As drug giants grow cautious, can Chinese biotech firms still cash in on licensing deals?

Record-breaking cross-border deals helped make some formerly loss-making Chinese biotech companies profitable in the first half of the year, but multinational drugmakers are now signalling plans to tighten deal budgets. Analysts said deals with global partners had overtaken initial public offerings and pre-IPO fundraising as the main funding option for cash-starved Chinese biotech firms wanting to advance the discovery, clinical development and regulatory approval of new drugs. Yet questions remained over whether reliance on overseas licensing income was sustainable in the long run. “Chinese biotech assets remain highly cost-effective relative to global peers,” said Cui Cui, head of healthcare research for Asia at Jefferies, adding that if major pharmaceutical companies became more selective about their expenditures to acquire new drugs, “Chinese biotech assets may look even more attractive”. China’s cross-border deals for innovative drugs hit a record US$110 billion in the first half of the year, according to state news agency Xinhua. Eighty-one agreements were reached – about 80 per cent of the total reported for all of last year. “This is quite sizeable when compared to the IPO proceeds,” said Tony Ren, head of Asia healthcare research at Macquarie Capital. Healthcare and drug companies raised HK$14.1 billion (US$1.8 billion) via 11 first-half listings in Hong Kong, according to Deloitte, while six biotech and healthcare firms went public on mainland China’s A-share market, raising a combined 2.12 billion yuan, according to EY. According to the PharmCube data platform, primary market financing rounds in China’s innovative-drug sector were worth US$5.22 billion last year. Chinese firms can generate data quickly and their assets are not expensive in general Tony Ren, Macquarie Capital A handful of Chinese novel drug developers saw their earnings turn around in the first six months of the year, driven by out-licensing fees. Hong Kong- and Shanghai-listed biotech RemeGen said in a filing on Monday that it swung to a net profit attributable to shareholders of about 4.66 billion yuan (US$693.2 million) in the first half. In the corresponding period last year it made a loss of 449.57 million yuan. The company said the improvement was largely due to a January out-licensing deal with AbbVie for an experimental cancer drug. The agreement brought RemeGen an upfront payment plus potential milestone payments that could total up to US$5.6 billion. Shenzhen-listed CSPC Innovation Pharmaceutical posted a net profit of 1.26 billion yuan in the first half, according to its interim results, after recording a 2.75 million yuan loss a year earlier. It out-licensed eight drug candidates for obesity and weight-related conditions to AstraZeneca in January in a deal worth up to US$18.5 billion. Shanghai-listed Suzhou Zelgen Biopharmaceuticals recorded its first half-year profit – 640 million yuan – since its founding in 2009 after booking a US$100 million upfront payment from a licensing deal signed with AbbVie late last year for an experimental lung cancer treatment. However, multinational companies have been flagging caution over business development spending during their half-year earnings calls. AstraZeneca CEO Pascal Soriot said in an earnings call last month that the company did not need “more business development to deliver” growth after 2030, assuming that “the aggregate probability of success across our pipeline of new products will be at least as we plan it”. Pfizer CEO Albert Bourla said this month that it had “placed the business development bets already … and we are executing on that”. He said the company’s remaining business development capacity stood at about US$6 billion. Ren, from Macquarie, said that while large-scale acquisitions were “out of favour”, smaller acquisitions and licensing “will most likely continue”. “Chinese firms can generate data quickly and their assets are not expensive in general,” he said. “I don’t sense multinationals scaling back their China licensing activities.” Cui, from Jefferies, said: “We expect full-year out-licensing activity [between Chinese biotech firms and their global partners] to continue to grow rapidly.” The Hang Seng SCHK Innovative Drug Select Index has risen about 4.25 per cent over the past month, outperforming Hong Kong’s benchmark Hang Seng Index. However, headwinds still loom for novel drug developers, with Yang Huang, head of China healthcare research at JPMorgan Chase, saying one of “the key overhangs” for first-half and second-quarter earnings was the intensification of the anti-corruption campaign targeting China’s medical sector since May. “Innovative products with clear clinical differentiation have remained relatively resilient, as prescription decisions are increasingly driven by clinical evidence,” he said.

As drug giants grow cautious, can Chinese biotech firms still cash in on licensing deals?

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Out-licensing deals have overtaken IPOs as the primary lifeline for cash-starved Chinese drug makers, analysts say

Out-licensing deals have overtaken IPOs as the primary lifeline for cash-starved Chinese drug makers, analysts say