Source of this article: Times Business School Author: Chen Jiaxin
Source: Times Investment Research
Author: Chen Jiaxin
Editor|Zheng Shaona
On October 9, Simcere Pharmaceutical (02096. HK) closed at HK$6.60 per share. Since the end of September, the Hong Kong stock market has recovered, and Simcere Pharmaceutical's share price has risen by 11.68%.
According to Simcere Pharmaceutical's 2024 semi-annual report released on September 27, the company's innovative drug business revenue in the first half of this year reached 2.2 billion yuan, accounting for more than 70% of the total revenue. Times Investment Research has noticed that in just a few years, the proportion of innovative drug revenue has soared from 40% to 70%, and Simcere Pharmaceutical's road of "imitation to innovation" seems to be going particularly smoothly, what is the secret behind it?
When Simcere Pharmaceutical was listed on the Hong Kong Stock Exchange in 2020, it was also required by the Hong Kong Stock Exchange to revise the expression "we are an innovative pharmaceutical company" in the prospectus to "we are a pharmaceutical company based on generic drugs" because the revenue of innovative drugs accounted for only 45%.
After the listing, Simcere continued to maintain the rhythm of launching one innovative drug per year, and the revenue ratio of innovative drugs also increased rapidly from 45% in 2020 to 70% in the first half of 2024. Starting from the 2021 annual report, Simcere Pharmaceuticals finally made it clear in its financial report that it is an innovation and R&D-driven pharmaceutical company.
According to the statistics of Times Investment Research, the seven innovative drugs currently listed by Simcere Pharmaceutical are all obtained from mergers and acquisitions or cooperative development, and there are no products completely developed by Simcere Pharmaceutical.
On September 31 and October 8, Times Investment Research sent a letter to Simcere Pharmaceutical and called to inquire about the way to obtain innovative drugs, the cooperative development model of innovative drugs, and the reduction of R&D investment in the first half of the year.
How can the proportion of innovative drug revenue increase?
Simcere Pharmaceutical's innovative drugs cover many fields such as oncology, nervous system, autoimmunity and anti-infection, and there are few innovative pharmaceutical companies that can blossom in multiple fields except for large pharmaceutical companies.
However, a closer look at Simcere Pharmaceutical's seven innovative drugs currently on the market shows that these innovative drugs are all acquired through mergers and acquisitions or cooperative development, and there are no products completely developed by Simcere Pharmaceutical.
According to the semi-annual report, Simcere Pharmaceutical expanded its innovative drugs to seven in the first half of this year, including Endu, Edxin, Xianbixin, Envida, Cosella, Xenoxin, and Enlitor, of which Enlitor was approved for marketing in the first half of this year.
In addition to the early acquisitions of Endu, the other six innovative drugs were developed in collaboration with other institutions, as shown in the chart.
Taking the newly launched Enlitor in the first half of this year as an example, the cooperation announcement shows that the drug is used for the combined treatment of colorectal cancer, and the drug is developed by Simcere Pharmaceutical and Mabpharm (02181. HK), Simcere Pharmaceuticals has obtained exclusive commercial rights in the Mainland, including sales management and marketing promotion rights.
The cooperation announcement does not indicate whether the research and development of the drug is Simcere Pharmaceutical or Mabpharm Pharmaceutical, but the website of the Taizhou Municipal People's Government shows that Enlito is independently developed by Taizhou Mabpharm Taike Pharmaceutical Co., Ltd., a subsidiary of Mabpharm Pharmaceutical. Therefore, in the development process of this innovative drug, Simcere Pharmaceutical may play more of a "sales promotion" role.
A similar situation occurred with Envida. According to the official website of Alphamab Oncology Pharmaceutical-B (09966.HK, hereinafter referred to as "Alphamab Oncology"), Envida is independently developed by Alphamab Oncology, and since 2016, it has cooperated with Idea Pharmaceutical Co., Ltd. (01244. HK); On March 30, 2020, Alphamab Oncology, Idea Pharmaceutical, and Simcere Pharmaceuticals reached a strategic cooperation, with Alphamab Alphamab as the original developer responsible for production and quality, Alphamab Pharmaceuticals responsible for clinical development in the field of oncology, and Simcere Pharmaceuticals responsible for the exclusive commercial promotion of products in Chinese mainland.
It is worth noting that, in addition to the above-mentioned marketed innovative drugs, Simcere Pharmaceutical's three innovative drugs in NDA (New Drug Application Application) are not self-developed products.
In the first half of this year, Simcere Pharmaceutical's new drug applications for two new innovative drugs, Enzeshu and Kevico, were accepted, among which Enzeshu is a product of cooperation with Apexigen, Inc (now merged into Pyxis Oncology, Inc), and Kevico is an insomnia drug in cooperation with Idorsia. In addition, Xianbixin ® sublingual tablets are innovative drugs developed in cooperation with Nanjing Ningdan New Drug.
In order to obtain external innovative drug projects more efficiently, Simcere Pharmaceutical established an innovative drug incubation platform called "Baijiahui" in 2013 to screen and invest in innovative drug projects.
Simcere Pharmaceutical's approach is often referred to as "BD dealing" (referring to joint research and development or sales of innovative drugs with other companies), and has become increasingly popular in the pharmaceutical industry in recent years. Driven by this model, Simcere Pharmaceutical's transformation has achieved remarkable results, and the proportion of innovative drug revenue has increased year by year.
Will the hot BD transaction of innovative drugs push up the cost?
With a long R&D cycle, large investment and high risk of failure, it is understandable to choose to acquire innovative drugs that have made certain R&D progress through acquisition/BD transactions, but this model is a great test of the investment vision of pharmaceutical companies.
In the early days, the innovative drug "Endu" was obtained through mergers and acquisitions, which gave Simcere Pharmaceutical a taste of sweetness.
In 2006, Simcere Pharmaceutical invested 200 million yuan to acquire 80% of the shares of Yantai Medjin Bioengineering Co., Ltd. (hereinafter referred to as "Yantai Medjin"), and incorporated the world's first recombinant human endostatin anti-tumor drug "Endu", which also became the largest amount of a single variety in the domestic pharmaceutical industry at that time.
According to the financial report, in 2007, Endu's revenue reached 260 million yuan, and the one-year revenue has exceeded the original consideration of Simcere Pharmaceutical's acquisition of Yantai Maidejin.
In 2007, Simcere Pharmaceutical was listed on the New York Stock Exchange, becoming the first bio-chemical pharmaceutical company in China to be listed on the New York Stock Exchange, and set a record for the largest IPO of a pharmaceutical company in Asia at that time.
The road to mergers and acquisitions has not been smooth sailing, and Simcere Pharmaceutical has also been in trouble.
In 2009, Simcere Pharmaceutical spent 196 million yuan to acquire a 37.5% stake in Jiangsu Yanshen Biotechnology Co., Ltd. (hereinafter referred to as "Yanshen Biotech"), which produces "rabies vaccine", and then Simcere Pharmaceutical increased its stake in Yanshen Biotech to 50.77%.
Soon after the acquisition of Yanshen Biotech, Yanshen Biotech was exposed to the falsification of rabies vaccine for human use, and Yanshen Biotech was basically in a state of suspension after the incident.
The investment may gradually push up Simcere Pharmaceutical's asset-liability ratio. According to Flush iFinD, Simcere Pharmaceutical's asset-liability ratio rose from 17.7% at the end of 2018 to 41.25% at the end of 2011; During the same period, short-term borrowings soared from $06 million to $816 million, while monetary funds fell from $813 million to $210 million, and monetary funds at the end of 2011 could no longer cover short-term borrowings.
The self-development of innovative drugs requires continuous and large capital investment, and for Simcere Pharmaceutical, which is under financial pressure, it is difficult to invest a large amount of money in the self-development of innovative drugs.
Many pharmaceutical companies that started with generic drugs are trying to innovate and transform. Hengrui Pharmaceutical(600276. SH) launched its first self-developed innovative drug, Erecoxib Tablets, as early as 2011.
Simcere Pharmaceutical's innovative drug development model is based on acquisition/BD transactions. In recent years, M&A/BD deals in the pharmaceutical industry have been booming. According to data from Pharmacube, a big data service provider in the pharmaceutical industry, in 2023, there will be a total of 228 BD transactions of innovative drugs in China, with a total down payment of 21.021 billion yuan, a new high in the past four years.
Overseas pharmaceutical companies are also actively involved in domestic innovative drug acquisitions/BD transactions.
In December 2023, international pharmaceutical giant AstraZeneca announced that it intends to acquire Gracell Biologics (GRCL.US), a domestic innovative pharmaceutical company, with an initial payment of US$1 billion and a total price of US$1.2 billion, which is valued at a premium of 86% over Grabi's closing price on December 22, 2023.
In May 2024, Hengrui Pharmaceutical announced that it would license the overseas development, production and commercialization of its three GLP-1 products to Hercules for a fee, with a total transaction value of about US$6 billion.
Under the boom in pharmaceutical acquisitions/BD transactions, there are also doubts about whether Simcere Pharmaceutical can continue to obtain innovative drug projects at a relatively low price.
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