Sino Biopharmaceutical Completes Acquisition of F-Star Therapeutics; Long-Run Global Strategy Intact

On March 7, F-Star announced that its acquisition by narrow-moat Sino Biopharmaceutical 01177, or SBP, was finally cleared by the Committee on Foreign Investment in the U.S. SBP first announced the proposed acquisition in June 2022. Despite the long timeline of the committee’s review, we view this outcome as positive for SBP and clears up long-standing uncertainty.

We maintain our fair value estimate of HKD 6.50 per share and we think shares are cheap. This year, a slowdown in earnings growth across the sector and concerns about domestic price controls will continue to weigh on Chinese Big Pharma. However, the committee’s clearance reduces uncertainty around SBP’s long-term globalization strategy, which partly relies on acquisitions or in-licensing overseas assets.

On March 9, SBP held a conference call with F-Star to introduce its key assets to investors. We have a positive view on its innovative antibody design and targeted clinical development strategy. F-Star’s flagship platform is tetravalent bispecific antibodies for cancer, which intends to offer better conditionality, cross-linking, and clustering compared with traditional bispecifics. Additionally, it uses an IgG-like structure, which is intended to lower the cost of sales and improve pharmacokinetics compared with fragment bispecifics. The three assets discussed were FS118 (LAG-3 and PD-L1 dual inhibitor), FS222 (4-1BB agonist and PD-L1 inhibitor), and FS120 (conditional OX40 and 4-1BB agonist). For its clinical development strategy, the company tries to identify cancers and biomarkers where patients might benefit from its drugs’ underlying mechanisms and designs.

However, F-Star has no assets in Phase 3 trials yet, and progress for its Phase 2 trials has historically been slow, perhaps due to funding constraints and the need for prudent spending. We do not expect commercial contributions from F-Star for the next few years.