A real Chinese unicorn: good policies usher in more members into $1.0Bil Revenue Biomedicine Club
(Photo source: quanjing.com)
Henlius is a unicorn company with estimated value of $3.18 billion. Liu Shigao, the company’s CEO, believes that the valuation was reasonable.
At the 9th China Healthcare Investment Conference (CHIC), McKinsey & Company’s global partner Zhang Fangning said that 32% of Global Top 50 Unicorns are in China.
In Chinese medical health field, unicorn companies are emerging, and the number of the $1.0 Billion Annual Revenue Club members is rising.
China’s medicine start-ups bet on immunotherapy medicine, especially PD-1 and PD-L1 monoclonal antibody medicines. Due to the extensive potential indications, PD-1 and PD-L1 R&D is one of the hottest medical investment fields. According to International institution E-valuate Pharma predictions, PD-1 and PD-L1 will rank the 2nd among the Top 10 Medicines with the Highest Revenue in 2022. Chinese start-ups including the unicorns Henlius, Ascentage Pharma and Innovent Biologics will bet on the field. Most of the companies that presented roadshows at the CHIC were start-ups in this field.
Henlius, a joint venture founded in 2010 by Fosun Pharma and overseas scientists, was restructured into a stock company limited in 2016. As Fosun Pharma’s innovative bio-medicine company, Henlius’ main business is the development of monoclonal antibody medicines, including the R&D and industrialization of biosimilar and innovative monoclonal antibody medicines.
On October 19, 2017, Henlius submitted a marketing application for listing of its first medicine Rituximab Monoclonal Antibody Injection which is China’s first biosimilar to have its marketing application accepted. At the end of January, Rituximab was on the priority list for state-level evaluation and approval.
Henlius’ Rituximab is possibly the first homemade biosimiar, Liu Shigao told The Economic Observer.
So far, Henlius’ product profile consists of 2 biosimilars and 4 innovative medicines. According to Liu, Henlius has three products under the Phase III clinical test. In terms of international market, Henlius has obtained FDA’s clinical test approval for the three innovative medicines.
Clinical test is the must stage for medicine marketing. The Phase III clinical test is mainly to verify medicine’s efficacy with the largest number of sample patients. It is also the most expensive step before the drugs’ marketing. The expense, depending on the size, is roughly 10 million yuan to several hundred million yuan. In average, an innovative medicine, from R&D to marketing, needs about $1.0 billion and 12 years while a biosimilar cost about $200 million.
Ascentage Pharma is focusing on global innovation with all its products having the potential to be First in class or Best in class globally, said Yang Dajun, chairman of the board of the company. Ascentage Pharma has five original new drugs under clinical test in China. They are the first and only drugs to enter the clinical test and fill China’s vacancy in the field. One product aims to cure small-cell lung cancer which is an extremely malignant disease that currently lack effective clinical remedies.
Ascentage Pharma has obtained 16 clinical test approvals in China, the US and Australia simultaneously. It is carrying out over 20 clinical tests for advanced malignant tumor and Hepatitis B, which is more than numerous bio-tech companies. “One of the drugs is hopefully a cure for Hepatitis B if clinical breakthroughs are achieved,” said Yang. Ascentage Pharma’s product is expected to list in the next two to three years. At present, the company has begun to set up a global manufacturing base, and its first pipeline that is in accordance with the international standards will be put into use within three years.
Henlius plans to cooperate with Fosun Pharma to sell its first product, HLX01. With flexible strategy of attack and defense in sale, Henlius will compare HLX01’s quality standard with the international ones and explore the European and American markets with the international drug enterprises. At the same time, it will help biosimilar compete with the original drugs in price so that Chinese patients can afford it.
“Biological drug development is a long-term investment process, we have spent ten years in the field,” said Liu while describing his experience in establishing the company. In 2008, when Liu decided to quit his job in Amgen, a biopharmaceutical company in the United States to start a business in China, Fosun Pharma went to California to look for a technical team.
Liu and Fosun Pharma made exchanges in one and a half years, and Fosun Pharma finally decided to invest in Liu’s company.
“It is difficult for start-ups to complete financing and gain the drug administration departments approval. At that time, a large number of overseas investors didn’t have enough money to start businesses.” said Liu. Without a new drug patent and a drug approval, Liu was lucky to raise $ 22.5 million in financing from Fosun Pharma. At that time, though he felt that the financing fund was little, he still started a business. “I believe investors are sure to voluntarily invest more money if we realize achievements in drug research and development,” said Liu.
When he recalled the original business plan, he said he signed a very conservative agreement with Fosun Pharma, called “1+3” framework agreement. “1” meaning one product needs to gain the clinical trial approval, and “3” meaning three products needs to be in the preclinical stage. As a result, many products and technologies reached the requirements. “Investors are now very optimistic about our development and are willing to invest,” said Liu.
2014 was a turning point for Henlius’ development. Liu repeated to media reporters during the company’s key moments and events of the year. In March 2014, the company received the first drug clinical trial approval. At that time, China did not specify the laws of biosimilar, Henlius could therefore declare new drugs and biosimilar. Henlius adopted a head to head comparative trial during biosimilar preclinical development and chose biosimilar approach in the clinical development, avoiding conducting the Phase II clinical trial. “It gives investors confidence in Henlius’ development”, said Liu.
Another important event took place in 2014, when the board of directors agreed to adopt one-off manufacturing technology through two years of discussions. “We are the first company to use this technology in China. From 2012 to 2014, we made continuous discussions with drug administration departments, and finally they started to accept the new technology. The technology ensures high quality, lower cost, and better operation flexibility. In other words, we have made a great contribution to the application of China’s one-off manufacturing technology.” said Liu.
Why is it that the board of directors has been discussing the technology for two years? “The main reason is that the directors failed to reach an agreement,” said Liu. Inmid-2015, the board of directors submitted the first biosimilar’s clinical trial approval for the manufacturing technology on the assumption that “the drug administration department was more conservative. If so, the company’s research progress will be influenced once it is not approved.
Since 2012, Liu has served as an expert consultant in drug administration department and formulated related standards while participating in related conferences, and so he got such a signal that the drug administration departments have been trying to improve themselves so as to keep up with the international standards. Therefore, he decided to boldly try adopting a new technology in the board of directors.
Henlius took eight years to increase its valuation from $ 30 million to over $ 2 billion or over $ 3 billion. With its expansion, its original office, located in Fosun Pharmaceutical Innovative Park, Yishan Road, Shanghai, cannot accommodate all its staff and it’s therefore expected to move to a larger office this year.
“The emerging of unicorn enterprises in China stems from external environment. Given the great unmet medical needs, China is now facing unprecedented opportunities in drug administration reform, PE and VC investments, as well as talents introduction.” said Liu.
In 2030, China will have more than 100 million people aged over 65 and more than 500 million people will become urban middle class; there will be 300 million cardiovascular patients, 150 million diabetes patients and 5 million cancer patients. This puts forward demands and creates opportunities for the medical innovation.
Since 2015, when it came to drug administration departments, the terms such as “rapid reform” instead of “conservative” have stuck in people’s mind. In mid-2015, the policy was made to come up with deep reforms for drug administration system from the verification of clinical trial data to the consistency evaluation of generic drugs, aiming at developing high-quality drugs. In addition, in order to further promote domestic drug innovation, a series of measures were taken, including building approval priority channel, joining International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH), and building Marketing Authorization Holder (MAH) system.
So far, the China Food and Drug Administration (CFDA) has officially released more than 70 reform documents and consultation comments. On the CHIC held on March 28, Song Ruilin, executive director of the PhiRDA did a report themed Influence of Drug Administration Reform on Chinese Biopharmaceutical Innovation, and shared such an anecdote: “At a recent CFDA’s consultation meeting, some company representatives advised CFDA not to update related news and information on Friday night, because their bosses were so anxious to see the relevant content that they had to work on Saturday and Sunday.”
The number of the staff in the Center for Drug Evaluation (CDE) has increased from 150 to more than 800. According to the data provided by Song, it is the reform that improves CDE’s speed in dealing with the application of 1.1 Class chemical products For example, the application amount of 1.1 Class chemical products and pharmaceutical drugs has increased from 10 and 4 in 2009 to nearly 100 and 56 in 2017 respectively.
Liu also noted, although drug administration departments have not issued some detailed rules yet, they are willing to receive some good suggestions that are in accordance with the international standards, so Henlius has been operating smoothly.
The marketing time of innovative drugs and clinical drugs has been shortened from 7 or 8 years to 2 or 3 years through reforms.
Since the launch of National 1000 Talent Program in 2008, a number of high-end talents have returned to China, especially pharmaceutical innovative talents. These talents have now become the mainstay of the Chinese pharmaceutical innovative industry. Most of the founders or chairmen of unicorn enterprises are National 1000 Talent Program experts.
Zhang Fangning mentioned in a report that China’s healthcare investment through VC /PE doubled to $ 40 billion in 2017. Another$12 billion was also invested in the Chinese pharmaceutical industry.
According to statistics from Firestone, in 2017, China saw 86 pharmaceutical financing cases amounting to RMB 10.129 billion and an average single fund of about RMB 118 million. Biopharmaceutical industry saw the largest number of financing cases and funds in the pharmaceutical industry. In 2017, there were 565 VC/PE financing cases in China’s healthcare industry, with a decrease of 31.27% over 2016; a total financing fund of RMB 34,931 billion was secured, up 8.91% over 2016. The average amount of single financing case was about RMB 62 million, up 58.46% over 2016. Among them, the number of financing cases that have risen over RMB 100 million reached 103, an increase of 25.61% over the last year, and their total financing amount was approximately RMB 30.914 billion, up 13.35% over last year.
According to Zhang, China has not only made innovation in the medical field, but it’s also propelling the all-around innovation of other related industries and has achieved a certain scale. China’s medical investment ecosystem is maturing. Although it has not yet reached a large scale in outcomes, applied technology and commercialized products, it has a bright investment future.
As one of the investment institution of Henlius and Ascentage Pharma, Bioventure specializes in the early and middle stages of the venture capital investments in the biopharmaceuticals field. It has currently invested in 52 enterprises, of which United Imaging (a Suzhou-based medicine device company) and PegBio (a pharmaceutical innovative company) are unicorn enterprises. What’s more, “conservative estimates show that unicorn enterprises will account for a third of these enterprises in future, with an optimistic estimate of 50%. Bioventure has helped cornerstone investors (limited partnership) to create over 30% return rate.” said Chen Jie, partner of Bioventure.
Based on the statistical data, the differentiation characteristics of financing have gradually emerged. The best remaining entrepreneurs aged 40 have reduced and thousands of young people are still under the scientific research and other factors. Therefore, there is a growing gap between first-tier and other-tier companies, marking the arrival of the unicorn era.
New choice for IPO
In August 2016, Fosun Pharm (ISH600196) announced that Henlius was restructuring from a Sino-foreign joint venture to a limited company, in order to prepare for listing on the capital market. At that time, its goal was to list its shares on the New Third Board, to achieve independent financial support for the follow-up development.
“In fact, some investors had been paying attention on us previously, but because we spent a long time to create drugs in addition to many uncertain factors, the investors didn’t give us a higher valuation at that time. In other words, few investors are willing to give timely assistance to weak companies in the pharmaceutical industry. I often joke that all investors prefer to risk-free or risk-less investments” said Liu.
In addition to high risk of drug research and development, inflexible exit mechanism is the key factor that hinders venture capital investment in the biopharmaceutical industry. “The current financing environment can score more than 8.2 points with a full score of 10 points, while the exit mechanism is less than 6 points. Therefore, IPO is one of the biggest challenges.” said Zhang on the CHIC.
Previously, China’s unprofitable pharmaceutical companies listed either on the New Third Board in China or on the NASDAQ or NYSE in the US. Zai Lab, a Chinese innovative pharmaceutical company, specifically, enjoyed a successful IPO in the US in 2017 and made a good approval of capital markets, boosting the confidence of related companies to go public in the US. Yang Dajun told reporters that Ascentage Pharma had done the preparatory work in accordance with the listing requirement of the US.
However, in February this year, the Hong Kong Exchange (HKEX) became another choice for unprofitable biotechnology companies in China to conduct IPO. The HKEX recommended a revision of the listing rules, in order to attract new and innovative industry companies including unprofitable or unpaid biotech companies, to go public. It provides a unique fund-raising platform for the biotechnology companies with adequate investor as a guarantee.
The revision of HKEX listing rule has improved capital exit environment and two cross-boundary investment channels that connect Shanghai Stock Exchange and HKEX, as well as Shenzhen Stock Exchange. HKEX has provided investors with convenience.
On March 22, HKEX held a bioscience summit, a conference on the listing of biotechnology companies on HKEX, attracting many founders from innovative pharmaceutical companies.
PhiRDA was the co-sponsor of the event and Song Ruilin was invited to participate. “There are only 400 seats, but the participants are nearly 1000. Therefore, we will add another 200 seats, but there are still 200 participants standing in the event.” said Song.
At the event, Li Xiaojia, CEO of HKEX, noted that the preparation for the expansion of HKEE’s listing mechanism was in its final stage. On March 28, Mao Zhirong, managing director of HKEX and Clearing Limited, as well as co-head of mainland affair of HKEX said in the CHIC that in late April, the HKEX’s IPO rule for domestic biotechnology company will be unveiled, and the enterprises could apply for listing on the HKEX in May.
Although Liu himself did not attend the event, he sent a representative to participate. Liu told reporters that given the new listing rule of HKEX, Henlius will leverage on the advantages and disadvantages of conducting IPO in the US and Hong Kong based on the company’s actual situation as well as their understanding on China, including its market, drug supervision policy, and hospitals.
Yang attended the event on March 22 as a symposium guest. “Just when Ascentage Pharma had done the preparatory work to list in the US, KHEX proposed a more attractive policy. Considering the value of Chinese US-listed companies such as 3S Bio Inc and Wuxi PharmaTech has not been fully recognized, the opening of the HKEX to the unprofitable biotech companies is a major positive policy for the pharmaceutical industry and investors.” said Yang.
At the same time, the domestic stock market also released a new attractive signal for the new innovative enterprises. “I admit that it is competition that drives PhiRDA’s support for innovation. The reason that HKEX’s new listing rules hit an upsurge in domestic pharmaceutical industry is also attributed to competition.” said Song.
Yang said: “HKEX is one of good options for the Chinese pharmaceutical enterprises, conducive to the faster growth of the industry. Ascentage Pharma is expected to go public in 2018, but the specific IPO plan is still a secret.”
Yang repeatedly stressed that he doesn’t approve of the enterprises striving for the honor of unicorn enterprises and hoped that the government will not support the move. If the product boasts high quality, the market is sure to give it a fair value. The most important thing is to generate economic and social benefits while meeting patients’ needs.
Liu said: “Henlius has been deliberate about where to conduct IPO, and it’s yet to make a decision. As a unicorn company, its first product will soon be in the market, followed by several others, and so the biggest challenge and the main concern that the company faces is how to achieve upgrading in management.”
Source: The Economic Observer