Chinese pharmaceutical companies have begun to utilize their products and actively integrate into the international biopharmaceutical field's capital operations. These companies are not only pushing their R&D drugs into the global market but are also carving out a place for themselves in the global capital structure.

Hengrui Medicine recently announced new progress in its international expansion. Different from previous licensing sales, Hengrui Medicine declared that it has granted Hercules, an American company, the exclusive rights to the global development, production, and commercialization of its GLP-1 product portfolio, including three product lines. The initial payment and the upcoming milestone payments of this deal total nearly $110 million, plus sales royalties, the total value exceeds $6 billion.

The transaction model has attracted attention. Hercules was just established in May, with its investors including well-known Bain Capital, Atlas Ventures, RTW Investments, and Lyra Capital, contributing a total of $400 million. After the transaction is completed, Hengrui Medicine will hold a 19.9% equity stake in Hercules. This is a typical corporate spin-off model, not a novel concept even for multinational companies abroad. However, this model is still a new exploration in the domestic market.

Instead of directly carrying out commercial development authorization, Hengrui chose the method of splitting assets, bringing its expansion to the international capital market, seeking to maximize interests in the highly competitive global GLP-1 market. Hengrui's investment in Hercules reflects the trend of Chinese companies using their products to deeply participate in the global biopharmaceutical industry's capital operations, causing considerable stir in the industry.

The products involved in this transaction are three independently developed GLP-1 related drugs, including the oral small molecule GLP-1 receptor agonist HRS-7535, dual-target GLP-1/GIP drug HRS9531, and the next-generation long-acting insulin product HRS-4729, which is still in the pre-clinical stage. Among these products, the first two have entered phase II clinical trials, primarily for the treatment of type 2 diabetes and overweight/obesity.

Although there have been domestic pharmaceutical companies developing GLP-1 pipelines through overseas authorization cooperation, Hengrui's new way to participate in the international capital market marks its determination to expand its international influence in ways different from the traditional definitive business authorization method.

Hengrui Medicine, through its strategic asset operations, has carved a new path for the Chinese biopharmaceutical industry to reach international waters. By exchanging product rights for equity in its special-purpose company Hercules, Hengrui not only retains decision-making rights during the operations of Hercules but will also continue to receive profits from subsequent asset operations, showcasing the added value of its bargaining chips in overseas business activities.

Indeed, Hengrui's approach has broken through the normal state of Chinese companies often being at a disadvantage in overseas business development. Chinese enterprises usually lack decision-making power in international transactions and struggle to reap significant benefits. However, Hengrui's case demonstrates its strong bargaining power and determination to seek maximized profits.

Specifically, Hengrui has not only reaped a direct return of over $200 million with its nearly 20% stake in Hercules but has also retained the opportunity for joint development and commercialization, as well as the potential to gain more profits through future asset operations. This business move marks a new perspective in evaluating the value of Chinese biopharmaceutical companies' external cooperation.

As for the equity structure, as the second-largest shareholder, Hengrui maintains three seats on the joint management committee, which reflects its significant influence on decision-making. Hengrui's active participation means that the company will play an important role in the global development and commercialization of Hercules's products. Furthermore, Hengrui could engage in more asset acquisitions through the Hercules platform in the future.

Regarding future exit strategies, Hercules has multiple options, including re-licensing pipeline assets, being acquired by multinational companies (MNCs), or going public with an Initial Public Offering (IPO) directly in the United States. The recognition of Hercules's pipeline assets in the capital market will be key to its market value assessment.

Looking back at Hengrui's historical business development, the company has gone through multiple explorations and learning processes in the field of biopharmaceuticals. Hengrui has learned some costly lessons from past product introductions and licensing deals, such as a failed collaboration with Wanchun Pharma leading to massive investment losses and a drug licensing issue indirectly related to GSK. These experiences have made Hengrui more cautious and wiser in its partnership with Hercules.

In the increasingly fierce global competition in the biopharmaceutical industry, China's Hengrui Pharma has moved beyond its past position of making wedding dresses for others. With its $6 billion-worth obesity drug, Hengrui has set a new milestone for the industry. This time, Hengrui Pharma has directly engaged in international transactions, saving on intermediary fees, and has also shown its peers a new path seeking funding and value through overseas incubation.

Facing retrenchment in primary market investment and a severe Initial Public Offering (IPO) climate, China's domestic biopharmaceutical sector finds incubating products in overseas markets and then exploring financing, listing, or merging a wise and viable strategy. This approach not only potentially solves the problem of financial pressure but also allows enterprises to retain more control over their product pipelines.

One focal point of industry attention is whether this model can be replicated by subsequent enterprises. Notably, pharmaceutical companies with the capability to build platforms have a natural advantage in spinning off assets. However, for biotech firms, the model is viable but requires consideration of its necessity. When deciding to adopt this model, whether the holdings are scarce and globally competitive is a crucial factor.

Taking Hengrui Pharma's case as an example, the GLP-1 class drug market is not monopolized by a single enterprise, especially products in the late clinical phase, which still have significant market opportunities. Coupled with the general market recognition of Hengrui's R&D strength, this transaction has naturally become possible.

In this process, finding suitable partners and market demand is equally critical. Professional legal and commercial operations are still essential conditions for the success of cross-border transactions. For instance, Lawyer Gu Yan from Han Kun Law Offices notes that the valuation of high-value assets in the American capital market requires professional methods, and doing it oneself may not be as efficient as local overseas enterprises or practitioners. After all, they have richer experience in finding potential partners and designing transaction structures.

It is worth mentioning that, in the transaction between Hengrui and Hercules, some familiar investment institutions, such as Bain Capital and Atlas Ventures, emerged. These capitals not only brought connections and resources but also provided financial support, with an influence that is extraordinary.

Looking back, when China’s pharmaceutical enterprises had not yet started their international expansion, Zhang Lianshan, the vice president and head of R&D of Hengrui Medicine, once shared his core concept of going global: to pursue maximal interests, but at the same time, not hesitate to pay the necessary costs. This philosophy still holds practical significance and guidance for today's Chinese biopharmaceutical industry.