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Produced by | Huxiu Technology Medical Group

Author | Chen Guangjing

Editor | Miao Zhengqing

Header image | Visual China

Is this Chinese company with the most potential for making money about to be sold to an American giant?

On July 12, Chinese biotechnology companiesLegendary CreaturesThe market value of U.S. stocks suddenly soared by 12.10%, and in the following two weeks it has accumulated a nearly 30% increase.

Founded in 2014, Legend Biotech focuses on cell therapy and is a wholly-owned subsidiary of CXO leader GenScript. It is a "golden egg" hatched in the "China Innovative Drug 1.0 Phase".

The company's core product CAR-T (Cedaciolence) was in short supply in the United States. In the second year of its launch (2023), it sold $500 million with only one blood tumor indication (myeloma) and was limited to "fifth-line" treatment (understandable for patients who have received four treatment methods - Huxiu Note), exceeding the expectations of the company and the investment community.

In April this year, the drug was approved for second-line treatment of myeloma in the United States, and the market space is expected to expand rapidly. It is predicted that the drug is expected to become the second domestic drug with annual sales exceeding US$1 billion, and its peak annual sales can reach US$5 billion.

What ignited the investor frenzy was a piece of news that has not been confirmed by the parties involved: Legend Biotech has accepted the acquisition offer. The maximum total amount of this acquisition is expected to reach US$15 billion.If everything is true, this will be the largest merger and acquisition in China's biopharmaceutical field.

As for who made the acquisition offer, the industry generally believes that it is likely to be Legend Biotech's partner, a multinational giant headquartered in New Jersey, USA.Johnson & Johnson。

“Johnson & Johnson does not have good cell therapy products, which can be complementary.Cedars-Sinai is definitely a blockbuster, and there will be new indications in the future, and new products are also under development in the product pipeline. The key is the value of the entire technology platform. We spent more than $10 billion to buy it back, and we will make more than that in the end. "Dr. Zheng Weiyi, chairman of Nanjing Yingnuo Pharmaceutical Technology Co., Ltd., analyzed to Huxiu.

Regarding the above news, the companies involved remained silent or even directly denied it.

Legend Biotech responded to Huxiu, saying: "We cannot comment on any market rumors. This is the company's long-standing policy."

KingScript also publicly announced on July 15 that after reasonable inquiries, it "is not aware of any reasons for the fluctuations in share prices or trading volumes" or "any insider information that must be disclosed" in accordance with relevant regulations.

Legal experts told Huxiu that according to the relevant regulations issued by the China Securities Regulatory Commission, if a merger and acquisition event is a major event and may have a significant impact on the securities trading price of a listed company, then the listed company needs to disclose information. If a major event occurs in a holding subsidiary of a listed company, it may also have a significant impact on the trading price of the listed company's securities and its derivatives.

therefore,"Even if the M&A activity occurs at the subsidiary level, it needs to be disclosed if it has a significant impact on the listed company.". That is to say, if the merger and acquisition is indeed going to happen, GenScript and Legend Biotech will make it public sooner or later.

However, no matter what the facts are, it does not affect investors' carnival.Legend Biotech’s market value has reached over US$10 billion; the share price of its parent company, GenScript, in Hong Kong has also increased by more than 30% in a week.

From the industry's perspective, Legend Biotech and GenScript parted ways, and it was almost inevitable that the former would be acquired by a larger company.Because in the life cycle of innovative drugs, not only does it require continuous investment in research and development, but it also requires strong commercialization capabilities to realize the value of the product. In the capital winter, Legend Biotech and GenScript were unable to meet these needs.

and,"CXOs who provide services and Biotechs who develop innovative drugs have two different cultures and decision-making mechanisms. If you really want to develop innovative drugs, the two are ultimately incompatible. "Dr. Dong Xin, founder and CEO of Suzhou Luosheng Biopharmaceutical Co., Ltd., told Huxiu that the company also has CAR-T therapy in the clinical trial stage.

Although there is a consensus on this outcome, the industry still has mixed emotions. Some are excited about Legend Biotech's billion-dollar sales, some are sad that China's high-quality assets were sold too early, and some are worried that China will lose its advantage in the CAR-T field.

Amid mixed feelings, the confused innovative pharmaceutical companies seem to have a clearer picture of their future development.

The one who is eager to sell "Legend" may be Johnson & Johnson

Since 2023, many Chinese biotech companies have been acquired by multinational pharmaceutical companies. However, these acquisition stories often reveal the difficulties and frustrations of financing and capital shortages of Chinese biotech companies.

In the case of Legend Biotech’s acquisition, although GenScript and Legend Biotech also faced huge financial pressure,Perhaps the ones who are most eager to make this happen are not them, but Johnson & Johnson, which seems to be in an active position and is believed by the industry to have made a merger and acquisition offer.

As a long-established multinational pharmaceutical company, Johnson & Johnson is still very strong, with many blockbuster products in the fields of oncology and neuroscience. However, in the biopharmaceutical field where new stories are constantly emerging, Johnson & Johnson has begun to show signs of fatigue.

Johnson & Johnson is Legend Biotech's partner in co-developing products in the United States. The two companies jointly promoted the approval of Sidaciullen in the United States and are responsible for expanding the drug's production capacity and sales promotion.

Johnson & Johnson seems to have had bad luck in the past few years.Its COVID-19 vaccine did not sell as well as expected, and the RSV (respiratory syncytial virus) vaccine was sold by GSK,PfizerUnder the siege of the three giants, , and Moderna, Johnson & Johnson lost its first-mover advantage and had to announce its withdrawal in the final sprint. Johnson & Johnson did not elaborate on the loss, but according to previous reports, the product included 23,000 subjects in the third phase of clinical trials alone.

Among the products sold, sales of "cash cow" products such as ibrutinib and infliximab have been declining at a double-digit rate every year. Super products such as ustekinumab for the treatment of autoimmune diseases are also facing the dual challenges of price cuts and patent expiration.

Among all the products, Cedars-Sinai performed the best: the overall sales in the first half of the year reached 343 million US dollars, an increase of 81.5% year-on-year. Among them, the year-on-year growth in the first quarter reached 118%! This drug is undoubtedly one of the "magic weapons" of Johnson & Johnson to turn the tide.

It can be seen that the agreement reached between Legend Biotech and Johnson & Johnson is for both parties to "jointly develop" Sidaquioren. According to the agreement between the two parties, Legend Biotech and Johnson & Johnson will share profits in a 50:50 ratio worldwide, and also share costs in this ratio.

This means that if Legend Biotech's investment is insufficient and progress is slow during its continued R&D and capacity expansion, it will also affect the implementation of its business blueprint.

Legend Biotech's relevant person in charge said in an interview with the media that as the product was approved for marketing in Europe and Japan,As well as being approved for second- to fourth-line treatment in the United States, the number of potential patients will increase from 22,000 to 80,000. However, at their current pace, the production capacity of Cidaciolense would only reach more than 10,000 doses by 2025.

In order to build a factory in the United States, Johnson & Johnson and Legend Biotech have invested $250 million, and according to the plan, another $250 million will be invested in the future. This will fully meet the needs of patients in three to four years and achieve the peak revenue target of $5 billion per year.

The actual progress obviously cannot meet the demand. In early 2023, the results of a key Phase 3 study of Cedars-Sinai were accidentally leaked, and Legend Biotech had to raise US$200 million in advance. According to industry insiders, this may be a loss for the company.

The financial report just released on July 17 showed that Johnson & Johnson's total revenue in the first half of this year was US$43.83 billion, an overall year-on-year increase of 3.3%. Innovative drugs, which have always been regarded as the engine of corporate development, did not grow by more than 9% year-on-year even in the United States.The overall growth is weak.

In the investment market, Johnson & Johnson has also lost its position as the world's leading pharmaceutical company due to the impact of new products such as GLP-1 drugs and Alzheimer's disease drugs.Eli Lilly、Novo NordiskThe market value is almost several times that of it.

In April this year, Legend Biotech and Johnson & Johnson had to introduce new helpers and purchased "contract manufacturing" (CMO) services from Novartis, the "veteran" in the CAR-T therapy industry.

Under such circumstances, Johnson & Johnson would undoubtedly like to acquire Legend Biotech as soon as possible or introduce a partner with more abundant funds and stronger R&D capabilities to it, to ensure that the commercial value of Cedars-Sinai is realized as scheduled or even ahead of schedule, and to alleviate performance pressure.What did Legend Biotech do right to attract so much attention from multinational giants?

How can we “control” the giants?

The reason why Legend Biotech became the darling of American giants and the investment community is largely because it caught up with the bonus period of the times.

Over the past two decades, driven by the bursting of the U.S. Internet investment bubble and attracted by favorable domestic policies, a group of scientists and engineers who went to the United States to study and work in their early years chose to return to China to start businesses. Their return also brought abundant U.S. dollar funds. Coupled with the reform of the domestic drug approval system and the release of the "engineer dividend", China's new drugs have gradually entered a golden period of development.

Because China's original pharmaceutical companies lacked the tradition and motivation for innovation, early returnees chose CXOs that mainly served overseas markets as their entrepreneurial projects, and these service companies became the "cradle" of China's innovative drugs. Legend Biotech's "golden egg" was hatched here.

Chuangqi Biotech was founded in 2014, relying on the platform of China's leading CXO company, GenScript. At the beginning, even the ballpoint pen and desk were borrowed from GenScript. In 2017, when they made a splash at the ASCO (American Society of Clinical Oncology) conference, they only had medication data for 35 patients - all of their conditions were relieved (total remission rate 100%).

On the first day of listing, Legend Biotech’s stock price soared 60.87%.

At the end of 2017, Legend Biotech won the favor of Johnson & Johnson with the preliminary data of Sidaquioren, and received $350 million in down payment alone. After that, before the innovative drug bubble burst, it went public on the Nasdaq in 2020, planning to raise $300 million, but ended up exceeding the target and raising $487 million. This is unimaginable today.

“When Legend Biotech first started working with Johnson & Johnson, it was a great opportunity.”Dong Xin told Huxiu that because they can obtain sufficient funds from the financial market, they also have more choices in cooperation methods.

As mentioned above, Legend Biotech and Johnson & Johnson reached a "co-development" agreement. This approach is different from the "license-out" (external licensing) that many biotech companies today have to choose in order to survive. It requires both parties to invest equal financial, human and material resources in all aspects of drug access, production and sales.

It can be seen that Legend Biotech also has a sales team in the United States, and they serve 80 large hospital treatment centers in the United States. In expanding production capacity, both parties are also jointly bearing the capital investment required to build the factory.

Although this cooperation model has cost Legend Biotech more money and put it under greater pressure, it has also enabled them to participate deeply in the development, production and marketing of the entire drug and gained valuable experience in overseas drug development. This has not only promoted the rapid approval of the product and fully demonstrated its commercialization potential, but also improved the overall strength of the company's platform.

These are the "chips" in the game between Legendary Creatures and the giants.

If the merger rumors are true and Johnson & Johnson is not the one who made the merger offer, then this merger is more about finding a partner for Johnson & Johnson than finding a "mother-in-law" for Legend Biotech.

As a result, regardless of whether it is the initiator of the offer or not, Johnson & Johnson will have to pay special attention to the scale and details of the cooperation, which will also invisibly elevate Legend Biotech's position in the transaction.

Back to the basics,Product strength is the most important bargaining chip.As mentioned earlier, the clinical effects of Sidaquiolunse were once praised as a "miracle" by American cancer experts, who stood up and applauded at international events.

Last November, the company exclusively licensed LB2102 (a CAR-T cell therapy targeting DLL3) to Novartis for a total of US$1.11 billion. The drug is aimed at two major solid tumors, advanced small cell lung cancer and large cell neuroendocrine carcinoma. It is also in the first echelon of cell therapies targeting DLL3 and is one of the best projects.

From: Visual China

This also provides a reference for the future rise of China's innovative drug industry.

"Good products come first." Zheng Weiyi told Huxiu,Before acquiring a biotech company, multinational pharmaceutical companies usually have already had in-depth cooperation with it on the research and development of a certain drug. "During the cooperation, they recognized the company's product and platform research and development capabilities."

It is imperative for local companies to improve their internal strength and develop world-first drugs with better clinical data. In addition, traditional pharmaceutical companies with stronger capital should also open up their international horizons as soon as possible and actively cooperate with biotechnology companies.

In fact, the "playing styles" of multinational giants are very flexible and diverse. In order to realize the market value as soon as possible, it has long been the case that new drugs developed in cooperation with Johnson & Johnson have accepted acquisition offers from other giants as soon as they have just shown market potential.

Take the best-selling drug ibrutinib as an example. In 2011, Johnson & Johnson reached an agreement with the American biotechnology company Pharmacyclics. In order to support the development of ibrutinib, Johnson & Johnson paid a down payment of US$150 million. In return, they obtained the exclusive global distribution rights of the drug except the United States.

In 2013, the drug was approved for marketing, and in its second full year of sales, it sold nearly $700 million. Then (in 2015), AbbVie extended an olive branch and acquired Pharmacyclics for $21 billion at a 54% premium.

With the joint efforts of the three parties, Ibrutinib has gradually achieved annual global sales of nearly US$10 billion in the following six years. In the year when the acquisition was completed, the sales of the drug more than doubled year-on-year.

From this perspective, if Legend Biotech can successfully complete the acquisition, it may also be the beginning of a greater "legend" for Chinese new drugs.