The Controversial Billion-Dollar Tuition: The Story Behind Hengrui's BD Dispute

In a surprising turn of events, Hengrui Pharmaceuticals found itself in the spotlight due to its previous association with AiolosBio, a company that recently made headlines with its acquisition by GSK. The deal involved an upfront payment of $1 billion and milestone payments of $400 million. AiolosBio's primary asset, the monoclonal antibody AIO-001 for the treatment of adult asthma, was introduced to the company through a collaboration with Hengrui in August of the previous year. However, Hengrui had only received a modest upfront payment of 25 million yuan ($3.9 million) at the time.

What makes this acquisition controversial is the significant increase in the value of AiolosBio's pipeline without substantial clinical progress. AiolosBio had registered a Phase 1 clinical trial in December, but patient recruitment had not yet begun. Despite this, the company managed to attract GSK's attention and sell the pipeline at a remarkable 16-fold increase in value. This discrepancy has caused mixed reactions within the Chinese pharmaceutical industry. On one hand, it signifies the availability of promising innovative drugs in China that multinational pharmaceutical companies recognize as having "First-In-Class" potential in the early stages of clinical development. On the other hand, it raises concerns about the substantial profits earned by AiolosBio, a relatively new overseas intermediary.

Critics have questioned Hengrui's decision to sell the product at a seemingly low price, which has resulted in widespread scrutiny. However, some industry insiders have come to Hengrui's defense, stating that AiolosBio's success was a stroke of luck and that the true value was created by Hengrui. AiolosBio, founded in 2023, had a team with extensive experience in multinational pharmaceutical companies and was well-versed in the "language of transactions" employed by these companies. This expertise allowed them to highlight the shining aspects of Hengrui's product to GSK's BD team effectively.

Drawing a parallel with a popular drama, a professional working in the biopharmaceutical field likened the situation to a character in the show who relies on a key figure to elevate their status. AiolosBio's success can be attributed, in part, to the support it received from top-tier venture capital firms such as Atlas, Bain, and RACapital. The endorsement from these prestigious investment institutions added an extra layer of credibility to the product. In contrast, Hengrui appeared to be in a more passive and awkward position throughout the transaction. Despite Hengrui's efforts to strengthen its BD department after the appointment of Jiangning Jun to the executive team in early 2023, this particular deal with AiolosBio served as a learning experience for the company as it embarked on its transformation in overseas BD endeavors.

While Hengrui may not have suffered a significant loss considering its extensive pipeline, it is clear that they need to fully grasp the value of their assets. Experts emphasize the importance of honing the strategic value of products before engaging in transactions of this nature. Regretfully, Hengrui missed an opportunity to maximize the value of their pipeline, allowing AiolosBio to benefit from the substantial increase in value resulting from their efforts.

The acquisition of AiolosBio by GSK for $1 billion has raised questions regarding Hengrui Pharmaceuticals' involvement and decision-making process. While some view it as a testament to the availability of high-quality innovative drugs in China, others express concerns about the significant profits earned by intermediaries. For Hengrui, this transaction serves as a valuable lesson in understanding the true value of their assets and the importance of strategic positioning in the competitive landscape of international BD.