Out of money? Another Biotech sold the plant at a loss and announced its entry into the CRO

On November 15, 18A Biotechnology Company and Platinum Pharma announced that the company entered into an asset transfer agreement with WuXi Hyde to sell the production plant of the Biomacromolecule R&D Innovation Center project for a total consideration of RMB 146 million.

The sale of the clinical supply and manufacturing facility project started in 2021, and was originally intended to support the clinical development of the company's product pipeline project, which covers an area of approximately 8,500 square meters and is designed to produce up to 4,000 liters, and the facility is expected to be put into production by the end of 2022.

Since the third quarter of 2022, Biotech's strategic sale of assets and stop-loss cash withdrawal have become the norm, which means that there is likely to be a "bankruptcy and shutdown tide" of Biotech in the future.

For example, in September this year, Kewang sold its production base to WuXi Biologics; On November 4, CStone Pharmaceutical's Suzhou industrialization base began to stop work and production.

01

Losing money also has to be sold, what happened to Harbour Pharmaceutical?

The content of the announcement of the sale of assets by Harbour Pharma is also very frank: in the vernacular, "the factory is sold at a loss".

According to the announcement, as of October 31, 2022, the total net book value of the target assets (unaudited) was approximately RMB167 million.

In addition, Harbour Pharmaceutical, combined with the estimated value of the unfinished portion of the target assets, expects to lose RMB61.93 million compared to the transaction price of RMB146 million.

Why did the company sell its production plant even after losing nearly 30%? Two core reasons: 1. The company does not enter many clinical pipelines at present, and will avoid the risk of large waste due to capacity utilization in the future; 2. The cash flow is tight, and the daily operating expenses of the factory are a great burden for the company.

On October 10, Harbour Pharma and CSPC reached an agreement to transfer the exclusive rights of the commercialization of bartolimab (HBM9161), which is in clinical phase III, in Greater China to Enbipu Pharmaceutical, a subsidiary of CSPC. On the same day, due to the lack of significant efficacy trends observed in the trial, Harbour Biopharma announced the end of the Phase III trial of Tenaercept (HBM9036) in China and will not enroll new subjects.

At the beginning, the success of Harbour Pharmaceutical's Hong Kong stock IPO was largely due to the late-stage clinical pipelines of these two licenses, and now it is "one sale and one stop", and only Phase II CTLA-4 monoclonal antibody and two Phase I pipelines (TSLP monoclonal antibody, B7H4×4-1BB) remain in the pipeline system, and commercialization is far away.

From the perspective of cash flow and the company's recent actions, Harbour Pharmaceutical's cash flow recovery actions are faster and more urgent than those of general Biotech, all through external licensing or asset disposal.

In April 2022, it granted global commercialization rights to AstraZeneca HBM7022 for an upfront payment of US$25 million and subsequent revenue share; In October, it granted Sinoplic Pharmaceutical Group a bartolimab interest in Greater China, receiving an down payment of 150 million yuan and potential milestone payments totaling up to 1 billion yuan, and in November, it granted Moderna a technical license for the HCAb platform with an upfront payment of US$6 million and a potential milestone payment of US$500 million.

It is not difficult to analyze the strategic intentions pointed by the company from this series of actions: 1. From the perspective of selling global rights, the company may be positioned as a research and development biotech in the future, and will not seek its own commercial products; 2. The company is aware that the current small number of pipeline authorizations and intermittent milestone payments are not enough to safely support the company's good operation (after all, there are many follow-up preclinical pipelines), there are many future expenditures, and the sustainability of revenue is low, and cash storage has become a priority; 3. From the increase in the frequency of licensing platform technology, it may shift to the role of "CRO+Biotech" in the future.

It is worth mentioning that WuXi has won in this wave of Biotech factory sales.

In the September transaction between Kewang and WuXi Biologics, Kewang not only sold the factory to Biologics, but also became the exclusive CDMO partner of Kexi Biologics in the future.

In the announcement of the sale of assets by Harbour Biologics, it was mentioned that the transaction amount of RMB146 million was paid in four tranches, and the last payment of RMB14.6 million was based on the CDMO agreement between Harbour Pharma and WuXi Hyde (the announcement stated that it was "buyer or contact", most likely WuXi Biologics).

That means that WuXi Biologics bought Biotech's factory at a discount, obtained long-term orders, and used the purchased factory to earn Biotech's service fee to slowly cover the purchase cost.

02

Transforming CRO? Harbour Biopharma established Nona Biologics

On November 14, the company announced the establishment of a wholly-owned subsidiary, Nona Biologics.

Relying on the fully human antibody transgenic mouse platform and immune cell adaptor dual antibody platform owned by Harbour Biopharma, Nona Biologics proposed the concept of "I to I", that is, a complete drug development service from drug discovery to clinical approval (Idea to IND), providing services including: antigen preparation, animal immunity, single B cell screening, antibody development and engineering, druggability and pharmacological evaluation of high-quality services. It's not hard to see that it's essentially a preclinical CRO company.

The transition from Harbour Pharma to "CRO+Biotech" couldn't help but make the market think of another company - Biocytogen.

In the first half of 2022, Biocytogen achieved operating income of 72.858 million yuan and 65.416 million yuan respectively with model animal sales and preclinical pharmacological efficacy evaluation, accounting for more than 60% of the company's revenue.

In the face of Biocytogen with a market value of tens of billions and Platinum Pharmaceutical, which has a market value of less than 1.5 billion, both of which have scarce fully human antibody mouse platforms, is there any mispricing in the market?

There are also big differences.

Harbour Antibodies' HCAb and H2L2 mouse platforms originated from the acquisition of Harbour Antibodies in 2016, while Biocytogen spent 6 years independently developing the RenMice fully human antibody mouse platform based on the three self-developed gene editing technologies, compared with the underlying technical logic of the latter.

At the same time, due to the different business structures, the expense structure of Biocytogen and Hutchiplatin Pharma is different. From 2019 to 2021, the total administrative, R&D and marketing expenses of Biocytogen were RMB328 million, RMB553 million and RMB788 million, respectively (most of which were due to administrative expenditure and R&D expenditure); The total R&D and administrative expenses of Harbour Pharma were $60 million, $101 million and $147 million, respectively.

If from the perspective of the difference in the nature of CRO and Biotech, if Hopin Pharma wants to expand the CRO business to feed back the innovative drug pipeline in the future, referring to Biocytogen's cultivation path, then a large amount of new investment of personnel and resources is required in the early stage, which may be why the company reports more than 1.3 billion cash equivalents and still has to authorize externally at such a fast pace.

Conclusion: At this point in time, it is difficult to judge whether the layout of CRO at this time is a good strategic choice, but for most biotechnology companies led by 18A, it is indeed worth reviewing their positioning and urgent cash flow problems.