6 billion yuan! Henlius sells PD-1 commercial rights, Fosun alternative 'blood transfusion'?

Cinda joins hands with Eli Lilly, BeiGene joins hands with Novartis... Unlike other domestic PD-1 companies that cooperate with multinational pharmaceutical companies, Henlius sells the commercialization rights of its PD-1 products directly to its parent company, Fosun Pharma. Under the capital winter, Fosun Pharma will transfuse blood to its subsidiaries in another way?

Left hand to right hand?

Sale of overseas interests in Henlius PD-1

On the evening of November 17, 2022, Henlius announced that it had entered into a license agreement with Fosun Pharma Industry, a subsidiary of Fosun Pharma, agreeing to grant the latter an exclusive license to commercialize Hans-like (serplulimab injection) in the region and within the region based on the Company's intellectual property rights.

Under the agreement, Fosun Pharma is required to pay Henlius an initial payment of RMB1 billion, a one-off regulatory milestone payment of US$50 million (approximately RMB358 million), a maximum of US$650 million (approximately RMB4.652 billion) of sales milestone payments, and royalties.

According to the data, Fosun Pharma Group has a professional marketing team of more than 1,400 people in Africa, Europe and the United States, and has built a comprehensive support system in medical affairs, market access, medical strategic alliances, brand promotion and other aspects.

Many industry insiders believe that the transaction may involve part of the overseas commercialization rights of Henlius PD-1 monoclonal antibody, and may focus on the United States and other regions. In the announcement, Henlius also mentioned that this cooperation will enable the company to further expand the overseas market of its licensed products, improve the accessibility and recognition of the company's products in the international market, and the sales and promotion of Hans ® in China will be led by the company's own commercialization team. To date, Henlius has partnered with PT Kalbe Genexine Biologics on the commercialization of Hans-like ® in the Philippines, Indonesia, Malaysia, Singapore, Thailand, Laos, Myanmar, Cambodia, Brunei and Vietnam.

According to the agreement between the two parties, Fosun Pharma will spend a total of RMB6 billion on the down payment of Henlius' commercial rights in Henlius' "serplulimab", plus one-time regulatory milestone payment, sales milestone payment, and royalties. Another view is that the parent company's support for Henlius may be due to Henlius' financial constraints, and if this money is received, it can greatly alleviate the company's financial pressure, and the impact of this transaction on Fosun Pharma is also neutral.

As of the close of trading on November 18, Fosun Pharma's A and H shares both rose, up 8.37% and 6.65% respectively, while Henlius (02696.HK) rose 5.50%, with good market sentiment.

Break the involution

SCLC indications have high hopes

According to the license agreement, Fosun Pharma is required to make an initial payment of RMB1 billion to Henlius, of which RMB500 million will be paid within 30 days after the effective date and the remaining RMB500 million will be paid within 30 days after Fosun Pharma receives its important existing regulatory materials. All down payments are due no later than March 31, 2023.

Notably, the announcement also mentions that if the first BLA of serplulimab is not approved by the FDA by June 30, 2025, Henlius will refund RMB166,666,666 (RMB166 million), while Henlius will refund an additional RMB166,666,667 (RMB166 million) if the first BLA of serplulimab is not approved by the FDA before December 31, 2026.

In addition, the one-time regulatory milestone payment is $50 million within 30 days of FDA approval of the first BLA for a licensed product. The details of sales milestone payments and royalty payments are as follows:

In addition to the currently approved indications, in April and August this year, two new indications for the first-line treatment of serplulimab in small cell lung cancer (SCLC) and esophageal squamous cell carcinoma were also accepted by the State Food and Drug Administration. The performance of serplulimab in the field of small cell lung cancer has been attracting much attention in the industry, and no PD-1 monoclonal antibody has been successful in this indication. At present, only two PD-L1 monoclonal antibodies have been approved for first-line treatment of SCLC in the world, and serplulimab is the first PD-1 monoclonal antibody to achieve a positive phase III result on SCLC first-line indications. Previously, O drugs and K drugs have failed in this indication.

Notably, the international multicenter phase III study of serplulimab in combination with chemotherapy in previously untreated extensive-stage small cell lung cancer (ES-SCLC) reached its primary endpoint in December 2021. On April 7, 2022, Henlius splulimab for the treatment of small cell lung cancer (SCLC) received orphan drug designation from the US Food and Drug (FDA). Henlius plans to submit a marketing application for this indication in the United States in the first half of 2024.

Henlius said that prior to the marketing approval of the ES-SCLC indication, the company will be responsible for all development and regulatory activities (including any research (including bridging trials) and preparation and submission of marketing authorization applications in the region. After the marketing approval of this indication, Fosun Pharma Industry will be responsible for the regulatory activities (including maintenance, extension of marketing approval, market access and other necessary regulatory activities) for serplulimab in the region. For other indications, the two parties will negotiate amicably and sign a separate agreement to stipulate the development plan and cost-sharing arrangement.

It is understood that Henlius also plans to submit a marketing registration application for extensive small cell lung cancer (ES-SCLC) in the Chinese and EU markets in 2022, and H drug is expected to become the world's first first-line anti-PD-1 monoclonal antibody for SCLC.

Losses narrowed

Biosimilars underpin revenue

According to the data, Henlius was founded in 2010 as a joint venture between Fosun Pharma Group and a team of American scientists such as Liu Shigao and Jiang Weidong, focusing on the development of targeted monoclonal antibody drugs, including monoclonal antibody analogues, bio-improved drugs, innovative monoclonal antibodies and antibody conjugates. On September 25, 2019, Henlius was listed on the main board of the Hong Kong Stock Exchange.

Henlius' first product to be commercialized was Henlicon. Up to now, Henlius has launched 5 products in China, namely rituximab injection (Hanlikang ®), trastuzumab for injection (Hanquyou ®, European trade name: Zercepac®, Australian trade name: Tuzucip and Trastucip®®), adalimumab injection (Handayuan ®), bevacizumab injection (Hanbetai ®), serplulimab injection (Hans-like ®). Among them, the first four are the world's most popular biosimilars, and the latter are innovative drugs.

Due to the increase in R&D and other expenses, Henlius' losses have increased year by year, with losses of RMB384 million, RMB505 million and RMB875 million respectively in 2017~2019. In 2021, Henlius' net profit loss narrowed for the first time, from RMB994 million in 2020 to RMB984 million. In the first half of 2022, Henlius achieved operating income of approximately RMB1.289 billion, an increase of approximately 103.5% over the same period last year. The loss during the period was about 252 million yuan, a year-on-year decrease of 36%.

At present, Henlius' performance pillar products are mainly Hanquyou and Hanlikang, which contributed 870 million and 540 million in revenue respectively in 2021. In particular, Hanqu You's domestic sales in the first half of 2022 were 800 million yuan, a year-on-year increase of 178.2%.

In March 2022, Henlius' PD-1 product, serplulimab, was approved for marketing in China for the treatment of microsatellite highly unstable (MSI-H) solid tumors and squamous non-small cell lung cancer. In the domestic Red Sea market, Henlius' PD-1 products achieved sales revenue of 77 million yuan in H1 in 2022, which is also a relatively stable performance.

Henlius' current products include PD-1 serplulimab (Hans-like ®) and biosimilars of rituxic, trastuzum, adalimu and bevacibrol. SPDB International believes that these products are facing greater competitive pressure in China, and there is still more uncertainty in sales performance in the short term. For example, Hans-like faces more than ten PD-1/PD-L1 monoclonal antibody competitors in China, and price competition pressure is high under the background of medical insurance control fees; Its four biosimilars are also facing more than ten similar products in the market/clinical stage, and have begun to be included in the regional alliance centralized procurement, and the risk of price reduction in the short term is greater.

And, like all R&D biotech, Henlius is constantly burning money on R&D: Henlius' R&D investment in 2021 reached RMB1.764 billion, exceeding its full-year revenue; in the first half of this year, Henlius confirmed R&D expenditure of RMB827 million, up 11.9% year-on-year.

On many public occasions, Henlius has said that the company is moving from Biotech to Biopharma and is accelerating. Especially in the past two years of concentrated commercialization of products.

However, it is not difficult to see that since its inception, Henlius has been in a state of loss, and with the commercialization of its products, the loss has narrowed in the past one or two years. In the midst of the capital winter, it is reasonable for Henlius to sell the overseas rights of PD-1 products to the parent company to obtain more funds for R&D. Moreover, the parent company's overseas marketing network is mature, which is more conducive to product promotion and sales, and in the context of fierce domestic PD-(L)1 competition, this transaction is a wise move.