CSPC is undoubtedly one of the brightest stars in Hong Kong pharmaceutical stocks recently. After the mid-term earnings report fell short of expectations, the stock price once plummeted by more than 20%, but the stock price rebounded by more than 60% in the last three weeks.

The company has driven a rapid rise in stock prices through a series of initiatives such as large-scale introduction and licensing of new products, major personnel appointments, and a 5 billion repurchase plan. However, the real reason behind these actions is the acceleration of the innovation and transformation of CSPC Group.

Heavy product license in/out, acceleration of innovation and international transformation

CSPC Group is speeding up the pace of cooperation in licensing and introducing products to the outside world.

On October 8, the company signed an exclusive licensing agreement with AstraZeneca to develop, manufacture and commercialize the lipoprotein (Lp (a)) inhibitor YS2302018 globally. According to the agreement, CSPC Group will receive an advance payment of 0.1 billion US dollars and the right to receive potential development milestone payments of up to 0.37 billion US dollars and potential sales milestone payments of up to 1.55 billion US dollars. At the same time, it can also receive tiered sales commissions based on annual net sales.

On October 29, Shiyao Group announced that its wholly-owned subsidiary Jinmante Biotech will purchase the HER2 dual-epitope ADC drug JSKN003. Cooperation costs include an advance payment of RMB 0.4 billion, development milestone payments relating to the enrollment of the first patient in multiple registered clinical trials of RMB 0.3 billion, and regulatory milestone payments and sales milestone payments collected in accordance with the progress of regulatory approval, up to a total of up to 3.08 billion yuan, in addition to double-digit royalties.

In February 2023, Jushi Biotech of Sinovay Holdings of CSPC and Corbus Pharmaceuticals, Inc. signed an exclusive licensing agreement for the development and commercialization of the recombinant humanized anti-nectin-4 antibody drug conjugate SYS6002 in the US and other countries, with an authorized amount of up to 0.693 billion US dollars.

In July 2022, CSPC announced that it would license global rights in the new Claudin18.2 ADC drug SYSA1801 to Elevation Oncology outside of Greater China for 1.195 billion yuan.

In this year's mid-term report conference call, Shiyao Group also revealed that the EGFR ADC product SYS6010 is currently actively contacting and authorizing cooperation with two major international companies, and further cooperation is expected as more data is released.

Through overseas licensing of innovative products and the introduction of products in the domestic market, the innovation and internationalization strategy of CSPC Group has become more and more clear. Overseas, CSPC Group relies on partners for international clinical and commercialization promotion; domestically, the company uses its own sales capabilities to introduce potential products and adopt a “walking on both legs” strategy to continuously expand the market.

Personnel changes, resolute transformation and innovation

Furthermore, in recent years, the CSPC Group has also made frequent moves in terms of personnel. The trend of internationalization and rejuvenation is obvious, further complying with the company's overall innovation and transformation strategy.

On September 9, the company announced the appointment of Dr. Liu Yongjun as the executive president and global R&D president of CSPC Group, responsible for the group's R&D, pipeline strategy and international business development. Dr. Liu Yongjun has an important influence in the industry.

Dr. Liu Yongjun was once one of the highest-ranking Chinese scientists in multinational pharmaceutical companies. He worked as a R&D executive at Scherling Pauer and AstraZeneca, and later as the head of global research at Sanofi. Prior to joining Shiyao, he was responsible for Cinda Biotech's global R&D, pipeline strategy, business cooperation and international business.

Similar personnel appointments occurred last year at another established pharmaceutical company, Hengrui Pharmaceutical. At the beginning of 2023, Hengrui Pharmaceutical appointed Jiang Ningjun as the company's deputy general manager and chief strategic officer. This appointment encouraged Hengrui to carry out frequent external BD over the next year and a half, achieve overseas licensing cooperation for various major products, and successfully expand overseas markets.

In addition to personnel changes at the group level, on September 23, the CSPC Group's innovation platform, Shiyao Innovation (Xinnovo), appointed Yao Bing as the new chairman of the company.

The management team is younger, and the signs of innovation and transformation are obvious. The company stated in response to this appointment: “Chairman Yao Bing has extensive experience in innovative drugs. In the future, the company's focus will be on innovative drugs, so Yao Bing's background is more in line with the company's development strategy.”

In terms of capital management for transformation and innovation, Shiyao is also making frequent moves

Sinovay, the A-share platform of Shiyao, which has just completed personnel changes, is gradually transforming into an innovative platform for the company through asset acquisitions.

Established in 2006, Sinovay is an important company in the big health business segment of the CSPC Pharmaceutical Group. In 2019, Novus successfully landed on GEM, becoming the first case where a Chinese red chip company spun off back into A-shares.

In September of last year, Sinovay, a subsidiary of CSPC Group, announced plans to increase Jushi Biotech's cash capital by 1.87 billion yuan to achieve control over Jushi Biotech. Monolith Biotech's pipeline layout covers antibodies, ADCs, and mRNA vaccines. On January 3 of this year, New Novi completed the equity transfer of Jushi Biotech, taking an important step into the innovative drug circuit.

Jushi Biotech has contributed the first approved product to Sinovay — the Enlang Subimab injection (trade name: Enshuxing) was approved by the National Drug Administration at the end of June this year. The indication is to treat patients with recurrent or metastatic cervical cancer who have failed at least first-line platinum-containing chemotherapy.

After completing the equity transfer to Jushi Biotech, Xinovai further issued an announcement that it plans to acquire Baike Biotech, a subsidiary of Shiyao Group, through cash and share payments. ShiyaoBaike is mainly engaged in innovative biopharmaceutical businesses such as long-acting protein drugs. Its core assets include Shengbai Yaojin Youli, which has annual sales exceeding 1 billion yuan, and the long-acting GLP-1 receptor agonist TG103.

After two price adjustments, Sinovel's acquisition of Shiyao Baig is still in progress. After the acquisition is completed, Novartis will further fully transform into an innovative drug platform in terms of revenue, profit, and pipeline layout.

Increasing shareholder returns

On September 19, the company announced plans to further repurchase up to HK$5 billion of shares. Within 24 months from the date of the announcement, the company will repurchase shares totaling up to HK$5 billion from the market. The capital comes from the company's available cash reserves, and the repurchased shares will be cancelled.

Prior to this announcement, the company's board of directors had approved a repurchase plan totaling up to HK$1 billion. Of this, approximately HK$0.773 billion had already been repurchased, and the repurchased shares would also be cancelled.

Furthermore, the company stated in its interim report that the board of directors announced the payment of an interim dividend of HK16 cents per share for 2024, an increase of 14.3% over the previous year, and the dividend ratio increased to 58%. As of the announcement date of the interim report, the company provided shareholders with a cumulative return of 3.285 billion yuan through interim dividends and share repurchases.

epilogue

Established pharmaceutical companies such as CSPC Group, China Biopharmaceuticals, Hengrui Pharmaceuticals, and Hanson Pharmaceuticals have embarked on a unique path of development in terms of innovation and transformation. From independent innovation products going overseas to cooperation in the introduction of excellent domestic products, all of these indicate that China's innovative pharmaceutical industry is entering a new stage of development.