In recent years, the biopharmaceutical industry has promoted high-quality development focusing on three key areas: product innovation, volume-based procurement, and institutional reform. According to the interim reports of listed biopharmaceutical companies in the first half of 2024, innovation and "going global" are the directions of the industry's development. At the same time, industrial upgrading is facing adjustments brought by institutional reforms, and fluctuations in the international market have also posed new challenges.

Accelerated R&D of Innovative Drugs

Statistics from the three stock exchanges in Shanghai, Shenzhen, and Beijing show that in the first half of 2024, more than 50% of listed biopharmaceutical companies achieved positive net profit growth. Among them, East China Pharmaceutical, Wuxi AppTec, and Humanwell Healthcare led the way with operating revenues exceeding 10 billion yuan in the first half of the year.

In the first half of 2024, the biopharmaceutical industry, which is in a period of industrial transformation, showed multiple highlights, focusing on the continuous increase in the proportion of innovative drug revenue and the continuous increase in the amount of new drug overseas licensing by many companies. The biopharmaceutical industry is gradually transforming to innovation-driven development, with new drug R&D, overseas licensing, and medical device innovation becoming new trends in the industry. Among them, due to the marginal reduction of the impact of volume-based procurement, the chemical preparation sector performed outstandingly, with a significant year-on-year growth in net profit attributable to parent companies; the medical device sector maintained steady growth as medical demand increased; the pharmaceutical outsourcing sector continued to grow, benefiting from the expansion of the global pharmaceutical R&D outsourcing market; and the traditional Chinese medicine (TCM) sector achieved countercyclical growth due to policy support.

Many biopharmaceutical companies disclosed important progress in innovative drug R&D in their interim reports. Hengrui Medicine, a leader in China's innovative drug field, continued to increase its innovation efforts, with several Class 1 new drugs entering key stages of clinical trials. Baili Tianheng, Sino Celltech, and Ascletis achieved a turnaround from losses to profits or significant performance growth.

In the past decade, as the upstream ecosystem has taken shape, the conditions for the development of innovative drugs have continued to mature. Zhang Jin, an analyst of the pharmaceutical and biological industry at CICC Research Department, said that since 2015, China's pharmaceutical industry has started the process of transforming from traditional manufacturing to innovative manufacturing, with landmark sub-sectors including innovative drugs and innovative medical devices. On the one hand, the reform of the National Medical Products Administration (NMPA) in 2015 significantly improved the approval efficiency of innovative products; on the other hand, the industrial ecosystem underwent tremendous changes from scratch between 2016 and 2021, giving birth to emerging sectors such as CXO (pharmaceutical outsourcing), upstream scientific research, and pharmaceutical equipment, which facilitated the R&D and production of innovative drugs.

"Currently, there is a possibility of industrial leapfrogging in innovative drugs, and China's upstream ecosystem for innovative drugs has taken initial shape," Zhang Jin said. The keyword "innovative drugs" appeared for the first time in the 2024 "Government Work Report", and Beijing, Shanghai, and other places have also introduced supportive policies to actively assist the development of the innovative drug industry. Since this year, a number of listed companies, such as Hengrui Medicine, Hansoh Pharmaceutical, Kelun Pharmaceutical, and BeiGene, have attracted the attention of the capital market. Currently, the market has high expectations for the next industrial development cycle of innovative drugs.

It is worth noting that in the field of innovative drug R&D, the state has introduced a series of supporting policies to provide strong guarantees for the R&D activities of biopharmaceutical enterprises. Firstly, a full-chain support policy is implemented. The Executive Meeting of the State Council reviewed and approved the "Implementation Plan for Full-Chain Support for the Development of Innovative Drugs", which promotes the commercialization and R&D of innovative drugs from multiple dimensions such as payment, financing, evaluation, and assessment. The plan emphasizes the need to mobilize scientific and technological innovation resources from all aspects, strengthen basic research on new drug creation, and consolidate the foundation for the development of innovative drugs in China. Secondly, the review and approval process is optimized. The NMPA has continuously optimized the review and approval process, established and improved a due diligence and liability exemption mechanism for review and approval, and accelerated the registration and listing of cutting-edge innovative products. Beijing and Shanghai have been approved to carry out pilot projects to optimize the review and approval of innovative drug clinical trials, completing the review and approval of innovative drug clinical trial applications within 30 working days, significantly shortening the time to start drug clinical trials. Thirdly, financial support is increased. The state has increased financial support for innovative drug R&D by establishing special funds and providing R&D subsidies. In addition, social capital is encouraged to participate in innovative drug R&D to form a diversified investment mechanism.

Significant Commercialization Achievements

In the 2024 interim reports of listed biopharmaceutical companies, "commercialization" became a core topic, reflecting the industry's upgrading and transformation in innovative drug promotion, market expansion, and profit models. From the first half of 2024, the industry showed obvious resilience, leading companies performed prominently, and the commercialization process of innovative drugs accelerated.

Many listed biopharmaceutical companies achieved the approval, listing, or volume sales of innovative drugs in the first half of 2024. For example, Hengrui Medicine's innovative drug revenue accounted for more than half of its total revenue for the first time, marking an important node in its innovative transformation. Its innovative drug sales revenue reached 6.612 billion yuan, a year-on-year increase of 33%, showing a strong growth momentum. BeiGene's innovative drug Brukinsa achieved total global sales of 8.018 billion yuan in the first half of the year, a year-on-year increase of 122%. Among them, sales in the United States, Europe, and China were 5.903 billion yuan, 1.057 billion yuan, and 873 million yuan respectively, all achieving significant year-on-year growth. In addition, innovative drugs of Akeso, Luoxin Pharmaceutical, and CStone Pharmaceuticals also achieved rapid volume growth, providing important support for the company's performance growth.

Innovation in commercialization models. With the intensification of market competition, listed biopharmaceutical companies have actively explored commercialization models. Some companies have achieved profits through global rights transfer and cooperative development of products. For example, Hengrui Medicine has licensed the exclusive rights to develop, produce, and commercialize its self-developed GLP-1 innovative drug with independent intellectual property rights to Hercules in the United States globally except in the Greater China region. This transaction not only brought considerable economic benefits to Hengrui Medicine but also provided important experience for exploring new overseas models.

He Juying, chief analyst of the pharmaceutical and biological industry at China Securities Co., Ltd., believes that according to the interim report, under the background of national policies encouraging the development of innovative drugs, the pharmaceutical sector has adhered to R&D-driven transformation and upgrading, with innovative drug companies achieving rapid commercialization and narrowing losses; leading companies in the API sector have actively promoted the transformation of preparations and CDMO (Contract Development and Manufacturing Organization), contributing to performance growth; the upstream of the pharmaceutical industry chain has accelerated the layout of emerging fields such as cell and gene therapy (CGT) and mRNA vaccines, with technological innovation driving industry development. The medical device sector has maintained a high proportion of R&D investment in high-value consumables and medical equipment. In fields such as coronary vascular diseases, structural heart diseases, electrophysiology, diabetes, and ophthalmology, domestic device companies have carried out innovative designs based on the characteristics of Chinese patients, surpassing imported similar products in some performance indicators.

"From imitation and following to improvement and leadership, the global competitiveness of domestic medical devices continues to improve, and it is expected that large innovative device products will gradually emerge. The industry's growth rate is expected to improve in the second half of the year. In the long run, the pharmaceutical industry is expected to produce global companies, and we remain optimistic about the main lines of innovation and going global," He Juying said.

It cannot be ignored that in the process of commercialization, listed biopharmaceutical companies are facing many challenges. On the one hand, market competition is increasingly fierce, and new drug R&D costs are high and risky; on the other hand, factors such as the policy environment, medical insurance payment policies, and patients' payment capacity may also affect the commercialization process. In addition, fluctuations in the global investment and financing environment may also bring uncertainty to the financing and M&A activities of biopharmaceutical enterprises. Despite many challenges, listed biopharmaceutical companies still have broad opportunities in commercialization.

Exploring New Markets Through Going Global

China's innovative drug industry is transforming from an "introduction" to an "export" industrial pattern. Biopharmaceutical enterprises have diversified overseas models and accelerated their internationalization. The overseas models have shown diversity and flexibility, covering not only the full-chain model of independent overseas clinical development, registration, production, and sales but also the extensive use of cooperative development and License-out strategies. Typical listed company representatives include Kelun-Biotech and Akeso. Many listed biopharmaceutical companies achieved significant overseas results in the first half of 2024. For example, BeiGene's Brukinsa achieved significant growth of 134.4% and 231.6% in the US and European markets respectively, demonstrating strong international market competitiveness.

Overseas products are diversified, and innovative technologies continue to make breakthroughs. In terms of overseas product types, China's biopharmaceutical enterprises have achieved a leap from generic drugs to innovative drugs. Overseas products cover multiple fields such as chemical drugs, monoclonal antibodies, bispecific antibodies, and ADCs (Antibody-Drug Conjugates), showing an all-round improvement in China's innovative drug R&D strength.

The medical device sector has gradually gained certain global competitiveness. For example, United Imaging Healthcare's large-scale equipment, Mindray Medical and New Industrial's chemiluminescence, MGI Tech's gene sequencers, and MicroPort Robotics' laparoscopic surgical robots. The market has high expectations for overseas sales in the next few years.

Chen Zhu, chief medical and health industry analyst at CITIC Securities Research Department, said that in terms of product going global and internationalization, Chinese pharmaceutical enterprises have enhanced their ability to expand in overseas markets, achieving product sales and influence improvement in the international market through overseas licensing and international cooperation. This indicates that Chinese pharmaceutical enterprises are actively integrating into the global pharmaceutical industry chain and seeking new growth points through international market expansion. In addition, R&D investment in innovative drugs and high-end medical devices continues to increase, with new products launched and market value quickly realized. Enterprises are increasing R&D efforts to promote product innovation and upgrading to meet the market demand for high-quality medical products.

Overall, industry integration and concentration have increased, with leading enterprises integrating resources to improve market concentration and enhance market competitiveness. The healthcare industry is continuously upgrading in digitalization and intelligence, improving the efficiency and quality of medical services through information technology, such as telemedicine and intelligent diagnosis.

Regarding the future upgrading direction of the industry, Chen Zhu believes that innovation is the core driving force for the sustainable development of the pharmaceutical and healthcare industry. In the future, the industry will continue to increase R&D investment to promote the innovation of new products and technologies. With the deepening of globalization, Chinese pharmaceutical enterprises will participate more actively in international competition, expanding markets and enhancing brand influence through international strategies. The healthcare industry will further utilize digital technologies to improve service efficiency and patient experience, promoting personalized and precision medicine.