(Yicai) Aug. 28 -- Chinese drug companies must ensure they have sufficient cash flow in order to survive in a difficult fundraising environment. They also need to choose their research and development projects wisely to ensure their products go to market, Yicai learned from interviews with the chief executive officers of several pharmaceutical firms.

“‘Cash reigns’ is the principle that all companies must adhere to in order to survive,” said Zhu Yeqing, chairman and CEO of New Horizon Health. “Revenue is not enough. Firms like New Horizon Health, which is a developer of drugs for the early screening of cancer, must become profitable and have a positive cash flow in the long run. After all, business is all about making money.”

“Companies need to ensure they have adequate cash flow so that they can remain afloat during difficult times, and then expand their footprint and develop more products when conditions become more favorable,” Zhu said.

The downturn in the mainland stock markets in recent years has affected the financing of drugmakers because of the long R&D cycle and the large sums involved. Some drugmakers are having to halt new drug pipelines and even close factories.

New Horizon Health, though, has a healthy cash and financial asset balance of CNY2.1 billion (USD288.3 million), Zhu said. This is enough to fund rapid development in the next few years. In the first half, the company logged CNY823 million (USD113 million) in revenue, more than the whole of last year.

Everest Medicines was also sitting on cash reserves of over USD400 million as of early this year. The drug developer mainly brings in new drugs from overseas, and has introduced 11 new medicines onto the Chinese market in the past few years.

After it went public on the Hong Kong stock exchange in 2020, Everest Medicines started to invest more in research and development and now has a two-pronged business model that cuts risk. It brings in medicines from abroad and it also develops its own drugs.

Importing drugs from overseas is less risky than developing medicines from scratch, Luo Yongqing, CEO of Everest Medicines, told Yicai.

“It takes a long time, at least 10 years, and a huge amount of money, around USD2 billion, to develop a new medicine. Clinical trials can take six to seven years and the success rate is very low, at around 6.25 percent,” he added.

“We all know that raising financing is difficult. If a company does not have enough funds to reach the final stage of clinical trials and achieve commercialization, it will be in trouble,” he added.

Unlike many other pharma firms, Everest Medicines only has a small sales team. "Our sales team will be less than 600 people next year, Luo said. The usual model of having thousands of sales people is unsustainable and makes it difficult to make money."

“Companies must make an effort to commercialize new drugs and hike investment in R&D for the sake of long-term development,” Zhu said.

“The biopharmaceutical industry should not view R&D in isolation. When selecting their R&D subjects, companies should first consider if the research topic will still be relevant in five or even 10 years’ time,” Luo said.

Editors: Tang Shihua, Kim Taylor