HBM Gets Health Boost From Drug Licensing Deals - Bristol-Myers Squibb (NYSE:BMY)

Key Takeaways:

Nona Biosciences, a subsidiary of HBM Holdings, has struck a licensing-out deal with a Pfizer-owned biotech for an initial sum of $53 million and milestone payments of up to $1.05 billion
HBM Holdings boosted its revenue by 48% in the first half of this year through licensing-out partnerships and by providing R&D services

By Molly Wen

As China’s pharmaceutical sector battles through tough times, some biotechs are still managing to push ahead with novel drugs and make money along the way.

HBM Holdings Ltd. (2142.HK), for one, has found strength in numbers, striking drug development agreements with a host of prominent partners. On Friday came news of another licensing-out deal, under which HBM subsidiary Nona Biosciences gets an initial $53 million and milestone payments of up to $1.05 billion from Seagen Inc., owned by global pharmaceutical giant Pfizer (NYSE:PFE).

Under the deal, Seagen will develop an antibody-drug conjugate (ADC) created by Nona Biosciences as a targeted cancer treatment. However, HBM shares plunged 7.3% on the day of the news and fell another 8% in the following session, despite the prospect of a new income stream.

Indeed, a deal offering $53 million upfront is not a particularly generous offer for an anti-cancer ADC produced by a Chinese company. In the same week, Sichuan Biokin Pharmaceutical (688506.SH) signed a licensing agreement with Bristol-Myers Squibb (NYSE:BMY) for an initial $800 million and a maximum payment of more than $8 billion, far outstripping the HBM deal.

However, the HBM agreement has other plus points. Seagen is a veteran of the ADC arena and was bought by Pfizer for a whopping $43 billion. Seagen’s interest in working with HBM could be viewed as a vote of confidence in the Chinese firm’s R&D acumen. So why have investors pushed the stock price down? Notably, the shares rose 25.5% in the four days leading up to the announcement, in the absence of any positive news. The benefits appear to have been already factored into the price, leaving no room for the stock to rise when the deal became public.

The licensed ADC specifically targets mesothelin, a protein on the surface of cancer cells. The deal gives Seagen the global rights for clinical development and commercialization of the drug, which showed promise in preclinical trials and could have broad potential in the fight against cancer. The U.S. Food and Drug Administration (FDA) gave the green light in August for the drug to enter clinical trials as a treatment for advanced solid tumors.

Founded in November 2022 as a wholly owned HBM subsidiary, Nona Biosciences operates a transgenic mice platform to produce human antibodies as well as a next-generation platform for bispecific antibodies, which bind with two different antigens. The company provides partners with preclinical drug development services from discovery to approval for clinical research.

The newcomer has already found many partners. A deal with the rising mRNA star Modena(NASDAQ:MRNA) earned the company an advance of $6 million, with the prospect of about $500 million in milestone payments and tiered licensing fees. It has also linked up with companies including Dragonfly Therapeutics and Mythic Therapeutics in the U.S., as well as forging relationships with academic institutions such as the University of Washington. The company has racked up more than 30 cooperation deals, of which 20 were added this year, according to its latest half-year earnings statement.

From asset sales to license income

HBM still lacks commercialized products, but it is making headway compared with last year. The company transferred its key product, Batoclimab, to a subsidiary of CSPC Pharmaceutical Group(1093.HK) last year and concluded Phase III clinical trials on another drug candidate. Its industrial production base in Suzhou was transferred to WuXi Vaccines, a unit of WuXi Biologics (2269.HK), resulting in a loss of 61.93 million yuan ($8.7 million).

Revenues picked up in the first half of this year, thanks to deals for licensed-out drugs and R&D services. The company brought in revenue of around $41 million, a 48.4% jump from the same period a year earlier. Revenue from licensing-out molecular drugs leapt 45.8% to $39.5 million, largely due to higher upfront and milestone income from the partnerships. Revenue from research services and technology licensing also rose to $1.5 million from $500,000 a year earlier.

In February this year, the company handed over U.S. licensing rights to its HBM7008 antibody drug to Cullinan Oncology for an upfront payment of $25 million and milestone payments of up to $600 million.

Since being licensed out, Batoclimab has also made R&D progress, delivering positive results this year in Phase III clinical trials to treat generalized myasthenia gravis, an immune disorder. Meanwhile, Chinese drug regulators agreed to review a license application for Batoclimab, potentially clearing the way for future milestone payments.

By handing its drug pipelines over to partners, the company has hived off the costs of clinical trials and can move forward as a leaner enterprise. Its R&D costs have fallen from $83.6 million in the first half of 2022 to $28.4 million in the same period of 2023. With its new strategy, HBM turned a profit for the first time, earning $2.91 million in the first half of 2023 against a loss of $73.08 million in the equivalent period a year earlier.

However, future income streams from the licensing arrangements will depend on the progress of clinical trials and the partners’ project decisions. This year Cstone Pharmaceuticals (2616.HK), Beigene Ltd. (NASDAQ:BGNE) and many other innovative pharmaceutical companies have had licensed-out drugs returned to them, affecting their earnings.

In early December HBM withdrew its license application for Batoclimab, citing delays in Phase III clinical trials, and said it would reapply in the first half of 2024, with a knock-on effect on revenue.

The spate of licensing deals has helped the company move on from a phase of selling factories and pipelines to shore up its finances. However, HBM’s valuation is still lagging. The company’s price-to-sales (P/S) ratio is only 1.8 times compared to 9.4 times for loss-making Kelun-Biotech Biopharmaceutical (6990.HK), another active player in the ADC field with proprietary technology platforms. But if HBM’s partnerships start to bear fruit, the company may enjoy more consistent revenue flows and investor attention.

This article is from an external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.

BMYBristol-Myers Squibb Co

Market News and Data brought to you by Benzinga APIs

To add Benzinga News as your preferred source on Google, click here.