More than a month after the release of the 2023Q3 earnings report, Gracell Biotechnologies has received a privatization agreement. According to Zhitong App, on December 26th, Gracell Biotechnologies announced on its official website that it has reached an acquisition agreement with Astrazeneca.
According to the agreement, Gracell Biotechnologies will receive $2 per share of common stock (equivalent to $10 per American Depositary Share (ADS)) in cash, as well as $0.3 per share of common stock (equivalent to $1.5 per ADS) in contingent value rights (CVR), with a total transaction amount of up to $1.2 billion. Based on Gracell Biotechnologies' closing price on December 22nd, Astrazeneca's acquisition premium exceeds 60%. As a result, Gracell Biotechnologies has become the first domestic innovative pharmaceutical company to be fully acquired by a multinational pharmaceutical company.
Astrazeneca's premium acquisition directly boosted Gracell Biotechnologies' stock price on the same day, and it ultimately closed with a 60.26% increase.
Interestingly, on December 26th, another Chinese biopharmaceutical stock, Burning Rock Biotech, also saw a significant increase, and on the 27th, the Hong Kong stock CARSGEN-B also rose by more than 8% during trading. Perhaps Gracell Biotechnologies' &#34;sale&#34; has indicated a new path for these two companies, as well as other unprofitable Chinese biopharmaceutical stocks or Hong Kong 18A companies.
What is Astrazeneca's plan?
Regarding this transaction, Astrazeneca stated on the 26th, &#34;The $1.2 billion acquisition of Gracell Biotechnologies aims to supplement Astrazeneca's existing capabilities and previous investment scale in cell therapy.&#34; In fact, from the perspective of Gracell Biotechnologies' business, it is easy to understand Astrazeneca's acquisition intention, which is to target the universal CAR-T market.
Globally, CAR-T therapy faces significant challenges, including low efficacy in treating solid tumors, slow cell preparation speed, and high cost of autologous therapy. These issues greatly limit the market accessibility of CAR-T cell therapy and affect the scalability and profitability of research and development companies. As long as these problems can be effectively solved, a high technological barrier can be established.
From this perspective, the research and development platform and products independently developed by Gracell Biotechnologies are highlighted as &#34;sexy&#34;.
According to Zhitong App, Gracell Biotechnologies has independently developed two major technology platforms, FasTCAR and TruUCAR. The FasTCAR platform solves the problem of slow cell preparation, while the TruUCAR platform is dedicated to addressing the technical limitations of GvHD and receptor rejection of allogeneic T cells in CAR-T autologous therapy.
The key to the FasTCAR and TruUCAR technologies lies in improving the efficiency of T cell preparation from both time and space dimensions. In particular, the development of universal CAR-T cells is expected to separate cell preparation from the treatment cycle and &#34;liberate&#34; CAR-T cell therapy from customized autologous strategies. This is also the basis for the industrialization and scale-up of cell therapy. Expanding market accessibility means that cell preparation can be expected to stabilize production, which will help the company achieve breakthrough cost reduction and efficiency improvement.
In addition, the clinical performance of Gracell Biotechnologies' core product GC012F, developed based on the above technologies, also indirectly confirms the value of its technology platform.
For example, in the first half of this year, the research results of GC012F for the treatment of RRMM and r/r B-NHL were selected for oral presentations at ASCO 2023 and EHA2023, respectively.
Specifically, during this year's ASCO, Gracell Biotechnologies announced the long-term follow-up data of GC012F for the treatment of relapsed/refractory multiple myeloma (r/r MM) and B-cell non-Hodgkin's lymphoma (B-NHL) in the form of an oral presentation. The data showed that for r/r MM, GC012F continued its strong performance, with an overall response rate (ORR) of up to 93.1%, which means that the majority of patients responded positively to the treatment.
At this year's EHA Annual Meeting, Gracell Biotechnologies announced the clinical data of GC012F for 9 patients with B-NHL who had previously received intensive treatment and had high tumor burden in the form of an oral presentation: after 3 months of treatment, the ORR reached 100%, and the complete response (CR) rate was 78%; at six months, the CR rate remained at 67%. All of these patients belonged to a clinically challenging subtype of B-NHL called DLBCL. The clinical effectiveness demonstrated by GC012F in this indication may provide new treatment options for patients.
From the perspective of Astrazeneca, other MNCs such as Johnson &amp; Johnson, Gilead, Novartis, and Bristol-Myers Squibb have deep commercial layouts in the CAR-T field, while Astrazeneca's development in this field is relatively slow.
But recently, the FDA's Biologics Division has been conducting further investigations into the potential risks of secondary cancer caused by CAR-T cell therapy, which seems to have given Astrazeneca some &#34;new ideas&#34;. This is because the CAR-T products named by the FDA are all traditional allogeneic CAR-T therapies. If Astrazeneca can make progress in autologous CAR-T therapy, it may have a chance to overtake its competitors.
Will there be a wave of acquisitions in the domestic biotech industry?
In fact, the acquisition of Gracell Biotechnologies has received positive feedback in the secondary market, and Burning Rock Biotech and CARSGEN-B are also worth paying attention to.
These two companies represent Chinese pharmaceutical and medical device companies and domestic CAR-T research and development companies, respectively, which coincides with the two labels of Gracell Biotechnologies. In addition, the common point of these three companies is that they have a certain level of technology, but they are financially in a low market value state with net losses. The &#34;sale&#34; of Gracell Biotechnologies seems to have provided these two companies with a new &#34;way out&#34;.
Looking at Burning Rock Biotech, it is the leader in the domestic NGS gene testing market. The company has accumulated data through continuous testing and has established one of China's largest cancer genomics information databases, OncoDB. CARSGEN-B also has certain technological barriers in the field of solid tumor CAR-T research and development: its Claudin 18.2 product CT041 is currently the fastest progressing solid tumor CAR-T product globally, and clinical trials for gastric cancer and pancreatic cancer have entered the confirmatory Phase II.
However, from a financial perspective, like Gracell Biotechnologies, both Burning Rock Biotech and CARSGEN-B are also in a loss-making state.
According to CARSGEN-B's disclosed 2023 interim report, in order to further advance the development of its pipeline, the company's net loss for the current period increased by 7.5% to RMB 404 million compared to the same period last year. Burning Rock Biotech is also currently in a loss-making state, with a net loss of RMB 175 million in the third quarter of this year. With the company's current cash reserves of less than RMB 700 million, if it continues to incur losses without further financing, it is uncertain whether the funds on its books can sustain the commercialization of its products.
From the perspective of the secondary market, due to the current conservative trend in global pharmaceutical investments, biotech valuations have been severely suppressed due to the lack of hematopoietic capabilities. Therefore, Gracell Biotechnologies, Burning Rock Biotech, and CARSGEN-B have all been affected by the &#34;capital winter&#34;.
If we follow the previous path, these companies can only hope to achieve a valuation reversal and help investors make money after they have survived to achieve commercial profitability. However, Gracell Biotechnologies has provided an &#34;unimaginable path&#34;.
As the first Chinese biotech company to be acquired by an MNC in the secondary market, the final transaction price for Gracell Biotechnologies will reach a maximum of $11.50 per ADS. This price will allow the primary market investors and the secondary market placement institutions behind Gracell Biotechnologies to profitably exit.
Looking at Gracell Biotechnologies' financing history, the total amount of funds raised is $555 million. Before its IPO on the US stock market, the company conducted a total of three rounds of financing, with an average cost for investors of $3.60 per ADS. The price for Series C investors was approximately $1.64 per ordinary share. It is the premium acquisition by Astrazeneca that helped Gracell Biotechnologies achieve a profitable exit for all primary investors. This is undoubtedly a typical example for other domestic biotech companies. However, as mentioned above, the premise of a &#34;decent sale&#34; is that the company needs to have differentiated innovative technology that is urgently needed by an MNC and is ahead in progress. This is also a high threshold for most domestic biotech companies.

After AZ's premium acquisition of Gracell Biotechnologies, the domestic biotech industry in China may soon witness a wave of acquisitions. Gracell Biotechnologies has reached an acquisition agreement with AstraZeneca, with a total transaction amount of up to $1.2 billion. This acquisition will enhance AstraZeneca's capabilities and investment scale in the field of cell therapy. Gracell Biotechnologies' independently developed FasTCAR and TruUCAR technology platforms have technological barriers and potential in addressing the challenges faced by CAR-T therapy. Gracell Biotechnologies has become the first domestic innovative pharmaceutical company to be fully acquired by a multinational pharmaceutical company. This acquisition also has an impact on Chinese concept pharmaceutical stocks and Hong Kong-listed 18A companies.

After AZ's premium acquisition of Gracell Biotechnologies, the domestic biotech industry may soon start a "selling wave."