When will the world's top 10 pharmaceutical companies have China? Ten questions about the future of China's innovative drugs, devices, and vaccines

In the 2021 Haitong Securities' annual strategy report on the pharmaceutical industry, it reviewed the changes in the top 20 A+H-share pharmaceutical market capitalization in 2009, 2015, and the current A+H share market.

The same is true for China's innovative medicine industry.

Ten years ago, scientists represented by Microchip and Betta had returned to China for many years, but they had not yet ushered in the reform of the drug administration.

Over the past ten years, we have experienced drug review reform, 722 self-examination, medical insurance reform, the opening of the Hong Kong stock market 18A and the science and technology innovation board, a large number of scientists returned to China to start businesses, and a number of outstanding innovative drug companies grew up.

01

How do you view the changes in China's innovative drug market in the next few years?

In 2017, we released the report on innovative medicines, explaining that the climax of China's innovative medicine industry is coming, and made 4 judgments:

1.

2.

3.

4.

2017 has not yet ushered in the reform of medical insurance.

In 2020, China’s innovative drug industry will enter a period of rapid growth, and the varieties will gradually be realized.

1.

2.

3.

4.

02

Is going to sea an inevitable path?

Since 2018, the centralized procurement and price negotiation of innovative drugs have been subject to disputes in the industry and the capital market.

At the beginning of 2019, the pharmaceutical index hit a new low.

Competition-based medical insurance negotiations quickly changed market expectations.
Take PD-1 as an example.
When the domestic market price becomes the lowest in the world, more and more companies have to choose the overseas market (the US market).
The secondary market soon gave a group of companies that may be internationally competitive at a high premium.
Typical cases include several PD-1 companies going overseas, Baekje’s BTK inhibitor, Tianjing Bio’s CD47, and Rongchang Bio’s RC18.
, RC48, Nanjing legendary CAR-T, etc.

At this time, I look back at the Deputy Director of the Medical Insurance Bureau Chen Jinfu in his 2017 article "Implementing Value-Oriented Medical Insurance Strategic Purchases": "Behind the quality respect and technological awe are value-oriented and innovation-driven.
Medical insurance purchases are not only the current value and imperfections.
Value, but to buy the strengths and weaknesses of China’s medical care in the future.
.
.
Here, innovation incentives and industrial support are completely different governance concepts and mechanisms.
Supporting innovation or promoting development cannot rely on God’s feelings or moral judgment.
Anything that depends on care The innovation and development supported are not vital, nor will they bring systemic impact and improvement.
"

We are very pleased to see that in just a few years, under the pressure of the medical insurance policy and China's accession to the ICH blessing, more and more Chinese companies have begun international multi-center clinical trials, and the number and amount of license-out cases for large overseas pharmaceutical companies Repeatedly hit new highs.

Industrial transformation is not easy.
This not only means that the market valuation will become more differentiated in the future, but also means that the more China's innovation moves forward, it will have to pay greater costs and bear greater risks in order to obtain greater returns.
In many cases, Fast-follow, BIC, and FIC have extremely high requirements for early drug discovery and clinical science, and they also require some luck.
Innovative drug investment will eventually move towards a high-risk and high-return model, and China's innovative drug companies will truly mature in this wave.

03

How to treat overseas clinical, registration and commercialization?

The internationalization of domestically-made innovative drugs is accelerating.
Core products such as BeiGene, Legend Bio, Junshi Bio, Rongchang Bio, and CStone Pharmaceuticals have successively won the title of breakthrough therapy in the United States.
Among them, BeiGene's BTK inhibitor Zebutinib became the first A domestically produced innovative drug approved in the United States, and Baiji established its own US commercialization team; Junshi Bio’s new crown neutralizing antibody authorized Eli Lilly, and its cocktail therapy has been approved for emergency use in the United States, becoming the first in the United States.
Biological drugs on the market; Legendary Bio’s cell therapy authorized Johnson & Johnson, with amazing data, and has submitted a BLA application to the FDA; in addition, there are domestically potential First-in-Class or Best domestically produced CD47 monoclonal antibodies, Gacos SHP2 inhibitors, etc.
-in-class gradually participates in internationalization by way of license-out.

The new crown vaccine is a landmark product, and a number of Chinese vaccine companies have grown rapidly.
Vaccine companies represented by Kangsino, Sinopharm, Kexing, and Zhifei have demonstrated China's strength and speed in this epidemic, and have also encountered many challenges for vaccines to go abroad.

Before the new crown, Chinese vaccines were limited to underdeveloped markets and a small number of Gates Foundation projects.
Except for CanSino’s Ebola virus vaccine, almost no vaccine companies have done overseas clinical trials.
However, due to the better control of the domestic epidemic situation, the new crown vaccine phase III clinical trial can only be carried out overseas.
How to coordinate global clinical resources in the shortest time has become one of the biggest challenges for vaccine companies, and it is also a challenge for Chinese vaccine companies and international vaccine industry organizations.
The test of depth and familiarity.

In addition to clinical research and development experience, the epidemic has also quickly narrowed the technological gap between China's vaccine industry and overseas.
In the field of new mRNA technology and protein vaccine structure design, start-up companies such as Abbio, S.
Microbiology, Clover Biology, etc.
have stepped onto the stage-in the application of new technology, we still have a gap, but compared with the traditional vaccine route to catch up The speed is accelerating.

As a super-regulated industry, the most important thing for vaccines is effectiveness and safety.
The cost advantage is not enough to become a driving force for new technologies to replace old technologies.
Most of the traditional vaccines that have been on the market are difficult to subvert.
However, many vaccine products in China still have a larger unsatisfied space than the international mainstream, and new technologies may take this curve to overtake.

Compared with vaccines that overseas mRNA companies cannot make through traditional routes, almost all vaccine products in China have room for upgrading and replacement.
Therefore, new technologies such as mRNA and adenoviral vectors are likely to incubate vaccines that match the international first-class level.

In the field of medical devices, Mindray Medical, the representative of China's medical equipment and consumables leading in cost, quality, and response speed, is close to the world's top 20 device companies in terms of revenue, but the number of innovative high-value consumables in the US market for clinical trials is still rare countable.
Companies represented by Sino Medical, Tongxin Medical, and Qiming Medical have started or are about to start FDA-registered clinical trials.

In terms of commercialization, PD-1 is the first target for a batch of companies to try to go overseas.
BeiGene, Cinda Biological, Junshi Biological, and Hengrui Pharmaceutical have chosen very different overseas commercialization paths, from down payment to transaction The amount and the choice of partners all reflect the completely different genes of the managements of several companies.

With its rich international multi-center clinical data, BeiGene has licensed tislelizumab, which has taken back its overseas rights from Celgene, to Novartis, a multinational pharmaceutical company, at a high price; Cinda Biologics authorized Sintilizumab’s rights outside of China to long-term cooperation The partner Eli Lilly, the transaction amount and the data reporting strategy in China all let everyone see that Chinese pharmaceutical companies are trying different commercialization paths with good varieties; Junshi Bio's North American cooperation with Teriplizumab chose to sell Coherus, a biosimilar company, still has a say in its efforts to expand overseas.

The export of medical equipment is another story.
Thanks to Chinese engineer dividends, industrial clusters and manufacturing cost advantages, some medical equipment and low- and medium-value consumables have been exported to the sea on a scale.
High-value consumables have gained a certain market in Europe, but the United States has not yet made a breakthrough.

In 2019, Mindray Medical, Nanwei Medical, Lanfan Medical, and Intech Medical accounted for more than 40% of overseas revenues.
The epidemic has accelerated the export of Chinese medical equipment, medium and low-value consumables, and IVD.
The proportion of other revenues has further increased, and the internationalization of BGI, New Industries, and Wanfu Biology has accelerated.
In the field of high-value consumables, we expect more local innovative device companies to emerge in the regulated market like innovative drug companies.

Compared with medicines and equipment, the vaccine industry is more closed.
The new crown has given China an unprecedented opportunity for the vaccine industry.
The research and development, clinical, and commercialization of traditional vaccines that can only be completed in decades are only 1-2 years in this variety.
This is a great test for China's vaccine industry and an unprecedented opportunity for internationalization.
China joined the COVAX Facility, a new crown vaccine distribution mechanism jointly launched by the World Health Organization and the Global Immunization Alliance in October 2020.
The basic idea of ​​this mechanism is the fair distribution of vaccines.
This is not an ordinary commodity.
It has the attributes of a public good.
Its supply chain, cold chain transportation, and inoculation distribution mechanism are all important issues facing exports.
Looking back ten years later, we believe this is an important milestone in the internationalization of Chinese vaccine brands.

04

How to look at the brand of the founder?

Comparing the Nasdaq market with the current A+H and primary market equity investment markets, the human factor accounts for a greater weight than overseas.
FIC projects account for 1/3 of the drugs approved by the FDA each year, and 80% come from biotech.
The understanding of technology is more important.
In the current Chinese market, FIC/BIC only accounts for a small part, and consideration of the strategy and execution of each team has become one of the core elements.

In the pharmaceutical field, Hengrui, China Biopharmaceuticals, CSPC, and Simcere, which were born 30-50 years ago, are the results of a generation of entrepreneurs who are determined to reform, from imitation to imitation to innovation; Chipset and Beida, born 20 years ago, The pioneers have gone through a long period of bleak drug administration and capital market; Rongchang and Kangfang, born 12 years ago, tried to be Best-in-Class, but only 8 years later did China usher in ICH; Qiming became independent 10 years ago Representatives of a number of companies such as medical and United Imaging Medical, local innovation has risen, and some products are domestically original and even Me-better, and domestic companies are leading the promotion; Baekje, Cinda, and Junshi, which were born 8 years ago, have launched super single products.
After Yi Cai chose a different growth path; Nuocheng Jianhua and Tianjing Biological, who were born 5 years ago, caught up with the best era, and have been doing Sino-US double reports since their birth.

The growth of each generation of enterprises has been marked with a strong brand of the times and the personal brand of the founder.
Researching enterprises, and finally researching people and organizations.
Reviewing these stories, and the people behind them, often marvel at the foresight of Chinese scientists in the process of transforming into entrepreneurs.
The top entrepreneurs are leading the Chinese pharmaceutical industry to penetrate the fog and create the future.

05

How to treat the license in mode?

In the past period of time, the License in mode has been controversial.
However, the BD capabilities and execution capabilities of Zai Lab and Baekje have shown the market in the past five years that the strategies based on license in, First-in-China, and Only-in-China are of great value, and the core of innovative drug evaluation The value lies in the clinical benefit.
If patients can benefit clinically, medical insurance can be purchased strategically, and pharmaceutical companies can create revenue and profits.
This is also a way for Chinese companies to improve their level of innovation.

As Liu Yongjun, President of Cinda Biological Group, said in an interview with E-pharmaceutical managers: “Any company cannot rely on its own research and development of BIC \FIC products in many fields, but it needs to use the License in model to find the best of other companies.
More importantly, we must continue to upgrade our product pipeline by introducing products.
" In the past year, the significant increase in transaction cases such as Hengrui, CSPC, Zhongsheng and other Big Pharma etc.
is also a corroboration.

From the perspective of investors, the license-in track is becoming crowded.
Whether an enterprise can truly benefit patients clinically with its superior strategic vision, product selection ability, clinical advancement ability, and sales ability under the new form is the core of our observation in the next five years.
At the same time, companies are also evolving.
After a model is successful, we have also seen that many companies will go further to the front and build stronger R&D, BD, and sales integration capabilities.

06

Big pharma, Biopharma, Biotech contest?

The protection and disappearance of patents is a double-edged sword.
The investment of innovative drugs pursues flexibility, not sustainability.
In other words: the business model of innovative drugs determines that in the ultra-long-term dimension, no one is a friend of time, and companies must continue to develop new products without missing a big wave as much as possible.

Unlike Big Pharma, which is among the top 20 by market capitalization in the U.
S.
stock market, relying on large-scale mergers and acquisitions, China's innovative drug industry has not yet transitioned to this stage, and no company has the competitiveness of global R&D, sales, mergers and acquisitions.
In China, the boundaries between Big pharma, Biopharma, and Biotech are still very blurred.
Regardless of R&D, sales, or clinical practice, it is still difficult for someone to cast a strong enough moat to prevent competitors from entering.

Big pharma’s competitiveness is not only clinical and commercialization capabilities, but also continuous strategic leadership-commercialization capabilities may be chased, and long-term strategic leadership, R&D capabilities, internationalization capabilities, and The ability to withstand risks when the market fluctuates is the core competitiveness that Big Pharma should forge at this stage.
For Biopharma, after proving its R&D, clinical, commercial, and financing capabilities through 1-2 major products, it urgently needs to strengthen its R&D capabilities and organizational transformation capabilities in order to seek the next blockbuster and become a world-class leader.
Biopharmaceutical companies forge ahead.
As far as Biotech is concerned, scientists do scientific things and maximize their scientific abilities.
The spirit of focusing on science and daring to take risks will also bring great opportunities.

Returning to the choice between income, R&D expenses, and profits, the market will always value the future.
Companies that don't invest in research and development have no future.
Traditional pharmaceutical companies are transforming, which involves multiple dimensions such as R&D driving force, organizational structure, and incentive mechanism; the market does not seem to care about Biotech's losses, and it is also based on the possibility of creating huge revenues and profits in 5-10 years.
Otherwise, they will all fall into the value trap.
Product innovation is the primary vitality of pharmaceutical companies.

07

Changes in the domestic sales model?

At the end of 2014, the Ali Health App was officially tested.
The pilot site was selected in Shijiazhuang, the capital of Hebei Province.
At that time, there were only 100,000 registered users.

Just after the official public beta of the Ali Health App in 2014, we wrote in our report: Internet spoilers will have Pareto improvements to make the system more transparent.
And made 4 judgments:

1.
The interests of some hospital outpatient pharmacies and distributors will be damaged.

2.
Doesn't change the interests of doctors

3.
It will accelerate the integration of traditional retail pharmacies, and the strong will remain strong

4.
Once the model runs through, it will also have a profound impact on the marketing of prescription drugs in the current bidding model

Five years have passed.
In 2019, Internet healthcare has undergone tremendous changes.
The number of active users of Ali Health and JD Health reached 190 million (48 million self-operated) and 56.
1 million (72.
5 million in 2020H1), achieving 83.
5 billion and 43.
2 billion GMVs, and 9.
6 billion and 10.
8 billion in revenue.
On the other hand, three years after the completion of our prescription outflow report, there was no outflow of prescriptions.
It was not until the collection came that we found out that the prescriptions really got out.
This has changed the traditional business model of representative-hospital-doctor-patient.
Patients (users) may go online, or they may go to pharmacies and community medical institutions.

In many discussions, pharmaceutical companies and vaccine companies want to know where the patient is more than ever.
How to compliant marketing in the current channel reform has become a proposition for many pharmaceutical companies to think about.

08

Equity incentives for large companies, incubators, and small companies?

As mentioned in the previous article, regardless of innovative drugs, devices, and vaccines, they will all move to more front-end and more risky innovation fields.
After researching companies and products, they all research the relationship between people and organizations.
With the rapid development of the capital market, excellent talents are faced with many temptations.
How to establish innovative organizations and continuously encourage scientists to continue to innovate is a proposition for entrepreneurs to think deeply.

Does the most source of innovation have to use equity to motivate the most adventurous people? Do large pharmaceutical companies need to establish independent subsidiaries to separate new and existing businesses to reflect different goals and resource requirements? How to balance the interests of innovators, existing shareholders, and new shareholders behind capital measures such as splits, mergers, and independent subsidiary financing? The incubator model, platform holdings, and investors end up as companies, which involve many issues such as value creation, governance structure, and so on.
History is always surprisingly similar, and the cases of mature markets can give us a lot of enlightenment.

09

The choice of Hong Kong stocks and A shares?

First look at a few sets of data:

There are currently a total of 551 pharmaceutical companies in A+H shares, including 373 in A shares and 178 in Hong Kong shares.

Since the opening of the 18A Hong Kong stock market in 2018, a total of 29 pharmaceutical companies, equipment and vaccine companies have landed in the Hong Kong stock market in accordance with the 18A standard; 17 companies have exceeded the issue price, and 12 companies have broken the issue; 6 companies have a daily trading volume of over 100 million and the smallest daily transaction The amount is only a few hundred thousand.
(The above data is as of 20200210)

Since the opening of the Sci-tech Innovation Board in 2019, a total of 29 pharmaceutical companies have landed on the Sci-Tech Innovation Board, 24 companies have exceeded the issue price, and 5 have broken.
The daily trading volume of 13 companies exceeded 100 million, with a minimum daily trading volume of 12 million.
(The above data are calculated based on the statistics on February 10)

Half is flame, half is ice water, the market is realizing the registration system at an unprecedented speed.
For innovative drug companies, IPO is by no means the end.
Only companies that continue to create value can maintain their vitality in the capital market.

Do companies choose Hong Kong stock market or A-share market for IPO? Companies mostly consider valuation, refinancing convenience, and incentives.
With the launch of the Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and other mechanisms, the interconnection between investors on both sides has become more obvious, and the price difference between A shares and Hong Kong shares will be very small in three years.
As more and more innovative drug companies develop international multi-center clinical trials, the A+H or H+A framework will become the mainstream choice.

The market is cruel, but effective, always inspiring the scarce and most valuable companies.

10

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