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An immersive overview — common models and market observations of pharmaceutical cooperative development

 Last Update: 2021-09-30
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Pharmaceutical equity buyout transactions are the sale/purchase of pharmaceuticals or pharmaceuticals under research in a certain geographical area through the transfer of assets and rights such as qualifications, intellectual property rights, manufacturing technologies, third-party orders and contracts, facilities and equipment and/or personnel

Drug equity buyout transaction

The common feature of these two transactions is the introduction of products or technologies that others have developed to a certain degree

The above two types of transactions can be regarded as a broad medical cooperative development model, that is, to achieve resource integration and complementary advantages in one or more specific links in the preclinical stage, clinical stage, and commercialization stage

In the shadow of COVID-19, 2020 and 2021 are both extremely extraordinary years.

The future is here, and Han Kun is willing to help the times to ride the wind and waves

(1) Cooperation between biomedical companies and preclinical CRO

At present, biomedical companies mainly engaged in pre-clinical research and technology development in the market are usually called Biotech.

Pre-clinical CRO provides professional services for pharmaceutical companies and other R&D institutions in the R&D process through contracts

CRO’s common business models can be divided into four types: the traditional order model of “one-off payment transactions”, the “milestone” model of payment based on progress and key nodes, the “more work, more rewards” result-oriented model, and “shared risks”.

(2) Cooperation between biomedical companies and preclinical/laboratory CMO/CDMO

CMO (Contract Manufacture Organization) is an outsourcing production company that produces and processes APIs, intermediates, preparations, packaging, etc.

Similar to preclinical CRO, preclinical CMO is also a typical human-intensive industry, and its growth driving force is basically the same as the growth logic of CRO, so the two have strong synergy [7]

(3) Cooperation between biomedical companies and AI drug R&D companies/technology platforms

Designing and screening compounds that are effective for specific targets is a tedious and long process.
If you can use powerful computing power to process a large amount of data, and combine the breakthrough of deep learning algorithms and the accelerated accumulation of biomedical big data to achieve compound design and screening "Automation" can greatly reduce the time and manpower investment in the drug discovery phase
.
According to this, in recent years, AI drug R&D companies have flourished.
AI technology platform-assisted drug R&D has become a new trend in pre-clinical drug development.
AI drug R&D technology is refreshing the cognitive boundary of the biomedical industry at a disruptive speed.
Used in target discovery, compound screening, compound synthesis, ADME-T (absorption, fractionation, metabolism, excretion, and toxicity) properties prediction, crystal form prediction, formulation development and other links, in clinical trial design and patient screening , Pharmacovigilance applications and post-market research phases also have outstanding performance [11]
.
In particular, AI technology can also play a greater value in links with a large amount of data and high-throughput links [12]
.
In addition, in addition to protein drugs, AI technology has also expanded to multiple biomedicine directions such as gene therapy, mRNA, and neoantigens [13]
.

The typical business models of AI drug R&D companies can be divided into two categories.
One is a SaaS supplier model based on AI technology platforms, and the other is a Biotech model based on self-developed pipelines.
AI drug R&D companies can have both It
.

Discussions on the innovation issues, technical capabilities, commercialization issues, and capital market expansion issues of AI drug R&D companies have been endless.
The limitations of data, the degree of reduction of the algorithm to the experience of scientists, the scarcity of R&D talents, and biomedical companies The degree of matching of requirements is the core issue that AI drug R&D companies need to overcome
.
Whether AI technology can shake or even subvert the clinical development and commercialization barriers that Big Pharma has accumulated over the years remains to be tested
.
In the future, by further strengthening the "open source" of data and the "enhancement" and "iteration" of algorithms, we will break through the data and technical barriers applied in the field of macromolecules, and find one or more suitable business entry in the new drug research and development industry chain.
Point, clear industry positioning and development direction is an effective way for AI drug R&D companies to strengthen their core competitiveness
.

(4) Cooperation between biomedical enterprises and universities and scientific research institutions

Biomedical companies cooperate with universities and scientific research institutions to discover new technologies, new targets and new therapies, and the promotion of pre-clinical and clinical research is becoming more and more common.
The industry-university-research cooperation between the parties has also been vigorously supported by the government.
Support
.
On the one hand, pharmaceutical companies can make full use of the resources of teachers and postgraduates in universities and put the drug R&D process to the cradle of drug action mechanism research in universities and scientific research institutions, and the latter will provide the majority in basic theoretical research and cutting-edge application research.
On the other hand, universities and scientific research institutions can also use the laboratory resources of pharmaceutical companies to carry out teaching and research, and the trained talents can continue to serve the development of pharmaceutical companies
.
The cooperation between the two is like a perfect match, promoting and promoting the rapid development and commercialization of new drugs
.
In the future, the trend of accelerating the transformation of scientific and technological achievements, collaborative innovation and joint talent training in the medical field will also become more and more significant
.

2.
Cooperation mode in the clinical stage

According to the "Pharmaceutical Clinical Trial Quality Management Standards" [14], clinical trials refer to trials with humans (patients or healthy subjects) as the object, and are intended to discover or verify the clinical medicine, pharmacology and other drugs of a certain experimental drug.
Efficacy, adverse reactions, or the absorption, distribution, metabolism, and excretion of test drugs to determine the efficacy and safety of a systemic test
.

The pre-clinical stage places high requirements on the scientific research and innovation capabilities of pharmaceutical companies, while the clinical stage tests the pharmaceutical companies’ resource integration capabilities and clinical trial experience
.
The clinical stage is a key link in the research and development of new drugs, requiring a lot of time and money.
Pharmaceutical companies often cooperate with professional service organizations to save costs and improve efficiency
.

(1) Cooperation between Biotech, BioPharma and Big Pharma

Since the listing of generic drugs after the expiration of the patent protection period will cause the price of drugs to fall sharply, Big Pharma and BioPharma need to continue to supplement the pipeline of research in order to maintain good performance
.
At the same time, Biotech itself often does not have the resources and experience to carry out clinical trials, as well as marketing channels, so they also hope to use the resource advantages and experience accumulation of Big Pharma and BioPharma to complete subsequent R&D and commercialization work as soon as possible.
Realize the results of early drug development
.
Big Pharma and BioPharma often tend to introduce or acquire preclinical drugs developed by Biotech in the form of licenses, equity buyouts, etc.
, or directly acquire Biotech to enhance their R&D capabilities
.

In addition, the partners can also use their own technology, platform, R&D, and industrialization channel advantages to jointly develop new drugs or therapies
.
Different from the traditional license-in model, equity buyout model, or equity acquisition model, in a cooperative development project, the two parties have a clear division of labor, authority, and equity allocation in each link of R&D, registration, production, and sales.
There are more contributions at all stages of development, rather than being completely dominated by one party
.
Therefore, it is necessary to have a more complete committee decision-making mechanism and a financial mechanism for cost sharing and profit sharing for the above-mentioned division of labor, powers, and distribution of rights and interests
.
Both parties to the project can often use each other's test data, technical materials, technical secrets, patents or invention information and other related intellectual property rights for the purpose of cooperative development
.

In terms of clinical trials, it is also a common mode of cooperation for pharmaceutical companies to conduct combined treatment or clinical research on their respective drugs or preparations to evaluate the safety, tolerability and efficacy of the combined use of two drugs
.

(2) Cooperation between biomedical companies and clinical CROs

Different from pre-clinical CRO, clinical CRO mainly relies on clinical trial base resources.
Its main job is to assist pharmaceutical companies in connecting with hospital resources, expert resources, and patient resources, help them manage the process and progress of clinical trials, and help them communicate with the drug review center.
, Which helps to shorten the overall clinical trial time
.
For clinical CRO, the accumulation of clinical service project experience, the coverage of clinical trial centers, the speed of clinical trial enrollment and cost control, and the statistical analysis of trial data are important foundations for its construction of industry barriers
.

Clinical trials are generally divided into four phases, and clinical research phases generally refer to phase I-III clinical trials, and phase IV clinical trials are required after the drug is marketed
.
Clinical CROs are usually responsible for recruiting and managing patients for Phase IV clinical trials, and are also responsible for trial design, selection of clinical medical institutions, clinical monitoring, third-party audits, data management and analysis, registration and application, and post-marketing drug safety monitoring
.
Clinical CRO services are gradually moving towards professionalization, diversification and internationalization.
From the perspective of the development history and future development trends of leading CROs at home and abroad, the integration of preclinical CRO and clinical CRO, the integration of CRO to CMO, and the integration of CRO to CSO The trend of vertical integration such as the penetration of CRO into new drug research and development, precision medicine and genomics, and the trend of providing comprehensive services for industry integration and strengthening subdivision service fields are becoming increasingly significant [15]
.

(3) Cooperation between biomedical companies and factory CMO/CDMO

Compared with the CMO/CDMO in the laboratory/preclinical stage, with the advancement of the research and development process, the number of candidate compound molecules remaining after the "big wave" is getting less and less, and the molecular weight level of the compound required in the subsequent stage is also increasing.
With the coming bigger and bigger, pharmaceutical companies have gradually increased their requirements for CMO/CDMO production capacity.
The transition from laboratory to factory mass production has become inevitable.
The fixed asset investment of factory CMO/CDMO is greater, and the asset-heavy and capital-intensive attributes are more obvious [ 16]
.

Both domestic and foreign drug regulatory agencies attach great importance to the quality control of listed drugs, and they have formulated quite strict standards for the production of drugs, which also puts forward high requirements on the management and operation of CMO/CDMO enterprises
.
When choosing a CMO/CDMO partner, pharmaceutical companies usually pay special attention to their project management, process control, quality inspection, safety and environmental protection and other aspects of system construction and comprehensive strength, and emphasize the supervision and audit of CMO/CDMO partners
.
With reference to the domestic CMO/CDMO transaction model, the specific service types include but are not limited to: (1) R&D and supply of APIs and intermediates (API, namely Active Pharmaceutical Ingredient) and preparations (including their final dosage form DF, namely Finished Dosage Forms) and commercialization; (2) including the post-marketed drugs and combined production of CMC-stop service; aspect (3) liquid production, APIs and intermediates, formulations and other production and packaging
.

(4) Cooperation between biomedical companies and CSO

There is also more and more room for cooperation in the stage of drug marketing
.
Out of the consideration of reducing marketing costs, the "two-invoice" reform and the "VAT reform" policy, pharmaceutical companies have gradually shifted from the traditional dealer model to seeking cooperation with CSO (Contract Sales Organization)
.
CSO refers to an organization that accepts the commission of pharmaceutical companies to undertake the sales and promotion of pharmaceuticals.
It can provide pharmaceutical companies with marketing services, including conducting academic conferences, academic lectures, project consultation, market research, product planning, and introducing and recommending drugs to doctors
.
Many domestic CSOs were initially domestic sales agents of foreign pharmaceutical companies.
Later, more and more domestic pharmaceutical companies began to cooperate with local CSOs to increase coverage of medical institutions
.
Pharmaceutical companies outsourcing production and sales to CSOs can help save costs, improve efficiency, and then invest more energy and resources in the research and development of innovative drugs
.

CSO pays attention to marketing upgrades and focus on areas of professional advantages, realizing the gradual transformation from the sales level positioning to the market academic level positioning, the segmentation and professional development of market academic services, and the trend of gradually improving the compliance system will become increasingly significant
.

3.
Other types of cooperation models

With the continuous evolution of industry rules and policies, pharmaceutical companies have further enriched listed or unlisted pipelines/product resources, broadened product portfolios, and extended the industrial chain according to their own development stages, changes in market conditions, and corporate strategies.
Demand is becoming increasingly prominent
.
In addition, with the increasing trend of “the strong and the strong” in the pharmaceutical industry, leading companies often have smoother capital channels, and rely on the power of capital and the operating rules of the capital market to enhance their strength, broaden the moat, and continue to maintain Its industry position and leading advantage
.

(1) Business acquisition, service acquisition, asset purchase and replacement

To a certain extent, the policy of centralized procurement of medical insurance has caused pharmaceutical companies to reduce their income expectations for some products.
Coupled with the liquidity pressure under the epidemic, it has prompted the divestiture and overall sale of some businesses/products, enabling them to invest more resources.
Research and development of products in core areas
.
At the same time, pharmaceutical companies are also willing to “absorb” to strengthen their product lines with more profit margins in the future, to optimize and focus their business structure, expand their business coverage, and ensure the sustainability of their revenue
.
In recent years, mergers and acquisitions have become the most important channel for leading companies to expand and maintain their position in the industry [17]
.
In addition to the strategic equity investments/equity acquisitions we will mention below, different types of companies in the pharmaceutical field can also achieve business integration and complementary advantages through business acquisitions, asset purchases and replacements
.
Corresponding to equity acquisitions, business acquisitions are mainly reflected in the purchase of part of the business or products in some business areas that the seller has divested; service acquisitions are mainly reflected in the purchase of medical services for integration of user coverage and channel deployment.
The expansion and layout of the sector; asset purchase can be embodied as the purchaser's acquisition of the seller's listed drugs or drugs under research, or the purchase of drug certificates; asset replacement is represented by the replacement of different fields of business to achieve expansion of research and development The purpose of pipeline and complementary advantages
.

(2) Establishment of a joint venture company or merger

As mentioned at the beginning of the article, the research and development of new drugs is a long and complex system engineering, and pharmaceutical companies often have unbalanced resource endowments in the development process
.
The establishment of a joint venture company or merger is also a direct way to promote resource integration and complementary advantages, which will help both parties to maximize their unique advantages, leverage each other's in-depth strength, and seek common development
.
But at the same time, such as the usual joint venture and merger transactions, similar transactions between pharmaceutical companies also face the uncertainty of how to efficiently and smoothly integrate resources after the merger
.

Under the transaction model of the establishment of a joint venture company by both parties, usually both parties may subscribe to the registered capital of the joint venture company separately according to the equity allocation arrangement.
/Technology holders use their related production technology and proprietary technology licenses and other intangible assets as capital contributions, and the joint venture company is responsible for localized drug registration, production, promotion and sales, and the joint venture company may further introduce investment institutions to obtain follow-up Funds needed for business development
.
The purpose of establishing a joint venture company is usually to implement the arrangements for the localization of drug development and production in the licensing agreement.
Therefore, the joint venture company’s articles of association and shareholder agreement will make clearer arrangements for technology transfer and support, product sales, commercialization, and profit sharing
.

In addition, the merger of pharmaceutical companies that have complementary and synergistic needs will also help fight the increasingly fierce competition in the industry
.
For example, Biotech, which has certain financial strength, merges with CSOs or traditional pharmaceutical companies with sales channels and promotion capabilities to improve its own industrial chain, and gradually transform to BioPharma
.

(3) Strategic equity investment/equity acquisition

Strategic equity investment, especially the simultaneous transaction of equity investment and license introduction, is another mode of deep binding and mutual support between the two parties
.
In some license introduction transactions, the licensee not only pays the licensor upfront payment, development milestone payment, commercial milestone payment and royalties, but may also make a minority investment in the licensor to jointly promote the clinical development and commercialization of the drug
.
The form of minority equity investment includes both direct subscription and acquisition of equity subscription warrants
.
The penetration and binding at the equity level has strengthened the strategic mutual trust relationship between the two parties and laid the foundation for further cooperation in the future
.
Of course, in different equity cooperation plans, technical issues such as compliance and supervision brought about by domestic or cross-border investments need to be simultaneously considered
.

In addition, in the equity acquisition cases of pharmaceutical companies in the market, there are also two types of transactions: buy-and-build and buy-and-merger
.

Fourth, the conclusion

Looking back at the “722” incident in 2015, starting from the reform of the drug review and approval system, the country started from the new drug registration and approval (including the drug marketing authorizer system, innovative drug priority review, consistency evaluation, etc.
), medical insurance policy reform (including The medical insurance bureau’s listing, medical insurance payment structure and catalogue adjustments, medical insurance centralized procurement, innovative medicine medical insurance negotiations, etc.
), various clinical pathways and medication guidelines, etc.
have given numerous policy support, intellectual property protection, capital market dividend policy (Hong Kong stock 18A and science and technology innovation The implementation of the fifth set of standards on the board and the system adjustments in other sections of the A-share market, etc.
), talent policies and other aspects go hand in hand to fully encourage the development of the pharmaceutical industry
.
From the common model of pharmaceutical cooperative development and market observations, in general, the license-in model and asset purchase model of China's introduction of foreign technology are still the mainstream transaction models in the market, but as the strength of Chinese pharmaceutical companies continues to increase, and Overseas companies are paying attention to the research and development of Chinese drugs, and it is expected that license-out transactions of Chinese companies will gradually increase
.
Moreover, as the cooperation in the pharmaceutical field increasingly emphasizes the integration of resources and complementary advantages between all parties, a diversified model of in-depth integration and distribution of economic benefits will also flourish, which will greatly improve the overall efficiency of the industry.
Both upstream and downstream ecosystems, large and small, will usher in more development opportunities
.

In view of the space relationship, this article comprehensively sorts out the common cooperation modes, market trends and dynamic observations in the biomedical industry
.
Han Kun, as a witness and ferryman in the era of high light in the fields of life sciences and healthcare, we will continue to help our customers to make further progress
.
In the follow-up series of articles, we will analyze the common problems of these cooperation modes in detail one by one.
Please pay attention to the key points, solutions and suggested measures of each partner from the business, technical (intellectual property) and legal perspectives.

.

[1] Han Kun: License-in, let’s talk about “money” first | Han Kun Pharmaceutical Special Topic (1) https://mp.
weixin.
qq.
com/s/q4mJUas68ZvX-xQLq5r0CA;

License-in, besides "money", what else do we talk about? | Han Kun Pharmaceutical Special Topic (2) https://mp.
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qq.
com/s/Lt1FYDa5sLtfJFhECNMBDA
.

[2] Han Kun: Buyout of drug rights-stock market, the way to buy and sell | Han Kun Pharmaceutical Special (4) https://mp.
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com/s/L095t_iRVnUuT0u6YyPIww;

Supply Arrangement in Pharmaceutical Equity Transactions | Han Kun Pharmaceutical Special (5) https://mp.
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com/s/JFVlYvCKtRqCQ4ZKEztCCA
.

[3] GEN: Seven major development trends of the biomedical industry in 2021 https://
.

[4] Flint Creation: Analysis of the development status of China's preclinical CRO industry https://mp.
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com/s/RaNtyFyg3oV5qYZQEfaOmw
.

[5] Flint Creation: Analysis of the development status of China's pre-clinical CRO industry https://mp.
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[6] Gaohe Investment: Where is CRO in the post-epidemic era? https://mp.
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[7] CICC: CRO&CMO framework research, integration and expansion of outsourcing ecology https://mp.
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[8] Investment bank engineers: Another golden track in the pharmaceutical industry-a brief analysis of the CMO industry https://mp.
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[9] CICC: Research on CRO&CMO framework, integration and expansion of outsourcing ecology https://mp.
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[10] Bohai Securities: In-depth research report on the pharmaceutical CMO industry https://mp.
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[11] Small dining table: Initiating a million-dollar annual salary "grabbing battle", why is AI pharmacy?|What is worth investing in https://mp.
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[12] Small dining table: Why does AI pharmaceuticals have triggered the "grab battle" with an annual salary of one million dollars?|What is worth investing in
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[13] Yikai Capital: Health Industry Team "AI+ Series Report 1: AI+ New Drug Research and Development" https://mp.
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[14] National Health Commission of the State Food and Drug Administration: Announcement on Issuing Quality Management Practices for Drug Clinical Trials (No.
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.

[15] Medical Rubik's Cube: China's Pharmaceutical CRO Industry Map (2018)
.

[16] CICC: Research on CRO&CMO framework, integration and expansion of outsourcing ecology https://mp.
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[17] Yikai Capital: 2021 China Health Industry White Paper-Health Industry M&A https://mp.
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