China's innovative drug outbound BD has achieved another landmark breakthrough!
On January 30, CSPC PHARMA announced it had entered into a strategic R&D collaboration and licensing agreement with global biopharmaceutical leader AstraZeneca. The agreement aims to utilize CSPC's proprietary sustained-release drug delivery technology platform and AI-driven peptide drug discovery platform to develop innovative long-acting peptide drugs. Should all subsequent R&D and sales milestones be achieved, CSPC PHARMA is entitled to receive payments totaling up to $18.5 billion.
According to incomplete statistics, this transaction sets a new record for the highest total value in a BD deal by a Chinese pharmaceutical company, surpassing a previous $13 billion deal between Kintor Pharmaceutical and Biohaven & AimedBio. Its $1.2 billion upfront payment is second only to the amount agreed upon between 3SBio and Pfizer for a PD-1/VEGF asset.
However, the secondary market reaction was unfavorable. CSPC PHARMA's stock price opened high but trended lower, plummeting nearly 13% intraday and closing down 10.2%. What are the reasons? Analysts suggest it may be due to a combination of multiple factors.
Judging from CSPC PHARMA's recent stock performance, the market may have priced in the news early. Prior to the agreement announcement, CSPC PHARMA's stock had experienced several consecutive days of strong gains, with a notable single-day surge of 6.14% on January 28, hitting a new high for the year. After the announcement, some investors likely chose to take profits, creating selling pressure characteristic of a "buy the rumor, sell the news" scenario.
From the perspective of earnings contribution, although the total agreement value is as high as $18.5 billion, the upfront payment is $1.2 billion, with the remaining $17.3 billion contingent on R&D and sales milestone payments. These are only realized upon successful progression through multiple clinical stages over the coming years, offering limited short-term cash flow contribution.
The broader market and sector-wide correction also had an impact. On January 30, the Hong Kong market experienced a significant adjustment, with the Hang Seng Index, Hang Seng Tech Index, and the Hang Seng Biotechnology Index all falling over 2%. The Hong Kong Stock Connect innovative drug sector declined alongside the market, with leading stocks like Sino Biopharmaceutical, BeiGene, and 3SBio collectively falling. The HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880) closed down 2.45%.
Shifting market sentiment has intensified volatility in the Hong Kong Stock Connect innovative drug sector. However, judging by the significant premium maintained by the HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880) throughout the trading day, substantial funds may still be accumulating positions on dips. In the preceding 10 days, the 520880 ETF saw cumulative net inflows exceeding 274 million yuan.
The core investment thesis for domestic innovative drugs remains robust, suggesting the current period might be a favorable window for strategic positioning. Western Securities points out that the acceleration of BD out-licensing, the convergence of innovative drug pricing between China and the US, and the narrowing valuation gap for innovative drug companies collectively suggest significant medium-to-long-term growth potential.
For positioning in core innovative drug assets at lower levels, consider the high-flexibility T+0 tool—the HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880) and its corresponding feeder fund (025221). The underlying index possesses three distinct advantages, highlighting its strong allocation value:
1. 100% Purity. Excludes CXO companies, offering pure exposure to innovative drugs and comprehensive coverage of R&D-focused innovative drug companies. 2. High Concentration of Leaders. The top ten innovative drug leaders account for over 73% of the index weight, representing the core strength of the innovative drug sector. 3. More Controllable Risk. Imposes mandatory weight reductions on constituents with poorer liquidity, effectively managing tail risks. Interested in also capturing opportunities in A-share innovative drugs? Consider the only on-exchange ETF tracking the pharmaceutical index—the Yaofund ETF (562050) and its feeder fund (024986). It aggregates the top 50 A-share pharmaceutical leaders, with an innovative drug allocation exceeding 60%, while also incorporating high-dividend traditional Chinese medicine leaders, offering both growth potential and defensive resilience.
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