news

The executive of a listed company was accused of forcibly breaking into a subsidiary company with more than ten people. The conflict between the two parties alarmed the police. With the intervention of the police, they did not leave until after 10 o'clock in the evening...

GeneDan Biotechnology(603387.SH, share price 7.81 yuan, market value 3.961 billion yuan)It was once known as the first listed company in the field of POCT (point-of-care testing) in China. But now, the conflict between the company and the minority shareholders of Wuhan Jingchuan Diagnostics Technology Co., Ltd. (hereinafter referred to as "Jingchuan Diagnostics", 831676.NQ) has intensified.

The Daily Economic News reported in June that the conflict between the two sides continued to escalate. On August 5, Jingchuan Diagnostics issued an announcement stating that "at around 15:00 on August 5, 2024, Liu Cong, secretary of the board of directors of GeneDx Biotechnology, Yan Bin, deputy general manager, and Ni Wen, financial director, led more than a dozen people to suddenly break into our company's office and attempted to enter the company's finance office by force." On August 7, a reporter from the Daily Economic News came to Jingchuan Diagnostics again.

The reporter learned on the spot that after the conflict with GeneDan Bio on August 5, many Jingchuan Diagnostics employees still did not come to work, including financial and production department personnel. According to Jingchuan Diagnostics' announcement on the evening of August 7, the company has now suspended production.

What plans does GeneDx have for this? On August 7, the reporter called Liu Cong, one of the three executives who were accused of breaking into the finance office of Jingchuan Diagnostics and also the secretary of the board of GeneDx. She said that the listed company also hopes to sort out this relationship (with Jingchuan Diagnostics), but this is an internal management issue of the company and the details are not convenient to disclose.

Three executives accused of breaking into a subsidiary

On August 7, during the hottest days of summer, the highest temperature in Wuhan reached over 41 degrees Celsius.

At around 10:40 a.m., a reporter from the Daily Economic News arrived at the gate of Jingchuan Diagnostics Company in Wuhan Optics Valley and saw a black car parked at the gate. While the reporter was waiting, someone in the black car got out and asked about the reporter's identity.

During the conversation, we learned that the other party was an employee of Jingchuan Diagnostics. The reason why they were so alert to outsiders was that a conflict had just occurred in the company on August 5. After the conflict, several employees of the company acted as temporary security guards in the past two days. Because the weather was too hot, they stayed in the car.

The conflict mentioned by the above employees originated in 2020. According to previous announcements, in 2020, GeneDx acquired 58.53% of Jingchuan Diagnostics' shares held by 10 management shareholders including Ma Quanxin, Hu Shujun, Ma Quanhai, Guan Zhangrong, Ye Yanli, Wuhan Zhongjucheng, and non-management shareholders such as Wuhan Optical Valley Borun Phase II New Third Board Investment Center through agreement transfer and capital increase, and agreed that if Jingchuan Diagnostics completes the performance commitment indicators from 2019 to 2021, the management shareholders can choose to sell part or all of the remaining shares to the company based on the last year's non-net profit at a price-earnings ratio of 15 to 20 times.

In June 2022, GeneDx received a "Notice on the Transfer of Part of the Remaining Shares from the Management Shareholders of Jingchuan Diagnostics to GeneDx", requiring the company to acquire part of the remaining shares of Jingchuan Diagnostics held by the management shareholders. The annual report shows that the company and the management shareholders of Jingchuan Diagnostics failed to reach an agreement on the transfer of part of the remaining shares of Jingchuan Diagnostics, and the two parties had a lawsuit.

After a long period of litigation, the conflict between the two parties has not eased, and has even gradually escalated. On the morning of August 7, in the office on the 5th floor of Jingchuan Diagnostics, the reporter met Yu Qian (pseudonym), one of the shareholders of the company's management, and several company employees. They recalled that at around 3:00 p.m. on August 5, more than a dozen people suddenly broke into the company.

Jingchuan Diagnostics originally had access control at the main entrance on the first floor and the office on the fifth floor, but it did not prevent these people from entering. "The access control on the first floor happened to be opened when someone was about to leave, and they took the opportunity to come in." An employee of Jingchuan Diagnostics said that the company employees on the fifth floor saw a stranger, so they opened the door and asked, and they came in as well.

An employee told the reporter that some of these people came to the fifth floor, and there were still a dozen people guarding the first floor. Among those who came to the fifth floor, three were familiar faces, namely Liu Cong, secretary of the board of directors of GeneDx, Yan Bin, deputy general manager, and Ni Wen, financial director.

The clashes continued into the night

Is it true that the above-mentioned executives broke into Jingchuan Diagnostics? Why did they use such drastic measures? Regarding the relevant issues, on the afternoon of August 7, the reporter called Liu Cong, secretary of the board of GeneDan Biotechnology. She said that this was an internal management issue of the company and it was inconvenient to disclose it to the public.

On August 5, during a conversation with Jingchuan Diagnostics employees, GeneDx Biopharma mentioned audit matters.

According to GeneDx's reply to the Shanghai Stock Exchange's annual report inquiry letter, on June 7, 2024, GeneDx's CFO, Jingchuan Diagnostics' deputy general manager Hu Shujun, and board secretary and financial director Guan Zhangrong had communicated with Jingchuan Diagnostics on requesting Jingchuan Diagnostics to provide financial statements for April and May 2024, but the two clearly refused. GeneDx announced that it has not lost control of Jingchuan Diagnostics, but there is a risk of losing control in terms of operational management.

Regarding the above-mentioned refusal to provide financial data, as one of the management shareholders, Yu Qian did not deny it in two interviews in June and August 7. She said, "The company's management team had cooperated with GeneDx Bio in providing financial data, but the other party still sued her."

According to the announcement of Jingchuan Diagnostics, on July 31, 2024, the company again received a letter from GeneDx Bio, requesting to inquire and copy the company's accounting books, accounting vouchers and other materials, and requiring the company to "give a written reply within fifteen days from the date of receipt of this letter."

Jingchuan Diagnostics announced that the company was preparing to reply to the letter, but at around 15:00 on August 5, Liu Cong, Yan Bin, and Ni Wen led more than a dozen people and suddenly broke into the company's office.

On August 5, the finance office on the 5th floor became the center of the conflict between GeneDan Bio and the staff of Jingchuan Diagnostics. According to the staff of Jingchuan Diagnostics, GeneDan Bio surrounded the finance office and tried to snatch the financial information.

According to Jingchuan Diagnostics’ announcement, both parties called the police during the conflict. The outcome of the conflict that day was described in the announcement as follows: “After our company was forced to call the police again, more than a dozen special police officers and local police officers arrived at the scene again and took the relevant personnel of GeneDan Bio away from the company site.”

“The police said at the time that they could conduct normal audits, but they had never seen anyone come to audit in the middle of the night, so they took them away forcibly.” Recalling the scene at the time, many Jingchuan Diagnostics employees said they were still frightened.

Jingchuan Diagnostics has now suspended production

Why did the conflict between the two sides escalate to this extent, and can it be eased? Currently, the two sides have different opinions.

GeneDx believes that the core disagreement between the two parties involves the PE (price-to-earnings ratio) calculation for the repurchase of the subsidiary management's equity. The shareholders of Jingchuan Diagnostics management denied GeneDx's statement and emphasized that they had accepted the 15 times PE pricing given by GeneDx. The shareholders of Jingchuan Diagnostics management believe that the core disagreement between the two parties is that GeneDx has no sincerity and has changed the acquisition time, acquisition conditions and payment method. When communicating documents with GeneDx, the non-compete clause proposed by GeneDx was considered by the shareholders of Jingchuan Diagnostics management as a "lifetime non-compete restriction."

According to GeneDx’s response to the Shanghai Stock Exchange’s annual report inquiry letter, the two parties have been involved in as many as 14 lawsuits. Currently, the first-instance judgment of one of the major lawsuits has been released.

According to an announcement made by GeneDx on the evening of August 7, the court ruled that GeneDx should acquire 8.4 million shares of Jingchuan Diagnostics held by Wuhan Zhongjucheng (one of the 10 management shareholders) from the date the judgment takes effect, and pay Wuhan Zhongjucheng a share acquisition amount of 41.97 million yuan.

Of course, this verdict does not mean that the dust has settled. According to the announcement of GeneDx, the judgment of this lawsuit is a first-instance judgment and has not yet come into effect. The parties can appeal within the prescribed period, and the final judgment of the case is uncertain.

Regarding the acquisition of the remaining equity of Jingchuan Diagnostics, Liu Cong told reporters on August 7 that relevant progress can be paid attention to the company's announcement information.

It is worth mentioning that the long-term dispute has had an adverse impact on the operations of GeneDx Bio and its subsidiary Jingchuan Diagnostics: GeneDx Bio's 2023 annual report was issued the first "non-standard" audit opinion since its listing; and Jingchuan Diagnostics' 2023 annual report has not been disclosed so far, and the company's stock is also at risk of being delisted.

During the interview on August 7, many Jingchuan Diagnostics employees expressed concerns about the company's future. Not only that, two days after the conflict, many Jingchuan Diagnostics employees still did not come to work, including those in the finance and production departments.

On the evening of August 7, Jingchuan Diagnostics announced that because the company's controlling shareholder, GeneDan Bio, sent personnel to forcibly break into the company on August 5, 2024, disrupting the company's normal production and operations, it has caused serious troubles to the company's employees' working environment and psychological state. At present, the company's employees can no longer work with peace of mind, and Jingchuan Diagnostics has now suspended production.

GeneDx is preparing to re-elect the board of directors of Jingchuan Diagnostics. According to Jingchuan Diagnostics' announcement on the evening of August 7, upon the proposal of GeneDx and the deliberation of the company's third board of supervisors, the company will hold a shareholders' meeting on September 10, 2024 to review the "Proposal on the Re-election of the Company's Board of Directors" and elect the five director candidates nominated by GeneDx.

Daily Economic News