More than a month after the release of the 2023Q3 financial report, Gracell Biotech ushered in a privatization agreement. Zhitong Finance learned that on December 26, Gracell Biotech announced on its official website that it had reached an acquisition agreement with AstraZeneca. According to the agreement, Gracell will receive US$2 per common share in cash (equivalent to US$10 per American depositary share) in cash and US$0.3 per common share (equivalent to US$1.5 per ADS share) in contingent value rights (CVR), with a total transaction value of up to US$1.2 billion.
Based on Gracell’s closing price on December 22, the premium for AstraZeneca’s acquisition exceeded 60%. As a result, Gracell Biotech became the first domestic innovative pharmaceutical company to be fully acquired by a multinational pharmaceutical company.
AstraZeneca's premium acquisition directly boosted Gracell Biotech's stock price that day, and it ended up rising by as much as 60.26%.
Interestingly, on December 26, among the Chinese pharmaceutical stocks that closed sharply were Burning Rock Medical, and on the 27th, Hong Kong stock Keji Pharmaceutical also rose by more than 8% during the session. Perhaps Gracell Biotech's "selling out" this time has pointed out a new way out for the future of these two companies and even other unprofitable Chinese pharmaceutical stocks or Hong Kong stock 18A companies.
What does AstraZeneca want?
Regarding this transaction, AstraZeneca stated on the 26th that “the US$1.2 billion acquisition of Gracell Biotech is intended to supplement AstraZeneca’s existing capabilities and previous investment scale in cell therapy.” In fact, it is easy to understand AstraZeneca’s acquisition intention from the perspective of Gracell Biotech’s business, which is to target the universal CAR-T market.
Globally, major problems commonly faced by CAR-T therapy include: low effectiveness in treating solid tumors, slow cell preparation, and the high cost of autologous therapy. These problems have greatly limited the market accessibility of CAR-T cell therapy and affected the large-scale profitability of R&D companies. As long as the above problems can be effectively solved, extremely high technical barriers can be established.
From this perspective, Gracell Biotech’s independently developed R&D platforms and products are “sexy”.
Zhitong Finance has learned that Gracell Biotechnology has independently developed two major technology platforms, FasTCAR and TruUCAR. Among them, the FasTCAR platform solves the problem of slow cell preparation, while the TruUCAR platform technology is dedicated to solving the technical limitations of GvHD and receptor rejection of allogeneic T cells in CAR-T autologous therapy.
The key to FasTCAR and TruUCAR technologies is to improve the efficiency of T cell preparation from both the time and space dimensions. In particular, the development of universal CAR-T cells is expected to successfully separate cell preparation from the treatment cycle and "liberate" CAR-T cell therapy from customized autologous strategies. This is also the basis for cell therapy to move toward industrialization and scale. Expanding market accessibility means that the production schedule of cell preparation is expected to stabilize, which will help the company achieve leapfrog cost reduction and efficiency improvement.
In addition, the clinical performance of GC012F, the core product developed by Gracell Biotech based on the above technology, also confirms the value of its technology platform.
Taking the first half of this year as an example, the research results of GC012F in treating RRMM and r/rB-NHL were selected for oral reports at 2023 ASCO and EHA2023 respectively.
Specifically, during ASCO this year, Gracell announced the long-term follow-up data of GC012F in the treatment of relapsed/refractory multiple myeloma (r/rMM) and B-cell non-Hodgkin lymphoma (B-NHL) in the form of an oral report. Data show that for r/rMM, GC012F has continued its previous strong performance, with an overall response rate (ORR) as high as 93.1%, which means that the vast majority of patients have a positive response to treatment.
At this year's EHA annual meeting, Gracell announced the clinical data of GC012F in an oral report on 9 B-NHL patients who had received severe treatment in the past and showed high tumor burden: after 3 months of treatment, the ORR reached 100% and the CR rate was 78%; by six months, the CR rate remained at 67%. The above patients all belong to a clinically very difficult B-NHL subtype DLBCL. The clinical effectiveness of GC012F in this indication may provide new treatment options for patients.
From AstraZeneca's perspective, other MNCs such as Johnson & Johnson, Gilead, Novartis and BMS currently have in-depth commercialization plans in the CAR-T field. In comparison, AstraZeneca has been developing slowly in this field.
However, some time ago, the FDA's biologics department was conducting further investigations into the risks associated with secondary cancer caused by CAR-T cell therapy, which seems to have given AstraZeneca some "new ideas" because the CAR-T products named by the FDA are all traditional allogeneic CAR-T. If AstraZeneca can make achievements in autologous CAR-T, it is expected to achieve overtaking in a corner.
Is domestic Biotech about to start a "body selling trend"?
In fact, Burning Rock Medical and Keji Pharmaceutical, which have positive feedback in the secondary market, are also worth paying attention to the acquisition of Gracell Biotech.
One of these two companies represents a Chinese pharmaceutical and device company, and the other represents a domestic CAR-T R&D company, which corresponds to the two labels of Gracell Biotech. In addition, what these three companies have in common is that the companies have a certain level of technology, but have net financial losses and low market capitalization in the secondary market. This wave of "selling out" by Genxi Biotech seems to have given these two companies a new "outlet."
From the perspective of Burning Rock Medicine, it is the leader in the domestic NGS genetic testing market. The company has accumulated data through continuous testing and has established OncoDB, one of the largest cancer genome information databases in China. Keji Pharmaceutical also has certain technical barriers in the field of solid tumor CAR-T research and development: the world's fastest-growing solid tumor CAR-T product is Keji Pharmaceutical's Claudin18.2 product CT041, and clinical trials for gastric cancer and pancreatic cancer have entered confirmatory phase II.
But from a financial perspective, like Gracell Biotech, Burning Rock Medicine and Keji Pharmaceutical are also losing money.
According to the 2023 interim report disclosed by Keji Pharmaceutical, in order to further promote the research and development process in the pipeline, the company's net loss for the current period expanded by 7.5% from the same period last year to 404 million yuan. Burning Rock is also currently in a loss-making state and its Q3 single-quarter net loss this year reached 175 million yuan. With the company's current cash reserves of less than 700 million yuan, if it continues to be in such a loss-making state, it is still unknown whether the funds on its account can sustain the commercialization of the product without further financing.
From the perspective of the secondary market, due to the current conservative trend in global pharmaceutical investment, biotech valuations have been severely suppressed due to the lack of hematopoietic ability. Both Gracell Biotech, Burning Rock Medicine and Keji Pharmaceutical have been affected by the "capital winter".
If we follow the previous path, the above companies will only be able to achieve a valuation reversal and help investors make money after achieving large-scale commercial profitability, but now Gracell Biotechnology has given an "unimagined path."
As the first Chinese biotech company to be acquired by MNC in the secondary market. Gracell's final transaction price will reach a maximum of US$11.50 per ADS. This price will allow the primary market investment institutions and secondary market private placement institutions behind Gracell to exit at a profit.
Judging from Gracell Bio's financing history, its cumulative financing amount reached US$555 million, of which the company conducted a total of 3 rounds of financing before the US IPO. The average cost to investors was US$3.60 per ADS, of which the price for Series C investors was approximately US$1.64 per share of common stock. It was AstraZeneca's premium acquisition that helped Gracell Biotech realize the profit-making exit of all primary investors. This is undoubtedly a typical example for other domestic biotechs, but as mentioned above, the premise of "selling oneself with dignity" is that the company needs to have differentiated innovative technologies that are urgently needed by MNC and are ahead of the curve, and this is also a high threshold for most domestic biotechs.