Introduction:From the earliest high-tech generic drug development, to the use of generic drugs to feed innovative drugs, and then to focus on the research and development of innovative drugs, Hengrui Pharmaceutical has always shown the determination and patience for "innovation" that cannot be compared with peers.
Liu Xuehui |Author Stone Business Review |Produced
Not long ago, Hengrui Pharmaceutical released its performance report for the third quarter of 2023, with operating income of 170 in the first three quarters1.4 billion yuan, a year-on-year increase of 670%, net profit attributable to shareholders of listed companies 347.4 billion yuan, a year-on-year increase of 947%。Following the return to positive growth in revenue and net profit in the first quarter and half of 2023, Hengrui Pharmaceutical's performance continued to rise steadily.
With the recovery of performance, Hengrui Pharmaceutical's share price in A-share listed companies has also continued. As of the latest trading day, its market capitalization has recovered to 308.7 billion yuan. There are only a handful of companies with a market value of more than 300 billion yuan in the current capital winter.
So how did Hengrui Pharmaceutical do it?The author believes that the reason why investors have such high expectations is rooted in the affirmation of its "innovative" potential. In China, enterprises that are good at technological innovation capabilities in various fields are generally called "Huawei in the XX industry", and Hengrui Pharmaceutical is a veritable "Huawei in the pharmaceutical industry".
Looking back at the development process of Hengrui Pharmaceutical, it has three important strategic transformations, which highlight the "innovation" characteristics of Hengrui Pharmaceutical.
The first strategic transformation: to do what big factories don't want to do, small factories can't do
Lianyungang Pharmaceutical Factory, the predecessor of Hengrui Pharmaceutical, is a state-owned enterprise founded in 1970, affiliated to a local sub-district office, mainly producing generic drugs with low technical content such as red potion and purple syrup, with meager profits and fierce market competition, and once fell into the predicament of bankruptcy.
In 1990, 32-year-old Sun Piaoyang was appointed as the director of the pharmaceutical factory, and he knew the importance of R&D for a pharmaceutical company, and decided to enter high-tech generic drugs at the beginning of his tenure. After research, he saw the market potential of anti-cancer drugs, and thus established the development direction of "doing what big manufacturers don't want to do (they were all making antibiotics at that time), and what small factories can't do (generic tumor drugs have technical thresholds)".
From 1991 to 1996, Sun Piaoyang led Lianyungang Pharmaceutical Factory to overcome many difficulties and successively developed more than 20 new products. Due to the low market sales of these generic drugs, the market sales are very good, which has well driven the development of Lianyungang Pharmaceutical Factory. By 1996, the revenue of the pharmaceutical factory exceeded 100 million yuan, successfully solving the problem of survival.
The second strategic transformation: the combination of imitation and innovation, "walking on two feet".
After the success of the strategy of relying on high-tech generic drugs, Sun Piaoyang was not satisfied with this. Although generic drugs can allow enterprises to survive, they can never become the core competitiveness of enterprises, and pharmaceutical companies must have their own innovative drug products if they want to continue to develop. As a result, he decided to make a strategic transformation: from high-tech generic drugs to innovative drugs, and at the same time abandon the research and development of high-tech generic drugs that have achieved certain achievements.
In 1997, Lianyungang Pharmaceutical Factory was restructured into "Hengrui Pharmaceutical", and Sun Piaoyang invested 2.5 million yuan in the research and development of innovative drugs. In 2000, Hengrui Pharmaceutical was listed on the A-share market with a financing of 4800 million yuan, Sun Piaoyang spent another 200 million yuan to establish a research and development center in Shanghai, and established the research and development direction of innovative drugs focusing on antineoplastic drugs, cardiovascular drugs, anesthetic analgesics and surgical drugs.
However, the R&D of innovative drugs has the characteristics of large investment, long cycle and high failure rate, and the R&D of an innovative drug in foreign countries requires at least 2 billion yuan of funds, and it takes 10 years from R&D to marketing. When the research and development of generic drugs is completely abandoned, it is difficult for innovative drugs to get returns in a short period of time, resulting in the problem of tight funds for Hengrui Pharmaceutical, which has just been on the market for a short time.
Therefore, in 2004, Sun Piaoyang reformulated the "two-legged walking" strategy of "generic drugs + innovative drugs" to carry out the research and development of "innovative drugs". Positive cash flow generated quickly by generic drugs to support the research and development of innovative drugs. Once the innovative drug is launched, it will obtain higher profits and cash flow, and then use it to feed other innovative drugs and generic drugs. In this way, Hengrui Pharmaceutical's cash flow can form a positive cycle.
However, for generic drugs, Hengrui Pharmaceutical also adheres to three major R&D principles:
First, no one has me, layout in advance, and strive to be the first imitation. The R&D of Hengrui Pharmaceutical's generic drugs was started when the generic drugs still had a 5-year patent period. As long as the patent period of generic drugs has passed, Hengrui Pharmaceutical will immediately enter the market with its new drug products and quickly occupy the domestic and foreign markets.
Second, Hengrui Pharmaceutical only imitates drugs with technical barriers, specializes in the cutting-edge field of generic drugs, and avoids the highly competitive field of low-end generic drugs.
Third, Hengrui Pharmaceutical's goal in the field of generic drugs is not only to imitate drugs with consistent efficacy, but also to innovate on this basis, achieve transcendence, and develop a more effective new generation of products, so as to gradually replace the generic drugs and achieve "me too, me better, me best".
With a clear strategy and increasingly strong R&D capabilities, Hengrui Pharmaceutical has gradually become a leader in high-tech generic drugs in China. The profits generated by high-tech generic drugs are supported in the field of innovative drugs, and the results are constantly reaped.
For example, in June 2011, Hengrui Pharmaceutical took 14 years to develop 1Arecoxib, a class 1 new drug, was approved for marketing by the State Food and Drug AdministrationIn the same year, Hengrui Pharmaceutical's anti-tumor drug irinotecan was approved for marketing in the United States. In 2014, the apatinib developed by Hengrui Pharmaceutical was successfully launched. By 2018, Hengrui Pharmaceutical has formed a cycle of innovative drug development of "listing a batch, clinical batch, and developing a batch", basically every year there are innovative drugs applied for clinical trials, and every 1 to 2 years there will be innovative drugs on the market.
The mutual assistance of high-tech generic drugs and innovative drugs has enabled Hengrui Pharmaceutical to move towards a path of rapid growth, which not only continues to grow in revenue and profit, but is also highly sought after in the capital market. From a market value of less than 100 billion yuan in 2015, it became the first pharmaceutical stock in China with a market value of more than 200 billion yuan in 2017, and a market value of more than 620 billion yuan in early 2021, reaching a peak.
The third strategic transformation: innovation + internationalization
With the thriving potential of Hengrui Pharmaceutical, Sun Piaoyang, who is gradually getting older, decided to step down as the chairman of Hengrui Pharmaceutical in January 2020. But change is always faster than planned, and shortly after Sun Piaoyang stepped down as chairman of Hengrui Pharmaceutical, there were two major changes in China's pharmaceutical industry.
One is that due to the impact of the national medical insurance centralized procurement (centralized volume procurement), the price of various core products of Hengrui Pharmaceutical has been greatly reduced. The other is that with Hengrui Pharmaceutical's deep cultivation in the field of high-tech generic drugs, most of the original drugs with patent expiration in the market have been imitated, and even if there is a long time before the patent expires, there are not too many drugs with greater value, which leads to the business logic of relying on generic drug research and development to support the rapid growth of the company's performance is no longer feasible.
Under the influence of the above dual factors, Hengrui Pharmaceutical, which has been making great progress, suddenly fell into the "darkest moment" in 2021, with annual revenue and net profit of 25.9 billion yuan and 45.5 billion yuan respectively300 million yuan, down 6 percent year-on-year59% vs. 2841%, which is the first time that Hengrui Pharmaceutical has seen a double decline in revenue and net profit since its listing in 2000. Affected by this, the market value of Hengrui Pharmaceutical in the capital market has also declined from a high of 620 billion yuan, with a maximum evaporation of more than 400 billion yuan.
In this critical situation, in August 2021, Sun Piaoyang was forced to return to the helm of Hengrui Pharmaceutical and launched the third strategic transformation of "innovation and internationalization".
In terms of innovation, Hengrui Pharmaceutical did not reduce R&D investment due to fluctuations in performance, but further increased R&D investment. According to the disclosure, Hengrui Pharmaceutical's R&D expenses in the first three quarters of 2023 are as high as 37300 million yuan, a year-on-year increase of **65%。Firm investment in innovation has enabled Hengrui Pharmaceutical to continue to blossom and bear fruit in the field of innovative drugs. Up to now, Hengrui Pharmaceutical has 13 self-developed Class 1 innovative drugs, 1 self-developed Class 2 new drug and 2 cooperatively introduced innovative drugs approved for marketing in ChinaIn terms of marketing declarations, the drug marketing authorization applications of 4 innovative drug products were accepted by the State Food and Drug Administration in the third quarter. In terms of clinical progress, Hengrui Pharmaceutical obtained a total of 18 drug clinical trial approvals in the third quarter, and the pipeline under development was advancing rapidly, and a number of innovative products entered key clinical stages.
In terms of internationalization, Hengrui Pharmaceutical has carried out nearly 20 international clinical trials of innovative drugs, and in July 2023, the biologics license application for camrelizumab for injection (Erica) combined with apatinib mesylate tablets (Etan) (Shuangai) for first-line ** in patients with unresectable or metastatic hepatocellular carcinoma was officially accepted by the US FDARecently, Hengrui licensed the PD-1 inhibitor camrelizumab in combination with *** liver cancer indication to Elevar Therapeutics in the United States, and Elevar will pay a cumulative sales milestone of 600 million US dollars to Hengrui Pharmaceutical after reaching a certain cumulative net sales, and make additional payments after exceeding a certain cumulative net sales, and the actual annual net sales are 205% commission on sales.
In addition, at the beginning of October, Hengrui Pharmaceutical licensed the innovative drug HER1 HER2 HER4 targeted drug pyrotinib maleate tablets to Dr. Maleate for a fee reddy'S Company, Hengrui Pharmaceutical will receive an upfront payment of $3 million and is entitled to receive up to $1$52.5 billion sales milestone.
After nearly two years of strategic transformation, Hengrui Pharmaceutical will finally return to the growth track in 2023 after further declining performance in 2022. The continuous breakthrough of innovative drugs has also rebuilt the basic plate of its business.
In the course of long-term business research, the more companies I studied, the more difficult I found in the "unity of knowledge and action".
Almost all enterprises are well aware of the importance of "innovation", but only a few companies are willing to invest huge amounts of money in technology research and development, and most of them are just indulging in the homogeneous competition of "plagiarism and imitation". This is due to the fact that compared with "plagiarism and imitation", "innovation" is a more difficult and uncertain path.
Hengrui Pharmaceutical is worthy of our admiration for the fact that it has always shown the determination and patience for "innovation" that cannot be compared with peers from the earliest high-tech generic drug research and development, to the use of generic drugs to feed the research and development of innovative drugs, and then to focus on the research and development of innovative drugs. This determination and patience have allowed him to achieve considerable results in the present, and make his future full of infinite possibilities. This infinite possibility is also the root cause of the capital market's willingness to give it a valuation of 300 billion yuan.