upfront payments, reaching 1.25 billion US dollars.BD Revenue Transforms from "Quenching Immediate Thirst" to a Stable Cash Flow.

In this process,Chinese pharmaceutical enterprisesStill growing rapidly,Already standardized in traditional License-in/out and newco fields, especially in the clinical-stage asset transactions.

Their proficiency is also reflected in the use of BD information.

This year, some pharmaceutical companies released previews before the official completion of deals. In April, CSPC previewed three potential BD transactions, each potentially amounting to 50 billion US dollars. In June, Sino Biopharm announced at the Goldman Sachs Annual Global Healthcare Conference that it would soon finalize a "landmark significant out-licensing deal."

The goal that pharmaceutical companies hope to achieve is to maximize the role of BD as a catalyst for market value management, and attract capital to boost stock prices by sending signals.

On the other hand, as overseas VC/pharmaceutical companies gradually recognize Chinese assets, their transaction styles are becoming increasingly rational.Peng Wei, a partner at NewCo incubator, revealed, "The U.S.-based NewCo Fund now has some unwritten rules, such as the upfront payment in a deal not exceeding a certain percentage of the subsequent financing amount. They will reserve more funds for overseas clinical development and to address potential future risks."

Although China's pharmaceutical companies have done well in BD this year, reaching long-term win-win deals will require deeper expertise as both sides continue to grow.

-01-

Some people are high-profile, while others are low-key.

This year has seen another wave of innovative pharmaceutical companies going public in Hong Kong. Following the IPOs of DualityBio and Hengrui in Hong Kong, other innovative pharmaceutical companies like CoStim have also submitted their prospectuses. The pipeline values of these companies were once anchored by multinational pharmaceutical companies with significant investments, and major BD deals have acted as accelerators for their listings.

On April 15, DualityBio rang the bell in Hong Kong's stock market. On the first day of its IPO, the stock price soared from the offering price of HK$94.6 to a high of HK$222, marking an increase of up to 116.7%. Setting aside the recovery of Hong Kong's stock market, DualityBio's highlights mainly lie in its partnerships with BioNTech and GSK.Collaborations with international giants like Pfizer have demonstrated the value of the ADC technology platform, with cumulative technology licensing contracts reaching up to 6 billion US dollars.

Listed companies are also using BD as a catalyst.

On June 12, at the 46th Goldman Sachs Annual Global Healthcare Conference,Lei Ming, head of Sino Biopharm's capital markets, stated that out-licensing is the biggest expectation gap for Sino Biopharm's stock price, and the sell-side's current models for Sino Biopharm do not yet include forecasts for BD revenue., and starting from 2025, BD transactions will become a recurring source of revenue and profit for the company. According to the market guidance at the beginning of the year, there will be at least one major out-license deal finalized this year. Following this statement, the stock price surged 19% on the same day.

Before Sinobiopharm, CSPC also announced that three licensing deals, including one for an EGFR-ADC drug, were underway, with each potential transaction possibly reaching a total of 5 billion US dollars. The market's imagination was ignited, and starting from May 29, CSPC's stock price began to climb. By June 10, the company's stock price closed at HKD 9.08 per share, with a cumulative increase of 20% in ten days.

In this wave of Hong Kong stock market's innovative drug boom, the growth of traditional pharmaceutical companies has lagged slightly behind. After Hengrui's debut on the Hong Kong stock exchange in May, its IPO day market value exceeded 390 billion Hong Kong dollars, making it the top in the pharmaceutical sector and creating a significant gap with traditional pharmaceutical enterprises such as CSPC and Sino Biopharm.Perhaps due to a sense of disparity, traditional pharmaceutical companies are eager to discount their BD revenue forecasts into market value increments, boldly announcing that BD can maximize the efficiency of capital operations.But once it fails to be兑现 as recognized value, it will trigger a collapse of trust, turning into the story of "The Boy Who Cried Wolf."

Contrary to the preview-style BD, there are still many BD deals being carried out in a low-profile manner.

Peng Wei revealed, "When some overseas pharmaceutical companies encounter bottlenecks in their own pipeline development, in order to reduce costs and increase efficiency, and to allow long-term supportive investors to receive deserved returns, they will seek more advanced or later-stage similar molecules and technology platforms from China for diversified cooperation, while maintaining a low profile."

"Pharmaceutical companies in China sometimes do not make official announcements for various reasons, such as pipeline confidentiality. The upfront payment is only one aspect; it may also involve equity transactions and deeper future cooperation."

Such deals, while beneficial to both parties, usually do not disclose too many details to avoid unnecessary comparisons that might affect subsequent transactions between the buyers and sellers.Whether to choose hype or keep a low profile depends on what role the trader needs BD to play.

-02-

The seller is not as shrewd as the buyer?

Foreign VCs/pharmaceutical companies are becoming increasingly cautious in their bids for China's innovative drug assets, "If it's expensive, there must be a good reason for it."

Akeso has proven through head-to-head studies with Keytruda (K药)PD-1/VEGF Bispecific AntibodyThe value, until 3SBIOINC'sPD-1/VEGF Bispecific AntibodyDisclosed good Phase II clinical dataLater, Pfizer offered a down payment of $1.25 billion, along with potential development, regulatory approval, and sales milestone payments totaling up to $4.8 billion.

For MNCs, when facing pipeline gaps and market value crises, they must seek pipelines that can immediately fill revenue shortfalls, showing an urgent need for "groundbreaking mega-deals," rather than acquiring clinical-stage assets for minor BD patchwork.So for assets with the potential value of a blockbuster drug, Pfizer is far from the only MNC bidding.

As market competition becomes increasingly fierce, there are fewer pipelines with blockbuster potential and differentiated technology platforms. A BD professional noted that in the past, there were not as many standout biotech companies, so when encountering a company with an excellent technology platform, it was best to acquire it quickly. However, now there are many platform-based biotechs in the same category, and rather than acquiring the entire company, it is more cost-effective to introduce individual high-value pipelines. Platforms that have gained an early lead are also wise to cash in their gains; otherwise, they may find themselves in a precarious position, as the next wave pushes forward.

VCs do not have such substantial assets and clinical resources. Their targets are preclinical or Phase I pipelines, which inherently do not command high valuations. Even so, they still have many options and must compare multiple similar projects targeting the same indication horizontally. They comprehensively evaluate the team background, differences in clinical data, and valuation levels, deciding how to proceed only after thorough comparison."Buying cheap raises suspicion, buying too expensive feels embarrassing. Overseas VC and biotech firms also find it headache-inducing to purchase something good."

However, the way overseas VC/pharmaceutical companies select assets remains unchanged. They either take the popular route, choosing a project with an excellent team background from the highly competitive and pipeline-crowded tracks in China, licensing it for clinical trials overseas, and then seeking opportunities to sell it to big pharmaceutical companies. While doing so, there will be four or five similar competitors, extending the competitive pressure from China to abroad. Enthusiasts taking the niche route will look for molecules with best-in-class and first-in-class potential in new targets or non-oncology disease areas such as neuro-autoimmunity.

Pipelines with precedents basically leave little room for surprises. There have been some transaction errors in the past, but by now, everyone knows the right way to sell, and there shouldn't be transactions that are excessively low or high in price. If a transaction with an obviously unreasonable price occurs, there might be unknown内幕 behind it.

-03-

Develop "BD Physique"

In the research report of Soochow Securities, a set of data was mentioned: according to statistics, there are 1,840 targets involved in global innovative drugs, among which China's self-developed innovative drugs cover 754 targets, accounting for 41% of the global innovative drug targets.In the Top 20 popular targets, the overlap between China and the globe reaches 80%, and China has the highest contribution in global popular targets.Among the Top 20 targets, the number of drugs for 18 targets accounts for more than 50% globally, with the proportions for CLDN18.2 and GPRC5D exceeding 80%.

With such a pipeline reserve, in the next few years, Chinese innovative pharmaceutical companies will have a lot of business development (BD) opportunities. However, not every company will be able to seize these opportunities.

Some biotech companies have formed a "BD pipeline" for the continuous output of high-quality projects and gained priority selection rights from MNCs through strategic partnerships.

Kelun-Biotech has established a deep cooperative relationship with Merck in the ADC field, jointly developing 9 ADCs. Prior to Kelun-Biotech's IPO, Merck once became the second-largest shareholder.

Following collaborations on a CLDN18.2xCD3 bispecific antibody and a preclinical oncology monoclonal antibody, Harbour BioMed reached a global out-licensing agreement with AstraZeneca in March this year. The agreement covers multi-project licensing across various therapeutic fields based on Harbour BioMed’s antibody technology platform. AstraZeneca also made a $105 million equity investment in Harbour BioMed, bringing the total deal value to up to $4.575 billion.

Some partnerships focus on technology platform licensing, securing future output from biotech companies. For example, the ADC technology collaboration between QED Biopharma and Biohaven, as well as the technology platform licensing between Yuansi Biopeptide and AstraZeneca, are considered major BD events in the first half of the year.

Good relationships facilitate transactions, and the essence of long-term cooperation is value exchange. Only by continuously innovating and consistently producing data that stands up to global verification can one move from being prioritized to becoming irreplaceable in the BD wave.

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