On April 7, Haichuang Pharmaceutical (688302. SH), which plans to log on to the science and technology innovation board, announced the IPO results. Citic Securities Company Limited(600030) Investment Co., Ltd., a subsidiary of the company’s sponsor Citic Securities Company Limited(600030) was allocated 990400 shares at a cost of 42.508 million yuan and the sales restriction period was 24 months.
Haichuang pharmaceutical issued 24.76 million shares at an issue price of 42.92 yuan / share. The total amount of funds actually raised was 1.063 billion yuan, less than half of the previously planned 2.504 billion yuan. It is intended to be used for R & D and production base construction projects, innovative drug R & D projects and development reserve funds.
The reporter of economic information daily noted that hc-1119, the core product of Haichuang pharmaceutical, is expected to be approved for listing in China in the fourth quarter of 2023, that is, the company will have no commercial products within one year after listing. In addition to the R & D investment of more than 1.6 billion yuan in the next few years, the company will also allocate part of the large share based payment expenses to the management expenses. The situation is not optimistic whether Haichuang pharmaceutical can achieve breakeven in 2025.
Analysts pointed out that considering the current market sentiment, the company itself has not yet made a profit, the commercialization of core products is still early, and the market competition is not optimistic, Haichuang pharmaceutical has a high risk of breaking.
it is expected to reach break even in 2025
Haichuang Pharmaceutical Co., Ltd. is an international innovative drug enterprise based on deuterated technology and protac targeted protein degradation technology platform, aiming at developing best in class and first in class drugs with major clinical needs.
The prospectus shows that the company’s main products are still under research, so there is no drug sales revenue. In 2018 and 2019, the company’s operating revenue was 3.5619 million yuan and 4.2465 million yuan respectively. There was no operating revenue in 2020 and January June 2021. The company’s main business income is mainly the technical service fee charged for providing technical services to other companies, the fee for transferring the right to use assets and a small amount of product sales income.
From 2018 to 2020 and the first half of 2021 (hereinafter referred to as the “reporting period”), the net profits attributable to the ordinary shareholders of the parent company were -385787 million yuan, – 112 million yuan, – 490 million yuan and -148 million yuan respectively. After deducting non recurring profits and losses, the net profits attributable to the ordinary shareholders of the parent company were -521983 million yuan, – 125 million yuan, – 456 million yuan and -162 million yuan respectively. As of June 30, 2021, the undistributed profit of the company was -536 million yuan.
The reviewed financial report shows that in 2021, the company realized a net profit attributable to the shareholders of the parent company of -306 million yuan, a decrease of 37.50% compared with the loss in 2020.
At the same time, combined with the actual operation, the company expects no operating revenue from January to March 2022, with no change year-on-year; The net profit attributable to the shareholders of the parent company was – 89.51 million yuan to – 109 million yuan, and the loss increased by 79% to 119% year-on-year; After deducting non recurring profits and losses, the net profit attributable to the shareholders of the parent company was – 95.7 million yuan to – 116 million yuan, and the loss increased by 76% to 92% year-on-year.
For R & D pharmaceutical enterprises that continue to lose money, when to achieve breakeven is an important issue of concern to investors.
Haichuang pharmaceutical once said in the first round of inquiry reply that the company predicted that the products that may generate operating revenue before the breakeven point are hc-1119 and hp501 The company needs to achieve a sales revenue of 1-1.2 billion yuan to reach breakeven. It is expected to reach breakeven in 2025.
It is worth noting that the above two products of the company are still some time away from being approved for listing, and the company has no sales personnel at present, and the commercialization process is still early. It is doubtful whether the company can achieve a revenue of more than 1 billion yuan in 2025.
Figure: composition of the company’s employees during the reporting period, source: Company prospectus
In addition, compared with Chinese pharmaceutical enterprises in the same industry, the overall scale is still small, and Haichuang pharmaceutical still has certain competitive disadvantages in product sales, brand effect, capital turnover, risk tolerance and so on. The company has not yet carried out the construction of sales team. Compared with some large-scale drug production enterprises with mature sales system, the company needs to accumulate certain sales experience in a short time after its products are listed in the future.
no commercial products within one year after listing
According to the prospectus, the product pipeline of Haichuang pharmaceutical has 10 major drug projects under research, but only one product hc-1119 under research is in clinical phase III; A product under development, hp501, has completed phase II clinical trial and has not yet carried out phase III clinical trial. The two products are expected to submit new drug marketing application (NDA) in China in 2022 and 2023 respectively.
From this point of view, hc-1119 is the closest drug to commercialization in the company’s product pipeline. Hc-1119 is an AR (androgen receptor) inhibitor independently developed by Haichuang pharmaceutical, which is used to treat castration resistant prostate cancer.
It is worth noting that in the previous application materials, only the expression “hc-1119 is expected to submit NDA in China in 2022” did not specify the time node for the submission of NDA and listing of the company’s main products.
In this regard, the Shanghai Stock Exchange has focused on the commercialization arrangement of the company’s products. In the first round of inquiry, the Shanghai Stock Exchange asked the company to explain the future commercialization arrangement and plan of hc-1119, including marketing plan, sales team size, experience, sales strategy, etc; In the second round of inquiry, the Shanghai Stock Exchange further asked the company to further explain the basis for submitting NDA and listing time node of hc-1119 and hp501 currently expected.
On September 16, 2021, Haichuang pharmaceutical finally made it clear in the second round of inquiry reply disclosed that as of the issuance date of the inquiry reply, the company is expected to submit hc-1119 NDA for mcrpc end-line treatment indications in China to the State Drug Administration (nmpa) at the end of October 2022 According to the nmpa new drug approval process, which takes 235 to 265 working days, the company expects that the drug registration approval for hc-1119 to carry out mcrpc terminal treatment in China will be obtained in the fourth quarter of 2023.
In addition, the clinical phase II trial of hp501 in the treatment of hyperuricemia / gout has been completed, the first draft of CSR has been obtained in early August 2021, and the phase III trial scheme is currently being prepared. As of the issuance date of this inquiry reply, the company is expected to submit NDA by the end of November 2023 and be approved to be listed in China by the end of November 2024.
This means that Haichuang pharmaceutical will have no commercial products for at least one year after listing.
It is worth noting that the commercialization of hc-1119 is not a step away. After submitting NDA, it can only be listed and sold with the approval of the drug regulatory department, and the company has no salesperson.
Compared with the A-share comparable companies in the same industry disclosed in the prospectus, only Haichuang pharmaceutical has not approved its products or submitted NDA.
Figure: comparison of main product pipelines of comparable listed companies in the same industry, source: Company prospectus
On the other hand, the company’s core product hc-1119 has not been listed, or faces competition with approved similar drugs. Enzalutamide, which has the same target and indication as hc-1119, has entered the national medical insurance catalogue through negotiation in 2020, and the generic drug of enzalutamide has been approved for listing in China at the end of August 2021.
As of August 25, 2021, hausen pharmaceutical’s application for the listing of nzalutamide generic drugs has been approved by CDE, becoming the first domestic enterprise approved for the listing of nzalutamide generic drugs. In addition, Qilu pharmaceutical, Sichuan Kelun and Shenyang Hongqi have applied for generic drugs of enzalutamide soft capsules in China.
Although Haichuang pharmaceutical said that hc-1119 will form differentiated competition with nzalutamide and its generic drugs in China after they are listed and sold, it is not optimistic whether hc-1119, which has not submitted NDA, can catch up and break through and seize market share in the face of the double-sided attack of the original drug and generic drugs.
In this regard, Haichuang pharmaceutical said frankly that the company faces the risk of competition with nzalutamide generic drugs. Since the price of generic drugs is usually significantly lower than that of the original drug, such competition may still affect the market share and pricing strategy of the company’s core product hc-1119, which may have an adverse impact on the company’s production and operation.
large R & D expenses are focused
During the reporting period, the R & D expenses of Haichuang pharmaceutical were 489345 million yuan, 116 million yuan, 429 million yuan and 128 million yuan respectively. In 2020, the company’s R & D expenses increased sharply, which was the focus of Shanghai Stock Exchange.
Specifically, the sharp increase in R & D expenses in 2020 is mainly due to the company’s inclusion of 264 million yuan of equity transfer of projects under research, accounting for 61.46% of the current R & D expenses.
It is worth noting that the equity transfer fee of 264 million yuan for projects under research also shows the origin of hc-1119, one of the company’s core products. 50% of the project equity of hc-1119 is obtained by the company from Sichuan Haisco Pharmaceutical Group Co.Ltd(002653) transferee Haisco Pharmaceutical Group Co.Ltd(002653) ( Haisco Pharmaceutical Group Co.Ltd(002653) . SZ) is a shareholder of Haichuang pharmaceutical and became a shareholder in 2017.
In October 2016, Haichuang Co., Ltd. (the predecessor of Haichuang Pharmaceutical Co., Ltd.) and Sichuan Haisco Pharmaceutical Group Co.Ltd(002653) signed the patent license agreement for enzalutamide deuterates and the supplementary agreement on patent license agreement. The two agreements agreed that Haichuang Co., Ltd. granted Sichuan Haisco Pharmaceutical Group Co.Ltd(002653) and its designated affiliates as the only R & D, production and sales subject of hc-1119 project in China, Sichuan Haisco Pharmaceutical Group Co.Ltd(002653) is authorized to exclusively exploit the licensed patent. Both parties account for 50% of the project revenue, and the rights and interests of the project are distributed by Sichuan Haisco Pharmaceutical Group Co.Ltd(002653) paying the patent license fee to Haichuang Co., Ltd.
In September 2020, the company and Sichuan Haisco Pharmaceutical Group Co.Ltd(002653) signed the termination agreement of the patent license agreement for enzalutamide deuterates and related agreements (hereinafter referred to as the “termination agreement”) through friendly negotiation, Sichuan Haisco Pharmaceutical Group Co.Ltd(002653) transferred all the rights such as the exclusive license of hc-1119 and the patented products and patented methods of various pharmaceutical preparations with it as the active ingredient (hereinafter collectively referred to as “hc-1119 patented products”) to Haichuang Pharmaceutical Co., Ltd. for a total consideration of 260 million yuan, which was paid in three installments. As of June 30, 2021, the first and second tranches of RMB 110 million have been paid, and the third tranche of RMB 150 million has not been paid. According to the payment arrangement adjustment agreement, the company needs to pay a total of 150 million yuan to Sichuan Haisco Pharmaceutical Group Co.Ltd(002653) before December 31, 2022.
In this regard, in the first round of inquiry, the Shanghai stock exchange required the company to explain the reason and rationality of taking the equity transfer fee of 264 million yuan of research projects as R & D expenses, and disclose the matter in the tips of major events.
The company replied that the transfer is to purchase the patent rights of all patented products under hc-1119 project, including the completed technical achievements in China and the rights to the future production, sales and commercialization of some patented products. The purpose of purchasing patent rights is mainly to continue research and development (clinical trial) to realize the listing of drugs, rather than directly use the project for sales. The expenditure involved in this transfer belongs to the expenditure of research and development.
For the payment debt of 150 million yuan, the company said in the prospectus that in view of the relatively high payment amount, it will have an impact on the company’s monetary funds and other statement subjects in 2021 and 2022, and then have a certain adverse impact on the company’s operation.
In the second round of inquiry, the Shanghai Stock Exchange once again paid attention to the company’s R & D expenses, required the company to list the clinical stage and expected R & D expenses of the main research projects in the next four years, and further explained the matching with the specific investment content and investment progress of the “innovative drug R & D project” in the raised investment projects.
According to the announcement of the second round of inquiry reply, the R & D expenses of the company’s 10 products under research from 2021 to 2024 are expected to be 508 million yuan, 558 million yuan, 341 million yuan and 359 million yuan respectively. There is a certain difference between the estimated investment of innovative drug R & D projects and the main research projects of the company. The reason is that the investment of hc-1119 project in innovative drug R & D projects does not include the RMB 150 million that the company needs to pay before December 31, 2022 according to the termination agreement and the payment arrangement adjustment agreement, and does not include the estimated investment of research projects still in the pre clinical research stage by the end of the reporting period. In addition, there is no significant difference between the innovative drug R & D project and the estimated future investment of the company’s main products under research, and the estimated expenditure of relevant R & D expenses matches the clinical progress.
over rmb1.7 billion period expenses
According to the first round of inquiry and reply, the company will continue to invest in the R & D of new drug pipelines. According to the company’s new drug R & D project planning, the company’s R & D project progress and cost investment will be implemented as planned. It is estimated that the R & D cost will be about 380 million to 450 million yuan in 2025. Based on 380 million yuan, the total R & D expenses of the company from 2022 to 2025 will be at least 1.638 billion yuan.
In addition, from 2022 to 2025, the total amount of share based payment expenses incurred by the company due to multiple equity incentives to be apportioned to management expenses is 754007 million yuan. Because the company’s products have not been commercialized, the company has no sales personnel at present. Without considering the sales expenses, the preliminary calculation shows that the expenses of the company from 2022 to 2025 have exceeded 1.7 billion yuan. Such a large amount of period expenses may weigh on the company’s performance.
In the first round of inquiry, the Shanghai Stock Exchange asked the company to explain the accounting treatment of previous equity incentives, the amount of share based payment and the apportionment in each year, and the impact on the profits and losses of future years.
According to the announcement of the first round of inquiry reply, during the reporting period, the share based payment expenses of the company were 1.8718 million yuan, 334243 million yuan, 91.613 million yuan and 503197 million yuan respectively. The company said that during the reporting period, the sharing basis of share based payment expenses in management expenses and R & D expenses was reasonable, there was no case of over counting R & D expenses, and there was no case that the core employees corresponding to the part included in R & D expenses undertook management work at the same time.
Figure: share based payment expenses of the company during the reporting period, source: announcement of the first round of inquiry Reply of the company
For the equity incentive implemented by the company for core employees in December 2018, August 2020, December 2020 and January June 2021, the corresponding share based payment amount will be apportioned to 2023, 2024, 2025 and 2026 respectively. From 2021 to 2026, the company’s share based payment expenses are 110 million yuan, 107 million yuan, 727951 million yuan, 234195 million yuan, 7.6083 million yuan and 53500 yuan respectively, which will be amortized to management expenses and R & D expenses respectively. From 2021 to 2026, the total amount included in management expenses is 199 million yuan; The total amount included in the management expenses from 2022 to 2025 is 754007 million yuan.
Figure: allocation of share based payment amount of Haichuang pharmaceutical, source: announcement of the company’s reply to the first round of inquiry
Haichuang pharmaceutical said that the company’s R & D expenses will continue to be at a high level, and equity incentives will generate share based payment expenses. If the listing process of the company’s core products is delayed to a large extent or cannot be approved for listing, the commercialization progress after being approved for listing does not meet expectations, the unprofitable state after listing is expected to continue, and the accumulated uncollected losses may continue to expand.
