Hengrui Therapeutics, Inc.

According to the recent "2023 Annual Drug Review Report" published by China's National Medical Products Administration, China has achieved significant results in the field of drug development. In 2023, a total of 40 new Category 1 drugs were approved for marketing, narrowing the gap with the United States. As China's research and development (R&D) capabilities have steadily improved, domestically developed innovative drugs are actively seeking opportunities in the international market, with the licensing-out model becoming the preferred path for Chinese innovative drugs to enter the global market. Data from the Pharmaceutical Cube shows that in 2023, China's innovative drug business development (BD) transactions reached a total of 228, with a total upfront payment amount reaching 26.764 billion yuan, setting a new high in the past four years. In the same year, 15 newly listed innovative drug companies raised a total of 11.12 billion yuan through IPOs (initial public offerings). This data indicates that BD upfront payments have surpassed IPO fundraising as the primary source of funding for Chinese innovative drug companies. Regarding the specific transaction details, the top-ranking Chinese innovative drug BD overseas transactions in 2023 involved traditional pharmaceutical giants and emerging biotech companies, covering a variety of technology platforms, including small molecule drugs, antibody-drug conjugates (ADCs), bispecific antibodies, and cell therapies. In terms of corporate partnerships, multinational corporations (MNCs) have become the preferred collaboration partners for Chinese pharmaceutical companies, with particularly frequent collaborations with renowned international pharmaceutical companies such as AstraZeneca and GlaxoSmithKline. Traditional pharmaceutical companies like Hengrui Pharmaceuticals and Hansoh Pharmaceutical have also actively deployed their licensing-out strategies, with their products gaining increasing recognition and authorization in the international market. "Going global" has not only brought more substantial financial support to the companies but has also enhanced their capabilities in clinical trial design and patient population selection, further strengthening their R&D capabilities and driving the rapid development of the entire industry. When discussing the selection criteria for projects, multinational pharmaceutical companies also have a unique set of considerations. In an interview with the 21st Century Business Herald, Chris Arendt, Chief Scientific Officer and Head of Research at Takeda, stated that large multinational pharmaceutical companies are highly interested in both early-stage pipeline assets and clinically validated projects when screening for potential collaborations. This means that in evaluating projects, they will comprehensively consider the entire R&D pipeline and hope to uncover more potential opportunities through their professional expertise. Chris Arendt emphasized, "When seeking partners, we also value the chemistry between the teams. The quality of the team and the collaboration relationship are crucial for long-term development, as they can ensure the translation of innovative ideas into reality. In the field of scientific exploration, we may inevitably encounter various hypotheses and uncertainties during the collaboration process, but these challenges drive us to continuously improve." He further added, "Relationships are undoubtedly an indispensable part of our collaboration process. They help us better leverage each other's strengths and jointly solve problems. Even if not explicitly stated in the contract, we still strive to provide the necessary support to help our partners address issues such as production during the collaboration process." Analysts believe that China currently has several First-in-Class (FIC) or Best-in-Class (BIC) products that have been licensed out to overseas markets, mainly in the areas of oncology, autoimmune diseases, and cardiovascular diseases. Since the end of 2023, domestic innovative drug companies have been continuously acquired by multinational pharmaceutical companies, which fully demonstrates that the international recognition and innovation capabilities of Chinese domestic innovative drug companies are continuously improving. In the current market environment, this provides new development opportunities for domestic innovative drug companies. These successful companies typically have long-term technical accumulation, patient and focused R&D determination, sufficient financial resources, and the ability to collaborate with large pharmaceutical companies (or recognized performance records). It is believed that they will stand out in the competition and achieve better development.

The FDA has released its observations following an inspection of China-based Jiangsu Hengrui Pharmaceuticals, during which the agency identified significant issues. The inspection, conducted between January 8-16, 2024, revealed several critical compliance issues at the company's facility in Lianyungang, Jiangsu, China. The FDA identified significant lapses in microbiological contamination control procedures, inadequate validation of aseptic processing, and discrepancies in recorded intervention times during production. The agency also found that container closure integrity tests were insufficient, using empty vials instead of filled ones and lacking necessary controls. Cleaning procedures for equipment and utensils were also found to be inadequate, with contaminants not properly considered and insufficient swab sampling methods. Further issues were found with the quality control unit, which failed to manage and approve critical documents properly. Moreover, records related to drug product production were not readily available during the inspection, causing significant delays. The computerized systems used in the facility did not comply with 21 CFR Part 11, lacking essential audit trails and data management capabilities. Facility maintenance was another area of concern, with water leaks and mold growth in storage areas potentially compromising drug product safety. The parenteral drug product workshop also lacked hot and cold water in handwashing stations. Hengrui Pharmaceuticals is a major Chinese pharmaceuticall manufacturer established in 1970. The company specializes in the development, production, and marketing of a wide range of pharmaceutical products, including oncology, anesthesia, and pain management medications.

The pharmaceutical industry in China is undergoing a significant transformation, with the impending shift in leadership among the top pharmaceutical companies. As the country's "Pharmaceutical King," Hengrui Medicine, approaches a generational change, a new contender is poised to take the throne – Beigene. At 66 years old, Hengrui's founder, Sun Piaoyang, and its president, Zhang Lianshan, at 63, are nearing retirement age. Meanwhile, the younger Beigene is expected to surpass Hengrui's revenue as early as 2024, making it the largest pharmaceutical company in China. Hengrui's dominance has not gone unchallenged, however. While Beigene's PD-1 inhibitor has been approved in the US and Europe, Hengrui's PD-1 combination therapy has faced a temporary setback, with the FDA delaying its approval. Nevertheless, Hengrui's era is far from over. The company has weathered the challenges of centralized drug procurement and the rise of biotech firms, emerging with a transformative strategy that aligns with China's national interests. Hengrui's business model, blending generic and innovative drugs, has proven resilient, with its innovative drug revenue reaching 47% of total revenue in 2023. Smaller players in the industry, such as Yuntong Biotech and Jiutai Pharmaceutical, are also following the path of combining generic and innovative drugs. Jiutai Pharmaceutical, for instance, has succeeded in developing specialized transdermal drug delivery systems, carving out a niche in the competitive gel patch market. The transformation of China's pharmaceutical landscape is not without its challenges, but it also presents opportunities for those who can navigate the complex regulatory environment and capitalize on the country's growing demand for innovative and high-quality drugs. As the industry evolves, the battle for the "Pharmaceutical King" title continues, with Hengrui and its up-and-coming rivals jockeying for position in this dynamic market.