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Introduction: A brutal lesson
in survival and victory.
The former "rich and handsome" biomedicine has successively punctured the "valuation bubble"
since the second half of 2021.
The Hang Seng Index for Healthcare has now fallen to almost a fraction of what it was in early July last year
.
Hong Kong stock Hang Seng Healthcare Index, source: Flush iFind
The index was released
on August 7, 2015.
According to pharmaceutical industry investors, "the valuation of the pharmaceutical sector is now cheaper
than it has been 90% of the time.
" ”
HSI Healthcare Index, Source: Wind, Alpha Works
In many companies, their Hong Kong stocks fell by more than 80%.
Among them, the most eye-catching star, innovative pharmaceutical companies, is not lacking in breaking, even broken
.
Statistics on the rise and fall of Hang Seng Healthcare constituents, source: wind, Alpha Factory
Back then, when innovative pharmaceutical companies rushed to Hong Kong stocks to ring the bell, the spring breeze was proud
.
In less than a year and a half, it went like a landslide.
It can be described as seeing all the Chang'an flowers
in one day.
Expected "broken"
Expected "broken"Investment is a game, and the game is poor
expectations.
Over the past year, the market has been changing expectations
for the biomedical industry.
In the past, limited by the listing conditions, innovative pharmaceutical companies were rarely seen in the capital market
.
On 30 April 2018, after the promulgation of Chapter 18A of the Main Board Listing Rules (hereinafter referred to as "18A") in the new Listing Rules of the Hong Kong Stock Exchange, the restriction
of "no listing without profit" was broken.
Since then, a large number of innovative pharmaceutical companies that have not yet made profits have landed on Hong Kong stocks
.
The state's policy to encourage pharmaceutical companies to innovate, the first time of cedamide original innovative drugs to go to sea, etc.
, milestone events have made capital more "crazy", and investors from all walks of life have flocked to the market
.
With the blessing of favorable benefits, the primary and secondary markets of innovative drugs have shown a hot scene
.
In 2021, the transaction value of the primary market medical and health industry reached nearly 400 billion, and the average single transaction amount reached 250 million
.
Compared to 10 years ago, the transaction amount has increased nearly 50 times
.
The secondary market is also very hot
.
"Benchmarks" are constantly emerging
.
Kang Nuoya (2162.
HK) listing, up 46.
34%
at the open.
Hutchison Medicine (0013.
HK) rose by more than
110% on the first day of listing.
An important reason for innovative pharmaceutical companies to rush to the capital market is to continue to invest heavily in R&D in
pipelines.
Junshi Biologics (1877.
HK), for example, in Junshi Biologics' prospectus, in 2016 and 2017, its revenue was 3.
757 million yuan and 1.
148 million yuan respectively, and its loss reached 132 million yuan and 321 million yuan
respectively.
R&D expenditure was $275 million
in 2017.
2016-2017 Junshi Biologics R&D expenditure, source: Junshi Biologics prospectus
2016-2017 Junshi Biologics financial data, source: Junshi Biologics prospectus
The high intensity of R&D expenditure has forced innovative drug companies such as Junshi Biologics to focus on long-term search for investment funds
.
Sustained losses do not prevent investors from pursuing such companies
.
It is true that the R&D of innovative drugs is expensive and takes a long time to invest, but once a new drug is successfully launched, it will bring rich returns and long-tail benefits to investors, as well as up to 20 years of patent protection
thereafter.
Investors are optimistic that the company's technology is advanced enough, the team is professional enough, and the pipeline prospects are broad
enough.
They hope that the companies they invest in will one day, like Moderna (MRNA.
O), with the "east wind" of mRNA vaccines, the total market value will exceed 100 billion US dollars, making a lot of money
.
The ideal is plump, but realistic and skinny
.
Just seeing the immediate prosperity, you rashly plunge into bubble trading, and every step that follows will be difficult
.
Investors hold the idea that "if you don't invest at this time, you may have to increase tenfold after listing", and will pour a lot of funds into the field of
innovative drugs.
However, some investors' cognition of innovative drugs remains on the surface, and the depth of research is far from enough
on how difficult research and development is, whether the pipeline is on a crowded track, the details of cost investment, and the commercialization cycle.
There is still a long way to go
from fanatical belief to the real landing of performance.
From me-too to me-better
From me-too to me-betterR&D is the core competitiveness of innovative pharmaceutical companies, but it is also a headache for
them.
One reason is that the research and development of innovative drugs requires extremely high capital and continuous investment
for many years.
There has always been a "double ten law" in the innovative drug industry, that is, it takes more than 10 years and a cost of 1 billion US dollars to successfully develop a new drug
.
Taking BeiGene, the "flagship" of innovative drugs, as an example, in the first half of 2022, BeiGene (6160.
HK/688235.
SH) spent RMB5.
016 billion, a year-on-year increase of 20.
82%.
A large amount of funds, mainly used to incubate the core pipeline
.
In addition, the investment in early research and development is too high, the time is too long, and the cost cannot be recovered in the short term, which is also a common problem
.
More importantly, if any link such as research and development, preclinical trials, and clinical trials goes wrong, there is a possibility of
overall failure.
Once innovation fails, upfront investment will be lost
.
Even if everything is ready for approval, it is not as optimistic as expected
.
According to the 2021 Drug Review Report released by the NMPA in June 2022, a total of 2,412 applications for new drug clinical trials and 389 applications for new drug marketing authorization were accepted in 2021, but only 47 innovative drugs were reviewed and approved
that year.
The difficulty of obtaining approval for innovative drugs can be imagined
.
Source: Official website of the State Medical Products Administration
Even, if high investment is still required in the follow-up, and the capital market is expected to decrease, the competitive environment changes, and the drug does not have time to be commercialized, its value will face "destruction"
.
The pipeline that enterprises have spent a lot of time and effort on the layout of funds will change from "assets" to "liabilities"
.
From the perspective of foreign factors, in 2022, WuXi Biologics (2269.
HK) several companies are listed on the Unverified List (UVL), Innovent Biologics (1801.
HK) PD-1 has been blocked from going overseas, and the US FDA has tightened supervision, which has greatly reduced
the market's confidence in the development of innovative drug companies.
Soon, the phenomenon of listing falling below the issue price gradually appeared, and the market value of some companies fell below net assets
.
The list goes on, including Jiahe Bio (6998.
HK), Genting Sun Yiu (1952.
HK), Zhaoke Ophthalmology (6622.
HK), JW Therapeutics (2126.
HK) and so on
.
Chinese mainland Ascletis Pharmaceuticals (1672.
HK), the listing price is HK$14 per share, and the market value once reached HK$
16 billion on the opening day.
On October 25 this year, Ascletis closed at HK$2.
09 per share, a contraction of nearly 80%
compared to the time of its IPO.
Ascletis Pharma share price chart, source: Flush iFind
From the perspective of domestic policy factors, in 2021, CDE (Center for Drug Evaluation of the State Food and Drug Administration) issued the "Principles of Clinical Value-oriented Clinical R&D Guidelines for Oncology Drugs" for comments, which clearly stated that the research and development of new drugs should be aimed at "providing patients with better treatment options" as the highest goal
.
This means that when pharmaceutical companies declare clinical trials, they have to beat the best varieties
that have been approved on the market.
The document directly hits the pain point
of China's innovative drug industry.
Because at present, the innovative drugs of the vast majority of pharmaceutical companies in China are basically me-too, that is, the target is the same, the indications and efficacy are basically the same, but the structure is different
.
Among them, there are many imitators who imitate foreign countries, effectively circumventing patent restrictions
without affecting the efficacy.
But in the future, the orientation of innovative drugs will change from me-too to me-better
.
"Better" innovation, of course, is more
difficult.
Rebuilding the "Dragon Head Faith"
Rebuilding the "Dragon Head Faith"Investment in innovative drugs has come to a difficult time
.
Investors who have taken too much risks no longer believe in the long-tail future, but discount pessimistic expectations into the present
.
Under the pressure of drug price negotiations, crowded mature target tracks, high R&D expenses, and unclear future, the industry reshuffle is likely to intensify
.
For example, PD-1 (immunosuppressive molecule) is a new drug
for treating tumors.
In recent years, many companies have squeezed into the PD-1 track, but PD-1 is already a "red sea" target
.
In 2020, CDE accepted a total of 9,768 applications for registration, of which 60% were antitumor drug applications, and more than 700 clinical trial applications for antitumor drugs were approved, covering 150 targets, of which PD-1/PD-L1 reached 133.
As mentioned above, domestic policy-oriented me-better, or even first-in-class (original drugs for new drug targets), then the profit space of me-too innovative drugs is bound to be greatly compressed
.
After the medical insurance negotiations on November 10, 2021, four domestic PD-1 products have been included in medical insurance, and the price of PD-1 in China has almost "rolled" to the lowest in the world, dropping 80 times in 6 years
.
If you want to survive, you have to withstand the storm
.
After the storm, the company voted by the market can truly be called the investment value
.
At present, head enterprises with several characteristics such as strong platform product capabilities, strong research and development strength, and rich product pipelines have more hope
of "passing through the cycle".
For example, CanSino (688185.
SH), the domestic new crown oral drug "seed player" Junshi Biologics, and the "first brother" Hengrui Pharmaceutical
, which is committed to innovation and transformation.
Previously, CanSino released its 2022 half-year report, with revenue of 630 million, a year-on-year decrease of 70%; The net profit was 12.
238 million yuan, a year-on-year decrease of 98.
69%.
In the first three quarters of this year, CanSino's cumulative net loss reached 487 million yuan
.
According to the announcement, the reason for the loss is mainly the sharp decline in the demand for new crown vaccines, combined with the inventory in the first three quarters, which is a huge
526 million yuan.
Where is the hope of turning over?
If you look back at history, before the adenovirus vector new crown vaccine "Kwesha" was launched, CanSino has been losing money because of a large amount of investment in research and development
.
In 2021, "Kevisa" was listed, making it achieve a profit of 1.
914 billion yuan
that year.
This seems to indicate that the successful commercialization of a new drug can bring considerable returns
to the company.
Source: CanSino Annual Report 2021
On September 4 this year, CanSino announced that the inhaled recombinant new crown vaccine developed by the company was approved as a booster shot for emergency use, and if the relevant national departments subsequently purchase and use the vaccine, it will have a certain positive impact
on the company's performance.
On November 1 this year, following the start of inhalation new crown vaccination in Shanghai, 13 cities in Jiangsu Province also carried out the deployment of inhaled new crown vaccine
.
Among them, Wuxi, Huai'an and Yangzhou took the lead in opening appointments and vaccinations for inhaled recombinant new coronavirus vaccine Kevisha
.
For example, according to CanSino, a booster dose of inhaled vaccine after a dose of inactivated vaccine can effectively increase antibodies
.
For people who have received two doses of inactivated vaccine, the antibody level can be increased by nearly 300 times
with inhalation booster.
Whether inhalable types can be widely popularized in the future is still unknown
.
But beyond inhalable vaccines, CanSino has another hope of turning around: a rich product line
.
For the capital market, enterprises with platform product capabilities are more attractive
on scale.
CanSino currently has 17 vaccines that can protect against 12 diseases, including Ebola virus disease, meningitis, new coronavirus, pneumonia, diphtheria, tetanus, tuberculosis, shingles, etc
.
From the perspective of short-term commercialization, CanSino's bivalent and quadrivalent flow brain vaccines may achieve commercial value
sooner.
CanSino's quadrivalent flow brain vaccine Manhaixin is the first application in China and has been promoted
in China with pharmaceutical giant Pfizer (PFE.
N).
Source: NMPA website
In the medium and long term, CanSino's PCV13i/PBPV, component diphtheria, tetanus, and tuberculosis booster vaccines all focus on clinical pain points, and the market potential is huge
.
The second example is Junshi Bio.
The core competitiveness of biopharmaceutical enterprises is mainly reflected in R
&D strength.
To test the strength of research and development, the main thing is to look at the product results
.
The new crown oral drugs VV116 and trepilimab can be regarded as the second
representative of Junshi's R&D strength.
After the small molecule novel coronavirus drug VV116 was approved in Uzbekistan at the end of 2021, in May this year, Junshi Biologics announced that the Phase III clinical trial of VV116 compared with Pfizer Paxlovid for the early treatment of mild to moderate COVID-19 has reached the main research endpoint and will submit a marketing application
in the near future.
Trepilimab for the treatment of small cell lung cancer, according to Junshi Biologics' announcement on April 14 this year, has been granted orphan drug designation by the FDA, which is also the fifth FDA orphan drug designation
obtained after the treatment of mucosal melanoma, nasopharyngeal carcinoma, soft tissue sarcoma and esophageal cancer.
Some people in the pharmaceutical industry believe that the application of the new crown oral drug market can still be expected, and Junshi Biologics' innovation and international layout capabilities will become chips for the upward sprint
.
The third example is the transformation
of generic drug giants into innovative drugs.
In terms of the composition of pharmaceutical market share, most of the Chinese pharmaceutical market is generic drugs, and innovative drugs account for only about
10%.
After the implementation of centralized procurement, the profit of generic drugs was compressed
.
Due to the implementation of new medical insurance negotiation prices for a number of innovative drugs, Hengrui Pharmaceutical (600276.
SH) reported revenue and net profit in
the third quarter of this year.
Collective procurement hurt Hengrui's "muscles" in a short period of time
Although transformation will experience severe pain, there is always hope
for sticking to the road of innovation.
On the one hand, Hengrui has been committed to R&D investment
.
In the first three quarters of 2022, Hengrui Pharmaceutical invested more than 4.
5 billion yuan
in R&D.
In July this year, Hengrui's 11th marketed innovative drug and the first self-developed androgen receptor (AR) inhibitor in China, Arion (revilutamide tablets), issued the first prescription
in China.
On the other hand, since there is the advantage of strong financial strength, the purchase of drug patents is a short and fast road
.
In 2021, Hengrui obtained 112 domestic authorized patents and 117 foreign authorized patents
.
According to the incoPat global biomedical industry invention patent ranking in the first half of 2022, Hengrui Pharmaceutical ranked 13th with 231 patents, becoming the only Chinese pharmaceutical company
to enter the top 20.
Whether it is an innovative pharmaceutical company born with innovative genes or a transformed pharmaceutical giant, the help of the capital market is always only an external factor
.
If you want to be invincible in the involution wave, it is still essential
to practice hard internal skills.
