Amid Slowing Sales at Home, Innovent Biologics Stumbles Overseas

Cancer drug maker ended a tie-up to bring one of its drugs to North America last week, less than two months after its best-selling product was rejected by the FDA

Key takeaways:

  • Innovent Biologics terminated a plan to sell its bevacizumab biosimilar in North America with a local partner after trials for the drug fell behind schedule
  • The company’s loss tripled last year on growing competition for its core product, whose sales fell 22% in this year’s first-quarter

By Molly Wen

With domestic competition heating up in the crowded China pharma market, innovative drug makers have begun venturing overseas in search of new opportunities. But some are finding the going is far from easy, learning a lesson that many of China’s other major innovators learned when they began venturing out around the start of the 21st century.

One company learning that lesson now is Innovent Biologics Inc. (1801.HK), an innovator in the field of PD-1 inhibitors that are an increasingly popular category of immuno-drugs for treating cancer.

The company’s overseas foray hit a snag in March when its key product Sintilimab was rejected by the Food and Drug Administration (FDA) for sale in the U.S. But that was only the beginning. The company suffered another setback last Friday when it announced its licensing collaboration with U.S. peer Coherus (CHRS.US) had ended and it would seek a new U.S. and Canada partner for its second major product, bevacizumab biosimilar (IBI-305).

The company’s stock opened 4.5% lower the day after the announcement and ultimately closed 8.2% – its lowest level in the past three and a half years. Its latest valuation of HK$28.5 billion ($3.6 billion) is down more than 80% from a high early last year, showing investors are gloomy about its prospects.

The company said it decided to break with Coherus after an evaluation of the drugs’ current status in North America, including delays caused by the Covid-19 pandemic. But it added it remains optimistic about the drug’s efficacy and safety, and the decision would not affect its arrangements for the drug in other overseas markets and prospects for its long-term internationalization strategy.

Delayed progress

Innovent first licensed IBI-305 rights to Coherus for the U.S. and Canada in January 2020, and Coherus had planned to apply with the FDA in late 2020 or early 2021 to sell the drug in the U.S. Under their deal, Coherus would make a down-payment and milestone payments totaling $45 million, and give a double-digit cut of its revenue from the drug to Innovent based on actual sales.

But Coherus failed to submit the application according to terms of the agreement. In February 2021, Coherus CEO Dennis M. Lanfear said a third-party clinical pharmacokinetics trial for the drug had begun and more progress was expected within the year. But no progress was reported after that.

IBI-305 was first approved by China’s National Medical Products Administration in June 2020 and is now allowed for treatment of six indications, including major cancers like late-stage non-small cell lung cancer and metastatic colorectal cancer. The drug generated 440 million yuan ($65 million) for the company in 2021, accounting for 10.3% of its revenue that year, making it the second biggest earner among all its commercialized products, according to Founder Securities. Whether the company will continue to try to commercialize the drug in North America after the split with Coherus is still unknown.

The Coherus split came less than two months after the earlier setback. On 24 March, Sintilimab, co-developed by Innovent and Eli Lilly (LLY.US), was rejected for sale in the U.S. by the FDA, sparking a 13% drop in Innovent’s stock the following week. The FDA explained the drug wasn’t rejected for being ineffective, but rather because clinical trials were only conducted in China and weren’t multi-regional enough to reflect the demographic diversity of the U.S.

Sintilimab was the first Chinese-produced PD-1 monoclonal antibody to file for approval in the U.S. Shanghai Junshi Biosciences (1877.HK; 688180.SH), BeiGene (BGNE.US; 6160.HK; 688235.SH) and Jiangsu Hengrui Medicine (600276.SH) have also been expanding abroad. But since Sintilimab’s rejection in the U.S., the industry has come to believe that similar applications could face major hurdles.

In a similar development, HutchMed (China) Ltd. (HCM.US; 0013.HK) announced earlier this month that its Surufatinib drug for the treatment of advanced neuroendocrine tumors was also rejected by the FDA for nearly identical reasons.

Intense domestic competition

Innovent has seven products for sale. In addition to Sintilimab and IBI-305, others include two biosimilars – Rituximab and Adalimumab; its Olverembatinib drug co-developed with Ascentage Pharma (6855.HK); Pemigatinib, co-developed with Incyte (INCY.US); and Ramucirumab, which it sells under a licensing deal with Eli Lilly.

Sintilimab is the company’s mainstay in revenue terms. In 2021, the company’s  revenue from the drug totaled 4.26 billion yuan, including 4 billion yuan from product sales that grew by 69% from the previous year. Sintilimab is a PD-1 inhibitor covered by China’s national health plan for a number of major indications, and accounted for 70% of the company’s product revenue last year. But even so, its sales are already slowing. According to data from Eli Lilly, first-quarter sales for the drug were down 22% from the same period of last year.

As Innovent stumbles, many brokerages have downgraded their outlook for the company. Nomura Holdings lowered its earnings projections by 6% and 8% for 2022 and 2023, respectively, to reflect intense competition in the PD-1 category and the impact of the Covid-19 pandemic. CLSA said Innovent’s Sintilimab sales underperformed its projection, but maintained its “overweight” rating for the company as strong sales for its non-PD-1 drugs offset that weakness.

Following the prolonged selloff, the company is currently valued lower than many of its peers. It has a price-to-sales (P/S) ratio ratio of just 5.7 times, far less than 15 times and 11 times for the Hong Kong-listed shares of BeiGene and Junshi Biosciences, respectively, as well as the 7 times for A-share listed Jiangsu Hengrui Medicine.

The lower valuation might reflect Innovent’s growing losses. Last year it reported a net loss of 3.14 billion yuan, roughly triple its loss from the previous year. The company attributed the widening gap to increased expenses for new product approvals and new marketing campaigns. Its sales and marketing spending doubled to 2.73 billion yuan, and its R&D spending rose by 33.84%.

At the end of the day, Innovent is a company whose key-product sales are declining and which has suffered several setbacks overseas. At the same time, its newer drugs approved for sale still need to gain further market acceptance. That’s put the company in a sort of gray zone, leaving investors waiting to see whether the new drugs will eventually be able to pick up the slack for the older maturing ones.

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