Through an innovative transaction structure, Hengrui uses minimal risk to obtain the highest potential overseas returns, while providing shareholders with more stable returns.
Hengrui also achieved a record overseas license for an innovative drug. The total transaction amount of 6 billion US dollars not only broke Hengrui's previous record, but also created the first case in China in terms of transaction structure.
On May 16, Hengrui Pharmaceutical, an innovative international pharmaceutical company, announced that it will license the company's exclusive rights to develop, produce, and commercialize the GLP-1 innovative drugs HRS-7535, HRS9531, and HRS-4729 on a global scale other than Greater China for a fee.
Among them, HRS-7535 is a small-molecule GLP-1 receptor agonist; HRS9531 is a GLP-1/GIP dual agonist peptide injectable and oral product; and HRS-4729, a next-generation intestinal insulin product.
The new model of innovative pharma going overseas is worthy of reference for more domestic pharma pharmaceutical companies going overseas
According to the terms of the agreement, Hercules of the United States will pay Hengrui Pharmaceutical a total of 110 million US dollars in down payment and recent milestone payments, no more than 200 million US dollars in clinical development and supervision milestone payments, no more than 5.725 billion US dollars in cumulative sales, and sales commissions that reach a low single-digit to low double-digit ratio of actual annual net sales.
Prior to that, Hengrui had reached 5 licensing agreements with a total transaction value of more than 4 billion US dollars in 2023. Among them, the innovative anti-cancer drugs HRS-1167 and SHR-A1904 were exclusively licensed to Merck, Germany, and the total transaction amount could exceed 1.4 billion euros.
Obviously, Hengrui's first transaction in 2024 has already broken the record for the whole of last year.
It is worth noting that as part of the consideration for this foreign licensing transaction, Hengrui Pharmaceutical will acquire 19.9% of the shares of Hercules in the United States.
Hercules of the United States was founded in May 2024. It was founded by Bain Capital Life Science Foundation, Atlas Ventures, RTW Capital, and Lyra Capital with a joint investment of 400 million US dollars to develop biomedicine. The investors are responsible for the preparation and operation of the company.
This means that Hengrui Pharmaceutical has also pioneered a new model for Chinese innovative drugs to go overseas: through the establishment and management of the world's top venture capital, Hengrui holds part of the shares, and the new company obtained licensing rights for Hengrui products, and finally went overseas to the US market.
According to Insight Research, this cooperative overseas travel model will have two effects:
On the one hand, this model reduces Hengrui's risk of going overseas through venture capital-led company operations. Overseas clinical development costs are borne by the new company, reducing Hengrui's financial pressure. At the same time, Hengrui was able to obtain down payments and milestone fees from it, providing more steady returns to its shareholders.
Furthermore, it is possible to rely on the resource advantages of venture capital in the industry to develop overseas markets better and faster.
On the other hand, this transaction structure also draws on the experience of previous transactions between GSK and Aiolos Bio. Previously, Wall Street News & Insights research was “GSK Acquires Aiolos for US$1.4 Billion, Hengrui Makes Wedding Dresses for Others?” As mentioned, Aiolos Bio sold it to GSK for 1 billion US dollars half a year after receiving Hengrui SHR-1905 (targeted TSLP monoclonal antibody), and obtained nearly 10 times the profit from it.
Although Hengrui gained experience from this deal, the market still felt like making wedding dresses for others, and most of the proceeds were taken away by the licensor Aiolos Bio. However, this cooperation between Hengrui and Hercules can clearly allow Hengrui to share more benefits and have more voice in clinical product development in the new company when the risk is limited.
Even if Hercules sells the product again for some time to come, Hengrui will still be able to earn 19.9% of the added value of the transfer, while continuing to retain the right to share in overseas cooperation.
This model of cooperation is clearly a balanced result of multiple interests, which is good news for shareholders. For large pharmaceutical companies that go overseas, it is also a model worth referring to. The risk is manageable, and the pressure on cash flow is even less.
Regarding this cooperation, Dr. Jiang Ningjun, Director and Chief Strategy Officer of Hengrui Pharmaceutical, said, “This cooperation is another milestone in Hengrui Pharmaceutical's continued deepening internationalization. It also represents the international market's high recognition of Hengrui Pharmaceutical's innovative quality. Cooperation with top investment funds such as Bain Capital, Atlas Ventures, RTW Capital, and Lyra Capital is a new model exploration for Hengrui Pharmaceutical, which will help further broaden Hengrui Pharmaceutical's rich innovation pipeline's internationalization path and better serve the world's unmet medical needs.”
Diet pills are still the most popular variety in the capital market
Although Novo Nordisk and Eli Lilly have raised the market's appetite for diet pills, the development of GLP-1 drugs from manufacturers such as Viking, Amgen, and Roche since this year has impacted the capital market time and time again.
As a Chinese manufacturer, it has also become the focus of attention in overseas markets. Hengrui's centralized authorization to go overseas also reflects the further recognition of China's ability to innovate pharmaceutical companies.
In terms of products, there are still differences in the GLP-1 products that Hengrui has authorized externally this time:
- HRS-7535 tablets - This is an oral small molecule drug belonging to the group of glucagon-like peptide-1 receptor (GLP-1R) agonists. By activating GLP-1R, it can promote insulin secretion, reduce glucagon secretion, and inhibit gastric emptying. At the same time, it also enhances satiety and suppresses appetite, thereby reducing energy intake, and is used to treat type 2 diabetes and lose weight. Currently, there are no similar oral small molecule GLP-1R agonists on the market worldwide.
- HRS9531 injection and oral tablets - This is a dual agonist targeting gastric suppressive peptide receptor (GIPR) and GLP-1R. It can work collaboratively to promote insulin secretion, reduce energy intake, improve insulin sensitivity, accelerate lipid metabolism and reduce gastrointestinal side effects caused by GLP-1 by activating GIPR. HRS9531 injections are used to treat type 2 diabetes and weight loss, while HRS9531 tablets improve absorption of the drug in the gastrointestinal tract and are also used for these conditions. There are no similar oral products on the market worldwide.
- HRS-4729 Injection - This is a next generation intestinal insulin product in preclinical development. By activating multiple targets, it can simultaneously protect the pancreas and increase insulin secretion. It is used to control blood sugar and treat diseases related to metabolic dysfunction, and is expected to achieve good weight loss effects. There are no similar products available globally.
This transaction once again shows that China's innovative drugs have strong potential in the international market, and also showcased the diversity and innovation of ways to go overseas. The development of innovative medicines in China has broken out of its previous trough and is moving towards a wider international stage.