Two listed companies "confrontation": Innovative drug company Allist is being sued by Fosun Pharma for over 200 million yuan

In less than 2 years of cooperation, the lung cancer innovative drug company Allist (688578.SH) and Fosun Pharma (600196.SH), responsible for the sales of its core lung cancer drug Gefitinib Mesylate Tablets, are now in court.

On July 10th, Allist announced that Fosun Pharma's subsidiary Jiangsu Fosun Medical Sales Co., Ltd. (referred to as "Jiangsu Fosun") has initiated arbitration against them, demanding a compensation of 255 million yuan.

In May 2022, Allist and Fosun Pharma signed an "Exclusive Promotion Agreement" for Gefitinib Mesylate Tablets, with the first cooperation period ending in December 2026.

However, in November 2023, Allist terminated the cooperation with Fosun Pharma early, citing breach of contract in the sales process by Fosun Pharma.

This led to Fosun Pharma's dissatisfaction, resulting in the beginning of a legal battle: Fosun Pharma sued Allist.

This arbitration initiated by Fosun Pharma poses significant pressure on Allist.

On one hand, Fosun Pharma demands a total compensation of 255 million yuan from Allist. However, Allist's net profit attributable to shareholders in 2023 was only 644 million yuan. As of the end of the first quarter of 2024, the balance of cash and cash equivalents was 1.92 billion yuan.

On the other hand, with the termination of the contract between the two parties, Allist needs to continue promoting Gefitinib Mesylate Tablets through its own sales team, which may also test its commercial capabilities.

Former Partners in Court

The dispute between Allist and Fosun Pharma originated from an exclusive promotion agreement signed by both parties.

In May 2022, Allist and Fosun Pharma signed an "Exclusive Promotion Agreement" for the core drug Gefitinib Mesylate Tablets, granting the latter exclusive promotion rights in over 1500 hospitals, with the first cooperation period ending in December 2026.

Gefitinib Mesylate Tablets have been approved for indications covering first and second-line treatment of EGFR mutation NSCLC (non-small cell lung cancer).

At that time, Allist was optimistic about Fosun Pharma's channel advantages.

"Jiangsu Fosun has extensive channel coverage in the field of innovative cancer drugs, with its team currently covering over 150 cities, more than 1200 counties, and over 1600 sales terminals in the vast market," Allist pointed out. "Based on the full coverage of core market areas by the company's own sales team, this cooperation effectively supplements the coverage area, helping Gefitinib achieve full-channel commercial coverage, conducive to fully unleashing the commercial potential of Gefitinib in the vast market."

However, just over a year into the cooperation, Allist voluntarily terminated the contract with Fosun Pharma.

In November 2023, Allist issued a "Notice of Termination of Exclusive Promotion Agreement" to Fosun Pharma, stating that Fosun Pharma had violated multiple terms of the agreement, rendering the contract purpose unachievable, and therefore notifying the other party to terminate the "Exclusive Promotion Agreement" starting from January 1, 2024 Fosun Pharma does not agree with this reason and has submitted an arbitration application to the Shanghai International Economic and Trade Arbitration Commission, demanding that Allist pay a compensation of 255 million yuan.

TradeWind01 (ID: TradeWind01) asked Allist for specific breaches of contract by Fosun Pharma in this incident, but it stated, "(The specific breach of contract by Jiangsu Fosun) involves trade secrets and has not yet been heard in court, so it is not convenient to disclose."

Fosun Pharma responded to TradeWind01 (ID: TradeWind01) by stating, "Due to Allist's breach of contract and termination of the cooperation agreement, we have hired a professional legal team to initiate arbitration, legally assert the company's legitimate rights, and resolutely and effectively safeguard the company's interests."

In terms of results alone, the sales data of Gefitinib Mesylate Tablets is indeed impressive.

In 2023, Allist's revenue reached 2.018 billion yuan, an increase of 155.14% year-on-year.

However, Allist believes that the main driving force for sales comes from its own team.

Although Allist granted Fosun Pharma the exclusive promotion and sales rights of Gefitinib Mesylate Tablets in over 1500 hospitals, in October of this year, it stated that the main revenue of this drug comes from the 1000 top hospitals covered by its own marketing team, accounting for 85% of the market potential.

"The lung cancer market has a certain long-tail effect, with the main market coming from the core market covered by our own marketing team, approximately 1000 top hospitals, accounting for about 85% of the market potential. In the future, the company will continue to strengthen the depth and accuracy of coverage in the core market based on commercialization conditions." Allist pointed out.

From the pace of personnel expansion, Allist may have long planned to "untie" with Fosun Pharma.

By the end of 2023, Allist's own marketing team had grown to 900 people, an increase of 96.95% from the end of 2021.

"To continue to drive the independent commercialization process, strengthen the depth and breadth of market coverage of core products, the company has now established a professional marketing team of about 900 people, who possess professional knowledge in the field of targeted oncology drugs and innovative drugs, rich product marketing experience, and multi-level experience in the pharmaceutical industry. The marketing network independently built by the company currently covers the entire country." Allist stated in its 2023 financial report.

The market is still closely watching the progress of the arbitration between the two parties.

Claim Exceeds 200 Million

For Allist, the amount claimed by Fosun Pharma in this case is not a small sum.

The announcement shows that Fosun Pharma not only requires Allist to pay a total of 29 million yuan for promotion service fees, lawyer fees, and refund of deposits, but also requires it to pay 226 million yuan for the benefits related to promotion service fees that Fosun Pharma is expected to receive from 2024 to 2026 based on the assumption of continued performance under the contract.

Therefore, the total amount claimed by Fosun Pharma from Allist reaches 255 million yuan.

In 2023, Allist had already provisioned 17 million yuan for service fees and 2 million yuan for deposits, totaling 19 million yuan During the same period, Allist's net profit attributable to shareholders was RMB 644 million; as of the end of March this year, the balance of cash and cash equivalents was RMB 1.92 billion.

In this context, winning the lawsuit is particularly crucial for Allist.

After terminating the contract with Fosun Pharma, whether Allist can steadily promote the sales of gefitinib mesylate tablets is also a focus of attention.

Currently, gefitinib mesylate tablets have been approved for listing with indications covering "locally advanced or metastatic NSCLC with EGFR T790M mutation positive after disease progression with or after EGFR tyrosine kinase inhibitor (TKI) treatment confirmed by testing" and "locally advanced or metastatic NSCLC with EGFR exon 19 deletion or exon 21 (L858R) substitution mutation", belonging to a highly selective, irreversible third-generation EGFR-TKI. Both indications have been included in medical insurance.

However, the market competition for gefitinib mesylate tablets is fierce.

In addition to gefitinib mesylate tablets, the NMPA has successively approved the listing of a total of 4 third-generation EGFR-TKIs including Betta Pharma's (300558.SZ) befitinib, Jiangsu Haosen Pharmaceutical Group Co., Ltd.'s amefinib, AstraZeneca's osimertinib, and BeiErDa Pharmaceutical's ruquitinib.

This means that there are currently 5 third-generation EGFR-TKIs on the market.

In response, Allist believes that gefitinib mesylate tablets have good efficacy in treating brain metastases highly prevalent in EGFR-mutated NSCLC, which is also an important advantage distinguishing it from competitors.

"Different from other third-generation products, gefitinib has differentiated competitive advantages. Since its launch, the company has continuously conveyed its clinical characteristics of 'strong effect on brain metastases, excellent efficacy, good safety, and wide therapeutic window' to the market, establishing its own characteristics," Allist pointed out.

Currently, the main indications for third-generation EGFR-TKIs focus on NSCLC caused by EGFR mutations, but the approved indications have not yet covered EGFR-mutated NSCLC brain metastases.

On July 9th, Allist announced that the new indication "brain metastases highly prevalent in EGFR-mutated NSCLC" for gefitinib mesylate tablets has been approved to enter Phase 3 clinical trials.

However, Zhejiang Tongyuan Kang Medical Co., Ltd., which is sprinting for an IPO on the Hong Kong Stock Exchange, is also targeting EGFR-mutated NSCLC brain metastases with its third-generation EGFR-TKI drug TY-9591, which has entered Phase 3 clinical trials and is expected to be listed in 2025.

In this regard, the competition in the market for third-generation EGFR-TKIs continues, and the challenges that Allist will face remain significant