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CHINESE BIOTECH LICENSING DEALS DRAW U.S. INTEREST DESPITE MODEST SIZE, MACQUARIE SAYS

A recent surge in high-profile licensing deals between U.S. pharmaceutical giants and Chinese biotech firms has captured the attention of biotech investors, though the impact on near-term earnings remains limited, according to brokerage firm Macquarie Equity Research.

U.S. drugmakers are increasingly striking agreements to license experimental molecules from China, according to new data, betting that they can turn upfront payments, which are sometimes as little as $80 million, into blockbuster treatments.

Momentum picked up in May with Pfizer PFE.N and 3SBio licensing deal igniting investor sentiment. Several other Chinese biotechs told investors that more such large deals are "imminent", Macquarie noted.

"Nonetheless, licensing deals are like desserts. They cannot serve as the main course for the Chinese biopharma sector due to their relatively small sizes," the brokerage said in a research note.

Most licensing deals are small in value and hardly affect the licensors' financial performance over the medium term.

Out of the 24 licensing deals the brokerage tracked in the first half of the year, only three (12%) secured upfront payment of at least $200 million. The average upfront was $137 million, the with median of $73 million, according to Macquarie.

Since most molecules from China are licensed in earlier stages of development, the brokerage cautioned - "it's logical if not prudent to assume that most of them will face the grim reality of clinical or regulatory failure."

The brokerage recommends proven long-term biotechs Hansoh 3692.HK, BeOne 688235.SS, Akeso 9926.HK, PharmaEssentia 6446.TW and Innovent 1801.HK as its top picks.

(Sneha S K)

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