Summary of Key Points
Shiye Innovation’s half-year report shows a net profit surge of 4,6025%, which seems impressive. However, this growth is mainly due to a one-time BD (Business Development) income from its subsidiary, Jushi Biology, to AstraZeneca (a payment of $420 million, with 70% recorded as revenue). AstraZeneca purchased not just a single weight-loss drug but Shiye Innovation’s technology platforms, including AI-based peptide discovery and long-acting delivery methods. Excluding the BD income, Shiye Innovation’s actual product sales only increased by 10%, and its research and development (R&D) expenses were 3.8 times higher than its biopharmaceutical sales revenue. Without BD income, the company would have incurred significant losses. Whether it can achieve sustainable growth in the future depends on whether its ADC (Antibody-Drug Conjugate) pipelines can be successfully launched and become profitable. There is still a long way to go before it can shift from selling projects to selling products.
1. A 46,000% Profit Surge? It’s Actually From the Sale of a Project
The main reason for Shiye Innovation’s substantial profit increase in the first half of the year was not from drug sales but from the income from the sale of a project. In January this year, its subsidiary Jushi Biology signed a cooperation agreement with AstraZeneca, and AstraZeneca made an upfront payment of $420 million (approximately 2.9 billion RMB). When this money was received at the end of May, 70% of it was recorded as revenue for that period, boosting biopharmaceutical sales to 2.262 billion RMB. However, the actual income from selling already marketed drugs was only 175 million RMB—meaning that more than 90% of the total profit came from the one-time project sale, with only a small portion coming from drug sales.
This is not unique to Shiye Innovation: Hisike saw its net profit increase by more than five times due to licensing fees, and Zejing Pharmaceutical reported its first half-year profit thanks to a license fee of 662 million RMB. The current trend in the innovative pharmaceutical industry is that BD activities drive performance, resulting in impressive short-term figures, but their sustainability is questionable.
2. AstraZeneca Bought More Than Just a Weight-Loss Drug
AstraZeneca’s collaboration with Shiye Innovation involved purchasing eight long-acting peptide projects. Only one of these projects is ready for phase one clinical trials, three are still in the laboratory stage, and four will be developed together. AstraZeneca is betting on two key capabilities of Shiye Innovation:
1. AI-based peptide discovery platform: capable of rapidly identifying highly active and stable drug molecules (such as GLP-1 class molecules needed for weight-loss drugs).
2. LiquidGel long-acting delivery platform: allowing the drug to be effective for a month with a single injection (current GLP-1 weight-loss drugs require weekly injections, so this technology could reduce the number of injections, addressing AstraZeneca’s shortcomings).
AstraZeneca’s willingness to continue collaborating on AI small molecules, long-acting peptides, and siRNA technologies starting in 2025 indicates that it values Shiye Innovation’s ability to continuously develop new drugs, like buying a production line that can produce new medications.
3. Without BD Income, Shiye Innovation is Actually Losing Money
Excluding the one-time BD income, Shiye Innovation’s actual financial situation is less optimistic:
- Product sales (functional ingredients + already marketed biopharmaceuticals) in the first half of the year were approximately 1.15 billion RMB, a year-on-year increase of only 10%.
- R&D expenses amounted to 664 million RMB, which is nearly 3.8 times higher than biopharmaceutical sales revenue (175 million RMB). In other words, for every 1 yuan earned from drug sales, 3.8 yuan was spent on R&D.
Although its existing marketed biopharmaceuticals (such as Enlansubai monoclonal antibody and Omazuzumab) are growing rapidly, their market base is small, and they are mostly biosimilars or innovative drugs without unique advantages, making it difficult to compete with original drugs. Without BD income, Shiye Innovation would have incurred losses in the first half of the year, indicating that its current products are not generating enough revenue to cover R&D costs.
4. Can Sustainable Growth Be Achieved? It Depends on ADC Pipelines
For Shiye Innovation to move from selling projects to selling products, success will hinge on its ADC pipelines:
- EGFR ADC SYS6010 is in phase three clinical trials for major indications such as lung cancer and esophageal cancer and can be combined with its PD-1 therapy.
- Nectin-4 ADC and HER2 ADC are also at critical stages of development.
If these ADCs can be successfully launched and become widely used, Shiye Innovation will be able to generate significant revenue from drug sales. However, since its traditional business is almost stagnant and future products like mRNA vaccines have not yet contributed to revenue, BD income will continue to be crucial for supporting R&D in the next one to two years.
5. From Selling Blueprints to Selling Finished Products: Three Challenges Ahead
While Shiye Innovation is currently making quick money by selling project ideas (equivalent to selling blueprints for new drugs), it must overcome three challenges for long-term success:
1. Pipeline Approval: Will its core projects like ADCs successfully pass clinical trials and obtain regulatory approvals?
2. Market Expansion: Will the products be able to enter hospitals and compete with original drugs and similar products?
3. Profitability Balance: Will drug sales cover R&D and commercialization costs, eliminating the need for BD income?
AstraZeneca has proven that Shiye Innovation can sell its ideas effectively. The next step is for Shiye Innovation to transform these ideas into commercially successful drugs.
In Summary: Shiye Innovation’s current high growth is a one-time benefit. Whether it can achieve sustainable success in the future depends on whether its pipelines can move from the laboratory to patients’ hands. In the short term, BD income is crucial, but in the long run, products are what will determine its success.