When will the net profit of unprofitable pharmaceutical companies such as Junshi and Consino turn positive?

5;">In 2021, the first accounting year of the first batch of unprofitable listed companies on the Science and Technology Innovation Board has passed, and the net profit is still negative, R&D investment is still high, mergers and acquisitions, licensing, and where are the opportunities for unprofitable listed companies?

5;">This may be a shot of cold water in the carnival.

5;">On the evening of March 4, 2021, Biotech, with the suffix -U, released its 2020 annual report.
This was accompanied by the announcement of the termination of clinical trials of two new drugs under development.
So far, Biotech has announced three new drugs in 2021.
The clinical trial of a new drug under development has ended, and this time it is announcing that Biotec's ADC pipeline has been completely wiped out.

5;">Biotech’s investors even called this a "suicidal bad announcement".
Perhaps this is the first "black swan" incident in 2021.
It can not help but remind people of a problem: unprofitable science and technology innovation board innovative pharmaceutical companies, Will companies delist?

5;">It is reported that the 127-page "Science and Technology Innovation Board Stock Listing Rules" clearly stipulates the implementation of delisting warnings and delisting of companies listed through the fifth set of standards: the fourth full fiscal year from the date of listing If the audited net profit before or after the deduction of non-recurring gains and losses is negative and operating income is less than 100 million yuan, delisting conditions will be triggered and a delisting risk warning will be implemented.

5;">01 Where is the risk of delisting?

5;">As of January 31, 2021, there are 7 biomedical companies listed on the fifth set of standards on the Science and Technology Innovation Board, namely Zejing Pharmaceutical, Biotech, Shenzhou Cell, Junshi Bio, Kangsino, Frontier Bio and Iris.
Among them, Zejing Pharmaceutical, the first to be listed, was listed on the Sci-tech Innovation Board on January 23, 2020, and the latest Iris was listed on the Sci-Tech Innovation Board on December 2, 2020.
That is to say, investors in the secondary market can know whether the first enterprise listed on the fifth set of standards on the science and technology board will be subject to delisting risk warnings as early as the beginning of 2024 when the 2023 annual report is released.

5;">According to statistics, among the 7 companies, the largest loss in 2019 is Junshi Bio, with a deduction of non-net profit of -780 million yuan and R&D expenses of 950 million yuan; the smallest loss is Cansino, with a deduction of non-net profit of -1.
6 100 million yuan, and R&D expenses are 152 million yuan.

5;">In fact, according to the fifth set of rules of the Science and Technology Innovation Board, “companies in the pharmaceutical industry must have at least one core product approved for phase II clinical trials”, which means that the core products of these seven companies are currently undergoing at least phase II clinical trials.
According to the past clinical advancement progress forecast, almost all of them can be commercialized in the fourth full accounting year.
The risk that investors are concerned about is whether the cash flow can be positive after the product is commercialized.

5;">"We have already achieved Phase II clinical trials at the time of listing.
After 4 years, we should have completed Phase III listings and generate certain revenue, but it is also a question whether it can be evened out.
" Gao Te Jiaxi and General Manager Li Qiushi said to E The drug manager said.

5;">Take Junshi Biologics as an example.
Its first commercial product, tereprizumab, is the first domestically marketed PD-1 inhibitor.
It was approved for listing at the end of 2018.
Its sales in 2019 were 770 million yuan, but this The non-net profit deducted by Junshi Biologics in one year is still -780 million yuan, and the research and development expenses are as high as 950 million yuan.
Li Qiushi pointed out, "This means that companies have to balance the relationship between R&D investment and revenue.
Revenues of more than 100 million can be achieved, but the deduction of non-net profits is positive.
It still depends on the situation.
"

5;">It is true that the risk of delisting will not occur, and the difference between the company's R&D investment and product sales revenue cannot be compared solely.
Li Qiushi pointed out that the positive deduction of non-net profits can be viewed in two ways: a start-up R&D company that balances the relationship between R&D and income is one, and the other can be obtained from the milestone payment of license out.
The former tests the commercialization capabilities of enterprises, while the latter tests the leadership of R&D companies in the research pipeline, such as whether they have the potential of First-in-class.

5;">While the domestic MAH system is gradually being liberalized and the rules are constantly being improved, authorization income or milestone income may become Biotech's main source of income.
Huang Donglin, head of the Institute of E-Pharmaceutical Managers, said, “Commercialization capabilities are indeed a challenge for Biotech, but it is not a big problem.
Because the giant companies in the pharmaceutical industry ecosystem already have a strong business operation team.
It is almost indispensable for start-up companies to cooperate with such companies in their early development.
Therefore, similar to Amgen’s leading biotech companies, the early marketization of their products is based on large-scale drugs such as Johnson & Johnson Pharmaceuticals in the United States and Kirin in Japan.
The active participation of enterprises until it helped Amgen to become a mature large-scale pharmaceutical company.
"

5;">Let's look at Junshi Bio, which has the highest market value and the highest R&D cost among these 7 companies.

5;">The only commercialized product of Junshi Biological currently is Teriprizumab.
Public information shows that teripril combined with axitinib in the treatment of mucosal melanoma, and teripril in the treatment of nasopharyngeal carcinoma and soft tissue sarcoma have obtained the FDA’s orphan drug designation, and the nasopharyngeal cancer indication has obtained the FDA’s breakthrough therapy Qualified, it is expected to become the first domestically produced PD-1 monoclonal antibody to be marketed in the United States.

5;">On February 1, 2021, Junshi Biosciences announced that it has reached a cooperation with Coherus BioSciences, a US company, on the development and commercialization of Tereprezumab in the United States and Canada.
Junshi Biotech will grant Coherus toriplimumab and two optional project licenses, and receive a total of up to 1.
11 billion US dollars in down payment, optional project implementation fees and milestone payments.
Among them, the first payment is 150 million US dollars.
After reaching the corresponding milestones, Junshi Bio will receive a cumulative milestone payment of no more than 380 million US dollars, plus 20% of the annual net sales of triprolizumab in the licensed area.
Divided.
For JS006 (anti-TIGIT monoclonal antibody) and JS018-1 (a new generation of improved IL-2 cytokine drug) projects, Junshi Bio will receive an implementation fee of 35 million US dollars for each project.
After reaching the corresponding milestone event, Junshi Bio will receive a milestone payment of no more than US$255 million for each project, plus a sales share of 18% of the annual net sales of the optional projects in the licensed area.

5;">In addition, in May 2020, Junshi Biological announced that Eli Lilly was granted an exclusive license to carry out R&D activities, production and sales of Junshi new crown antibodies outside of Greater China.
Eli Lilly will pay a down payment of US$10 million, and pay a milestone payment of up to US$245 million after each Junshi new crown antibody (single use or combination) achieves the specified milestone event, plus the double-digit net sales of the product Percentage of sales share.

5;">Junshi Bio's 2019 financial report shows that during the reporting period, R&D investment was 946 million yuan, a year-on-year increase of 75.
8%; the 2020 H1 semi-annual report showed that R&D investment during the reporting period was 709 million yuan.
If calculated at a growth rate of 50%, Junshi Biologics R&D investment may exceed 1.
4 billion yuan in 2020, 2.
1 billion yuan in 2021, and close to 5 billion yuan in 2023.
Based on this calculation, if we only consider the revenue generated by commercialization and license out transactions, the sum of these two revenues will need to exceed 5 billion yuan by 2023.

5;">02 Is it easy to license out?

5;">So, what about the other six?

5;">"Biotech's core competitiveness is one: the products developed are not powerful, and they are not in place.
" A researcher in the pharmaceutical industry told the E-medicine manager.

5;">According to the publicly disclosed R&D investment in 2019, in addition to Junshi Bio's 946 million yuan, followed by Biotec's 640 million yuan.

5;">At the end of February, Biotech announced its 2020 performance report.
The annual revenue was 185 million yuan, mainly from the sales of adalimumab biosimilar drugs in 2020.
Non-net profit deducted -562 million yuan, an increase of 17.
98% over the same period of the previous year, and the net loss decreased by 49.
81% year-on-year.

5;">According to the 2020 H1 financial report of Biotech, in addition to adalimumab biosimilars, two other Biotech products have been submitted for marketing applications and have been accepted by the CDE.
They are the platelet glycoprotein IIb/IIIa receptor antagonist bati Fiban injection and bevacizumab biosimilar drugs.

5;">In addition, three other products have entered phase III clinical trials, namely tocilizumab biosimilar BAT1806, golimumab biosimilar BAT2506, and trastuzumab even-linked drug BAT8001.

5;">It is worth noting that, also in February, Biotech announced that the company decided to terminate the clinical trial of BAT8001 because it did not meet the predetermined target.
As of December 2020, the BAT8001 R&D project has invested a total of 226 million yuan.
Biotech's R&D investment in 2019 is 640 million yuan, and H1 R&D investment in 2020 is 245 million yuan.

5;">It is equivalent to the current commercialization of Biotech's products, almost all of them are biosimilars.
An industry investor believes, "It is difficult for companies doing biosimilars to obtain overseas license out income.
"

5;">At home, risks are also coming quietly.
On January 29, 2021, the State Council Information Office held a briefing on the "Opinions on Promoting the Normalized and Institutionalized Development of Centralized and Volume Procurement of Drugs", and finally clarified that biosimilars will be included in centralized procurement as a foregone conclusion.
Huachuang Securities pointed out in the research report, “Although the barriers of biosimilar CMC are high and the potential market space is huge, as the expected expansion of volume purchases to biosimilars continues to intensify, industry enthusiasm will fall sharply.
”

5;">Biotech’s only commercial product, adalimumab biosimilar, is also facing greater competition in China.
In addition to the original research and study of Merlot, there are three domestic competitors Fuhong Henlius, Xinda Biologicals, and Hisun Pharmaceuticals.
The indications of adalimumab biosimilar drugs from Fuhong Henlius and Hisun Pharmaceuticals are not as good as 100%.
Aotai, but Cinda Bio announced at the end of December that the market value of its adalimumab after the approval of the new indication has reached hundreds of billions, and the impact cannot be underestimated.
However, Huachuang Securities also pointed out in the research report that “after the implementation of large-scale procurement, there will be no more than 10 companies that are truly capable of supplying a basket of biosimilar products at low prices for a long time, and the top players will basically take shape.
”

5;">"The overall quality of unprofitable biopharmaceutical companies on the Sci-tech Innovation Board is not as good as that of Hong Kong stocks.
" The above-mentioned investors are conservative on the current situation of companies listed on the fifth set of standards on the Sci-Tech Innovation Board.
"Junshi Bio may be better.
First of all.
It has PD-1 sales, and the follow-up varieties have the potential of First-in-class, but most of them are Fast-follow.
"

5;">Huang Donglin also believes, "For license out, it depends on how big the satisfaction of clinical needs is.
License out must be based on the epidemiological characteristics of foreign countries and the characteristics of foreign diseases.
"

5;">However, Huachuang Securities believes that “Once domestic biosimilar drugs can enter the European and American markets, it is expected to realize greater income and profit elasticity.
” Past data shows that many large pharmaceutical companies have achieved heavy volume in the European and American biosimilar markets.
At the same time, The price of biosimilar drugs is relatively high in the United States.
Taking pegfilgrastim as an example, the average price of the original research in the United States is US$6,231, and the price of its biosimilar drugs is about US$4,000, with a price difference of only 5%-10 %.

5;">03 Where is the opportunity?

5;">If you consider the worst-case scenario, where are the survival paths of these seven companies?

5;">Li Qiushi believes that there will be some opportunities for mergers and acquisitions.
"Some medium-sized pharmaceutical companies in China have both capital and strong commercialization capabilities.
Then they may strategically invest in these companies or even merge them.
The integration is a win-win situation.
game.
"

5;">In addition, reverse mergers are also possible.
In view of the current low valuation of generic drug companies in the market, Li Qiushi believes that reverse mergers and acquisitions of a traditional generic drug company are also possible.

5;">Huang Donglin also proposed some countermeasures, such as commercial outsourcing of products through authorization.
In fact, such outsourcing cooperation is already underway.

5;">In 2020, Biotech and BeiGene signed an authorization, distribution, and supply agreement to transfer the company’s bevacizumab biosimilar drug BAT1706 related intellectual property rights and its related intellectual property rights in China (including Mainland China, Hong Kong Special Administrative Region, Macau Special Administrative Region) , Taiwan) product rights are licensed to BeiGene with compensation.

5;">At the beginning of 2021, Junshi Bio announced that AstraZeneca will officially obtain the right to promote the anti-PD-1 monoclonal antibody treplimumab independently developed by Junshi Bio in non-core markets in mainland China, and the subsequent approval for listing With the exclusive right to promote urothelial cancer indications nationwide, Junshi Bio will continue to be responsible for the core market promotion of teriplizumab in mainland China except for urothelial cancer indications.

5;">In fact, whether it is merging with traditional generic drug companies or licensing products to companies with stronger commercialization capabilities, innovation and meeting unmet clinical needs are the key to the success of the company, and it is also the final rule set by the China Securities Regulatory Commission.
Goals reached.

5;">"How many products of sci-tech innovation board companies target unmet clinical needs is a big question mark.
For example, China is a large digestive tumor country, and the incidence of gastric cancer and liver cancer is at a high level in the world, but domestic independence in this regard R&D is lacklustre.
If breakthroughs in innovation in this area meet clinical needs, sales will follow, and there will be no problems with commercialization capabilities.
" Huang Donglin said bluntly.
(E medicine manager)