Hansoh Pharmaceutical: The 'Quiet Innovator' of China's Pharma Industry Files IPO Prospectus

This article is based on publicly available information and is intended solely for informational exchange. It does not constitute any investment advice.

Hengrui Medicine is busy with its secondary listing on the Hong Kong Stock Exchange, while CSPC Pharmaceutical Group is in the process of spinning off its subsidiary for an A-share listing. Sino Biopharmaceutical has chosen to acquire HOB. China’s Big Pharma companies are all actively seeking opportunities to rejuvenate their "second spring." However, Hansoh Pharma has remained steadfastly focused on research and development, like a "dependable person."

However, the market seems to have little affection for "honest players." Despite Hansoh Pharma’s initial success in its transformation over recent years, it remains the least popular among China's top four Bigpharma companies, with investors rarely discussing it. In March this year, Hansoh Pharma reported a financial statement showing growth in both revenue and net profit, and its stock price rose by approximately 50% compared to the beginning of the year, yet its market attention remains disappointingly low.

Whenever investors talk about Hansoh Pharma, the label that often comes to mind is "the company of Sun Piaoyang's wife," and there doesn't seem to be much of a deep impression of the company itself. Hansoh Pharma should allow the market to see its unique value; it deserves to have more other "distinctive" labels.

01Sun Piaoyang's "Double"

Hansoh Pharma's initial positioning might have been merely a fallback for Sun Piaoyang.

In the 1990s, "state-owned enterprise reform" was in vogue, and the then Lianyungang Pharmaceutical Factory (the predecessor of Hengrui Medicine) also faced the choice of shareholding reform. The essence of shareholding reform is a game, and since it is a game, there is a risk of failure. Therefore, before the official shareholding reform of Lianyungang Pharmaceutical Factory, Sun Piaoyang, who was the factory director at the time, established Hansoh Pharma (the predecessor of Hansoh Pharmaceutical Group Company Limited) with the "mysterious person" Cen Junda in 1995.

Restricted by Sun Piaoyang's identity as the factory director of Lianyungang Pharmaceutical Factory, he did not directly participate in the company's management. Instead, his wife, Zhong Huijuan, appeared as his "stand-in." In this way, Zhong Huijuan took up the banner of Hansoh Pharma as its founder, but the early days of the company’s establishment were still filled with Sun Piaoyang's "shadow."

In its early days, Hansoh Pharma followed the well-trodden path of generic drugs, relying on a "fast-follow" strategy to launch several blockbuster products. For instance, in 1997, Hansoh Pharma introduced "Meifeng" (Cefalexin Sustained-Release Tablets), the first domestically developed new formulation of the drug in China, which generated revenue of 30 million yuan in its debut year.

Later, Hengrui Medicine successfully completed its shareholding reform, during which Cen Junda also played an important role. After Sun Piaoyang stabilized the situation at Hengrui Medicine, Hansoh Pharma began to break away from its "backup plan" fate. However, for a long time, generic drugs remained the lifeline of Hansoh Pharma.

In 2018, the release of the movie *Dying to Survive* brought attention to Gleevec, a drug used for treating leukemia. However, few people know that Hansoh Pharma's "Xinwei" (Imatinib Mesylate) was the first generic version of Gleevec to be marketed in China and also the first to pass the consistency evaluation for this drug type. In September 2018, Hansoh Pharmaceutical Group Company Limited disclosed its prospectus for a Hong Kong listing, which showed that the core product, Imatinib Mesylate, generated revenue of up to 2.5 billion yuan in 2017.

After more than 20 years of development, Hansoh Pharma has gradually established its leading advantages in the treatment areas of central nervous system diseases, anti-tumor, anti-infection, diabetes and other fields with large market scale and rapid development. Olanzapine, Pemetrexed Disodium for Injection, and Gemcitabine Hydrochloride for Injection are all blockbuster first-to-market generic categories of Hansoh Pharma.

In fact, as early as 2002, Hansoh Pharma awakened its innovation gene when the company embarked on the research and development of Class 1.1 innovative drugs. In 2014, its self-developed first Class 1.1 new drug, Mailingda® (Metronidazole Chloride and Sodium Chloride Injection), was launched, becoming the world's first nitroimidazole-class anti-anaerobic innovative drug in 40 years. Perhaps due to this previous successful experience, at its Hong Kong stock listing in 2019, Hansoh Pharma defined itself as "an innovation-driven pharmaceutical enterprise."

Since then, Hansoh Pharma's innovative drug pipeline has indeed continued to yield results, with seven products successively launched, covering multiple fields such as oncology, autoimmune diseases, chronic diseases, and anti-infectives. In 2024, the sales revenue of Hansoh Pharma's innovative drugs and collaborative products reached approximately 9.477 billion yuan, increasing by about 38.1% year-on-year, and the proportion of total revenue rose to 77.3%, becoming the main driving force.

The grand momentum of transformation has allowed Hansoh Pharma to continuously benefit from the upsurge in innovative drugs. In 2020, the concept of innovative drugs gained significant popularity, and the stock price of Hansoh Pharma rose accordingly, once exceeding 44 yuan, with its market value surpassing 260 billion yuan at its peak. At the same time, the market value of Hengrui Medicine in the A-share market surpassed 600 billion yuan, also reaching a historical high. With a combined market value of over 800 billion yuan, the "power couple" Zhong Huishan and Sun Piaoyang became a legend in the pharmaceutical industry, enjoying unparalleled prominence at that time.

However, the transformation did not come without a cost, and Hansoh Pharma's performance was far from as smooth as its soaring stock price.

02The Dawn of Innovative Drugs

Although Hansoh Pharma awakened to innovation early on, its true impact on performance remains a lengthy process.

At the time of Hansoh Pharma's Hong Kong stock market listing in 2019, revenue from generic drugs still accounted for more than 80% of its total income. It is evident that as long as generic drugs continued to contribute substantial and stable profits, Hansoh Pharma was reluctant to step out of its comfort zone. The call for transformation towards innovation at that time carried more theoretical significance than practical implications.

The turning point came with the shift in pharmaceutical policies, especially after the heavy blow of the generic drug centralized procurement. The pace of Hansoh Pharma's transformation has significantly accelerated. We can see that, except for the first drug Mailindao, all other innovative drugs from Hansoh Pharma were densely launched after the introduction of the centralized procurement policy. Clearly, Hansoh Pharma sharply felt the chilling wind brought by the policy.

Figure: An Overview of Hansoh Pharma's Innovative Drugs, Source: Jinduan Research Institute

Soon, Hansoh Pharma suffered a severe blow from the centralized procurement. In September 2019, the 4+7 centralized procurement expansion was officially launched. The company’s core products at the time, Olanzapine Tablets and Imatinib Mesylate Tablets, were successively awarded bids with two rounds of price cuts. However, Pulele (Pemetrexed), which had sales of 1.548 billion yuan the previous year, failed to secure a bid during the "4+7" centralized procurement expansion. Centralized procurement acted like a killer, causing the list of drugs disclosed separately in Hansoh Pharma's financial reports to continually shrink—first Olanzapine Tablets, followed by Imatinib Mesylate.

In terms of performance, the impact of centralized procurement was immediate. In 2020, the growth rates of Hansoh Pharma's revenue and net profit were both less than 1%, facing unprecedented growth challenges right after its market debut.

Figure: Hansoh Pharma Revenue and Net Profit, Source: Jinduan Research Institute

However, Hansoh Pharma was not defeated by the centralized procurement. Instead, with the continuous approval of innovative drugs, the company gradually brought its performance back on track. Especially after the approval of Almonertinib (Almetynib) in 2020, which significantly boosted Hansoh Pharma. As the first third-generation EGFR inhibitor in China, Almonertinib has enjoyed substantial first-mover advantages. Its sales revenue reached 2.4 billion yuan in 2022. In 2023, external forecasts predict its sales to be approximately 3.5 billion yuan. Under the leadership of Almonertinib, the innovative drug business of Hansoh Pharma accounted for over 50% in 2022.

However, the growth of innovative drugs still cannot immediately offset the decline of generic drugs. In 2022, Hansoh Pharma achieved a revenue of 9.382 billion yuan, a year-on-year decrease of 5.56%, and a net profit attributable to parent company of 2.584 billion yuan, a year-on-year decrease of 4.76%. This is the first time that Hansoh Pharma has experienced a decline in both revenue and net profit since 2016.

To make matters worse, although Amelie was launched ahead of competitors in 2020, rival products quickly followed. After Furmonertinib by Ailis Pharmaceuticals was approved in 2021, it rapidly captured the market, reaching sales of 1.978 billion yuan in 2023. More critically, aside from Amelie, there are not many other innovative drugs from Hansoh Pharma that have been successful. Hansoh Pharma urgently needs to find a new path for development.

03 The Path to Authorized Overseas Expansion

Under internal and external pressures, Hansoh Pharma had no choice but to take a bold step. The company abandoned the traditional Big Pharma's reliance on the "drug sales" model, instead adopting the "BD business strategy" typically used by innovative pharmaceutical companies. Between 2023 and 2024, Hansoh Pharma’s performance showed significant growth, with the share of innovative drugs continuously increasing.

Since 2023, Hansoh Pharma has frequently engaged in "close interactions" with GSK, resulting in significant moves in licensing collaborations. In October and December 2023, Hansoh Pharma and GSK entered into licensing agreements respectively. Under these agreements, GSK was granted an exclusive global license (excluding mainland China, Hong Kong, Macao, and Taiwan) for the development, manufacturing, and commercialization of HS-20089 and HS-20093. Both HS-20089 and HS-20093 are Antibody-Drug Conjugates (ADCs), currently undergoing clinical studies at various stages in China.

Of this, the upfront payment of US$85 million (approximately RMB 600 million) for the HS-20089 project was realized in 2023. In 2023, Hansoh Pharma's revenue growth amounted to RMB 722 million, with the upfront payment accounting for over 83% of the revenue growth. In 2024, Hansoh Pharma’s external collaboration revenue further increased to RMB 1.573 billion, while its revenue growth for that year reached RMB 2.167 billion. External collaboration revenue accounted for more than 72% of the total.

By the end of 2024, Hansoh Pharma has reached a collaboration with Merck regarding the development and commercialization of the GLP-1 receptor agonist HS-10535. Hansoh Pharma granted Merck the exclusive global license for the development, manufacturing, and commercialization of HS-10535 and will receive an upfront payment of $112 million and milestone payments of up to $1.9 billion from Merck. The upfront payment of $112 million is expected to be recorded in 2025. This represents that Hansoh Pharma will still have substantial licensing revenue to bolster its financial statements in 2025.

Figure: An overview of Hansoh Pharma's BD transactions, Source: Jinduan Research Institute

Almost imperceptibly, Hansoh Pharma has formed a positive cycle of "R&D - Licensing - Reinvesting in R&D." While the upfront payments from each BD deal may not be particularly high, they are sufficient to ensure stable growth in the company’s performance. If the pipelines licensed out make progress later on, it would be considered an unexpected bonus.

Among all traditional pharmaceutical companies, Hansoh Pharma is both a representative of research and development focus and an active embracer of BD (Business Development) globalization. Purely from a strategic thinking perspective, Hansoh Pharma’s transformation pace has been rapid and clear, helping the company quickly move out of the quagmire caused by centralized procurement.

For Hansoh Pharma, which is gradually moving towards正规, it might be time to撕掉 the "老实人"标签. By strengthening the company's strengths to form a "强有力"标签, thereby allowing more investors to see the value of the enterprise.

Hansoh Pharma should no longer be regarded by the market as an appendage of Hengrui Medicine.

       Title: Hansoh Pharma, the "Honest Person" in the Pharmaceutical Industry