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In the world of innovative pharmaceuticals, the most abundant are tales of disruption.

From BeiGene surpassing Hengrui Medicine to become the leader in innovative drugs, to the robust rise of domestic CAR-T and ADC therapies, disruptions are incessant.

Within the ranks of innovative pharmaceuticals, a group of once obscure pharmaceutical companies have surprisingly begun to produce drugs. This, perhaps, is the true disruption.

Take the sudden emergence of Hengsheng Biopharma at the end of last year, for instance, with a transaction total of 83 million US dollars, setting a new global record for ADC business development. People were astonished that a small generic drug company from Sichuan could create a unique pipeline on a global scale?

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Or consider the recently hyped Xiangxue Pharmaceutical, whose subsidiary, Xiangxue Life Sciences, developed the TCR-T therapy TAEST16001, which has been included in the list of breakthrough treatment varieties, potentially becoming the first TCR-T to hit the market. Xiangxue Pharmaceutical has transformed from an established traditional Chinese medicine company into a leading company in advanced cell therapies, yet the surge brought about by speculation comes and goes quickly.

The field of innovative pharmaceuticals is filled with incredible people, ideas, and technologies, as well as a plethora of hype. Because of this, the sense of division and disruption is growing day by day.

However, hype is one thing, and the industry is another. How exactly have companies like Xiangxue Pharmaceutical been forged? Behind this, how should we view "innovation"?When innovation becomes the main melody of the industry, transformation has become the top priority for all traditional pharmaceutical companies. However, the opposition between tradition and innovation, and the gap between imitation and originality, lead most people to believe that traditional pharmaceutical companies have fallen behind. Regardless of the size of the enterprise, including the big brother HengRui Medicine, they all face a fatal question: how can a company that makes generic drugs produce innovative drugs?

Especially with the launch of domestic PD-1 in 2018 and the opening of the two major exchanges to unprofitable biotech companies, the entire capital and industry have together pushed the innovative drug industry to its peak. The field of innovative drugs was once unparalleled in glory, while traditional pharmaceutical companies became the most desolate existence.

In fact, in the field of innovative drug research and development, traditional pharmaceutical companies are a step behind, but it does not mean that they have completely lost their chances. Therefore, as time progresses, the transformation of some large pharmaceutical companies, such as HengRui Medicine, Hansoh Pharmaceutical, and CSPC Pharmaceutical Group, is not smooth sailing, but it is reasonable, because they have money, people, and resources.

The subversion began when BeiGene surpassed HengRui to become the leader in innovative drugs. In 2022, the former's innovative drug revenue exceeded the latter for the first time. This means that the leader of the domestic innovative drug market has changed hands. The young BeiGene is still advancing rapidly, and it may soon surpass HengRui Medicine in overall revenue.

A group of new biotech faces have also begun to emerge. For example, in the field of small nucleic acid drugs that is exploding, BoWang Pharmaceutical, established in 2021, has reached a cooperation with Novartis with an initial payment of $185 million and a potential total transaction amount of $4.165 billion to jointly develop multiple cardiovascular siRNA drugs.

YiLian Biotech, established in 2020, has successively reached cooperation with Roche and BioNTech with its new generation of ADC stories. The research and development results of the new generation of biotech have begun to emerge, which is expected in the market, because they are born for innovation.The real disruption may be that a group of second-tier pharmaceutical companies have actually begun to produce drugs.

There was the emergence of Bailitaiheng in 2023. On December 12th, the bispecific ADC drug BL-B01D1 developed by Bailitaiheng was licensed out to Bristol-Myers Squibb for a staggering total transaction value of 8.3 billion USD.

This not only set a record for the upfront payment in domestic innovative drug licensing-out transactions but also broke the global record for the total transaction value of a single ADC drug.

Who is Bailitaiheng? Prior to this, it was more commonly labeled as "a Sichuan generic drug company."

Then there's the new leader in cell therapy on the A-share market, Xiangxue Pharmaceutical, which saw a 227.5% increase in its stock price over 11 trading days, riding the wave of the first TCR-T therapy launch overseas.

The TAEST16001 injection developed by its subsidiary, Xiangxue Life Sciences, was included in the list of breakthrough therapy varieties and is expected to become the first TCR-T cell therapy drug to be marketed in China.

Who is Xiangxue Pharmaceutical? Before this, it was more commonly known as "an anti-infectious traditional Chinese medicine company." But this time, Xiangxue's narrative has changed, transforming from an established traditional Chinese medicine company into a leading company in advanced cell therapy.

Looking back, how did Xiangxue Pharmaceuticals and others achieve this?

How did Xiangxue and others achieve this?Let's first look at Xiangxue Pharmaceutical.

As a veteran traditional Chinese medicine company, it lacks the substantial internal resources of other large pharmaceutical corporations and does not have the financial backing to indulge in reckless acquisitions. So, how did a company relying on Chinese medicinal materials and oral liquids manage to claim the title of the first domestic TCR-T therapy?

The story dates back to 2012. That year, a prominent figure in the field of cellular immunotherapy, Li Yi, returned to China and joined the Guangzhou Institutes of Biomedicine and Health, Chinese Academy of Sciences, to establish a research platform. However, he still needed to find a company to bring his research to fruition.

During his tenure at Avidex, which he founded at the University of Oxford, Li Yi invented the guided evolution technology for TCRs and used it to isolate and optimize the world's first human high-affinity soluble TCR, breaking through the barrier for TCR to transition from research to clinical application. Thanks to this key technological breakthrough, Immuncore, a leading company in TCR-T therapy, gradually evolved from an early-stage biotechnology company incubated at Oxford University into a company with multiple products in clinical stages.

After returning to China, by a fortunate coincidence, Li Yi met Wang Yonghui, the chairman of Xiangxue Pharmaceutical, and they agreed to establish a Life Science Research Center within Xiangxue Pharmaceutical and jointly set up a laboratory.

Starting from 2013, Xiangxue Pharmaceutical brought in scientists led by Li Yi and Gong Haiping, which eventually led to the creation of Xiangxue Life Sciences focused on TCR-T therapy.

According to external reports, the price Xiangxue Pharmaceutical paid was 180 million yuan over 5 years for the advancement of the TCR-T project. Among them, TAEST16001 has made the fastest progress. Based on the poster data presented at this year's ASCO meeting, as of April 2024, eight subjects were enrolled in the Phase II clinical trial of TAEST16001, with a best response rate of 50% and a median progression-free survival (mPFS) of 5.9 months.

From an industry perspective, the R&D teams of Immunocore, Adaptimmune, which recently advanced the first global TCR-T therapy to market approval, and Xiangxue Life Sciences, were actually one and the same more than a decade ago, which is Avidex, where Li Yi had worked.

From this perspective, the current frontline TCR-T products are merely several technologies that were translated from academia and are now being implemented simultaneously in different countries and companies.TCR-T, from a mechanistic perspective, is quite similar to CAR-T. However, compared to CAR-T, TCR-T is more akin to the natural T cells found in the human body (whereas CAR is merely a fragment), offering not only better safety but also the ability to transmit stimulatory signals into the cell through the TCR-CD3 complex. As a result, TCR-T can not only recognize antigens on the surface of tumors but also those within the tumor's interior. This is why TCR-T is more suitable for the treatment of solid tumors.

Even in a field with broad prospects, tangible results are needed to demonstrate its value. The widespread recognition of CAR-T therapy is largely due to successful cases like that of Emily, followed by the launch of several products that have ushered in a new era of cell therapy.

Although TCR-T therapy theoretically holds tremendous potential, there is still no product that has truly established a strong presence in the market.

Looking back 12 years ago, not many companies were willing to invest hundreds of millions of dollars and continue to provide annual financial support to bet on a future that was not very certain. The cost paid by Xiangxue for this is not small; currently, the company's debt ratio is over 70%, which is significantly higher compared to the debt ratios of around 20% of its peers like Jichuan Pharmaceutical.

Now, let's consider Bailitaiheng.

Its development history dates back to 1996, starting with the production of generic drugs. At that time, the predecessor of Bailitaiheng, Baili Pharmaceutical, was established under the leadership of its founder, Zhu Yi, and launched its first generic drug, ribavirin granules, which became a major product for a time.

Zhu Yi's career has also been "unconventional"; he studied radio in college, later became a master of biophysics at Fudan University, and a doctoral graduate in corporate finance from Sichuan University. He has worked in real estate and, after establishing Baili Pharmaceutical to follow the generic drug route, he led the sales team on the front lines.

However, under the influence of drug bulk procurement and consistency evaluation, the company's generic drug business revenue has been declining year by year, and losses have been increasing. No one would believe that such a generic drug company would make a name for itself in the field of innovative drugs. So much so, that even after the announcement of its transaction with BMS, people were still asking, "Who is Bailitaiheng?"

As early as 2008, Zhu Yi had begun to venture into innovative drugs. Unfortunately, after several years of effort, all projects were declared failures.

But he did not give up on developing innovative drugs. In 2014, he established an innovative drug company in Seattle focused on the research and development of oncology drugs—Systimmune.LTD—and built a research and development team.At that time, Zhu Yi wrote a manuscript for the company's ten-year plan for the future: bispecific antibodies, multi-specific antibodies, and ADC drugs. At that time, the launch of TDM1 did not attract industry attention, and ADC drugs were at a low point in the United States, yet he proposed to work on bispecific ADCs.

Everyone thought that the toxicity issues of monoclonal ADCs had not been resolved temporarily, and the uncertainty of bispecific ADCs would only be higher. However, Zhu Yi believed that technical problems could be solved, it's just a matter of time and investment: if there are risks, then strengthen the ability to withstand risks; if resources are insufficient, then think about how to retrieve resources.

In June 2023, Baili Tianheng reported the first human clinical Phase I study data of BL-B01D1 at the ASCO meeting. BL-B01D1 is the bispecific ADC that was not well-received in 2014 but was developed by Baili Tianheng.

The results showed that among the 139 patients who could be evaluated for efficacy, with a median follow-up of 4.1 months, the overall ORR was 45.3%, with an ORR of 63.2% for EGFR-mutated NSCLC, 44.9% for EGFR wild-type NSCLC patients, and 53.6% for NPC patients.

It was such data that facilitated its collaboration with BMS.

Tear off the "label"

In the eyes of the market, the truly smooth path for Chinese generic drug companies to transform may only have one.

That is, to become a giant, after having a lot of resources, to acquire an established innovative drug system, or to license in real innovative drugs, but the scale of the vast majority of generic drug companies is not enough.The argument against the transformation of smaller traditional pharmaceutical companies often hinges on the fact that the development of new drugs abroad can take up to a decade and cost a billion dollars. A generic drug company, with a profit of only tens of millions of RMB a year, is questioned on how it can undertake the development of truly innovative drugs.

Objectively speaking, such skepticism is reasonable and normal. However, it is precisely this kind of rigid thinking that increases the sense of fragmentation and disruption in the field of innovative drugs.

For instance, companies like Xiangxue Pharmaceutical and Bailitaiheng have shown us that even less prominent pharmaceutical companies can produce innovative drugs.

It is undeniable that the surge in Xiangxue Pharmaceutical's stock price is behind a wave of speculation based on expectations. The clinical outcomes remain to be seen, and the rapid rise due to speculation is also fleeting. In fact, its clinical data has also been questioned by some industry insiders, such as why is the sample size so small? How were the 8 patients selected? And can the same impressive data be reproduced with an increased sample size overseas?

All of this still awaits the test of time.

Bailitaiheng was also questioned after it released its clinical data. However, when it reached a cooperation with BMS, it was seen as a "dark horse" in the domestic innovative drug field. The same drug, once endorsed by a large pharmaceutical company, saw a swift change in market attitude.

Behind this is more about the role of "labels." Instead of directly judging the value of the drug itself, it is easier to draw new and accepted conclusions based on who made it, who invested in it, and who bought it, using such "labels."

Although who made it and who bought it is indeed important, even top researchers cannot violate the objective laws of the industry; top multinational pharmaceutical companies cannot guarantee the success rate of every project and every transaction.

Perhaps it is time for us to think beyond "labels" and view "innovation" correctly.

In all fields, many things that others think are impossible may not be as difficult as imagined once one is truly determined to do them. Just like the athletes who broke the monopoly of Europeans and Americans at this year's Olympics, such as swimming's Pan Zhanle and tennis queen Zheng Qinwen.The same principle applies to the field of innovative drugs. Here, there are no taken-for-granted assumptions, nor impossibilities; it is more about the combination of inevitability and chance.

Returning to the logic of innovative drug development, the achievements currently demonstrated by companies like Xiangxue Pharmaceutical and Baili Tianheng are, essentially, the result of an innovative layout that began a decade ago. The key factors that will determine how they will fare in three to five years are the current strategies and investments being made.

Whether it is a biotech company or a traditional large or small pharmaceutical enterprise, no one can achieve success easily. It requires not only money, people, and strategies but also the drive to move forward and persistence. Moreover, innovation is inherently a divergent competition.

There is no absolute center in drug development; the core depends on the therapeutic efficacy of the product. What determines the efficacy are different principles and technological approaches, and no one can monopolize or pre-determine the outcomes.

Because, in the realm of medicine, there are no certainties.