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Interface News reporter | Guo Jingjing

The Hong Kong Stock Exchange's official website disclosed on August 12 that Beijing Huahao Zhongtian Biopharmaceutical Co., Ltd. (hereinafter referred to as "Huahao Zhongtian") has again submitted its IPO application materials for the Hong Kong Stock Exchange Main Board after more than half a year. Previously, the company had submitted its Hong Kong stock IPO prospectus for the first time on January 29 this year.

It is worth mentioning that Huahao Zhongtian initially chose the Shanghai Stock Exchange Science and Technology Innovation Board as its IPO listing venue. It started listing guidance in August 2021 and submitted the Science and Technology Innovation Board IPO application materials in June 2022. However, after two rounds of inquiries, the company finally terminated its application for listing on the Science and Technology Innovation Board in May 2023.

The single core product, Utidelon Injection, will be launched in 2021

Huahao Zhongtian is a synthetic biology-driven biopharmaceutical company dedicated to developing innovative oncology drugs. Since its establishment in 2002, the company has developed three core technology platforms focused on the research and development of new drugs based on microbial metabolites. As of the last practicable date, the company has one commercialized product and 19 other pipeline product candidates.

At present, Huahao Zhongtian has a single core product, Utidelon Injection. The existing clinical trials and projects of its core products and candidate products cover indications for advanced breast cancer, advanced non-small cell lung cancer (NSCLC), neoadjuvant therapy for breast cancer, gastric cancer, esophageal cancer, brain metastasis of breast cancer, brain metastasis of lung cancer, glioblastoma and other solid tumors.

Huahao Zhongtian said that Utidelon Injection was approved for marketing by the National Medical Products Administration in 2021, ending the situation in which China lacked independently developed domestically produced innovative chemotherapy drugs for nearly two decades. As of the last practicable date, Utidelon Injection is the only chemotherapy drug developed and approved for marketing through synthetic biology technology, and the only microtubule inhibitor-type tumor drug with a new molecular structure approved worldwide since 2010.

The company is developing an oral dosage form of Utidelon, namely Utidelon Capsules, and has independently developed three candidate products with different targets and mechanisms of action, as well as other active pharmaceutical ingredients BG22, BG18 and BG44, all of which are in the early stages of development. Looking ahead, the company plans to submit a pre-NDA application for Utidelon Capsules combined with capecitabine for the treatment of advanced breast cancer to the National Medical Products Administration in the fourth quarter of 2024, and complete the FPI of the Phase II clinical trial of Utidelon Capsules alone for the treatment of advanced ovarian cancer in China.

Image source: Huahao Zhongtian released the Hong Kong stock prospectus on August 12, 2024

According to the official website, Chengdu Huahao Zhongtian, a wholly-owned subsidiary of Huahao Zhongtian, has built a national Class 1 anti-tumor new drug industrialization base and a synthetic biology technology production and transformation base, covering an area of ​​more than 50,000 square meters, with an initial investment of about 500 million yuan. The construction of the second phase of the project has been started, covering a total of more than 47,000 square meters, with a total investment of about 360 million yuan, and is expected to be completed by the end of 2024.

The prospectus shows that the company's first phase production facility has the current production capacity to produce 500,000 bottles of Utiradio injection per year.The utilization rates of its first phase production facilities were 5.5%, 39.4% and zero in 2022, 2023 and the first five months of 2024, respectively., and 20,975 bottles, 107,608 bottles and 88,745 bottles of Utidelon Injection were put into storage respectively.As of May 31, 2024, inventory not sold or allocated for research and development activities is approximately 80,000 bottles.

As of the last practicable date, approximately 21,000 bottles or 39.2% of the inventory had been sold or allocated for research and development activities; the remaining approximately 33,000 bottles are expected to expire in June 2025, and the remaining bottles are expected to be sold or allocated before the second half of 2024; and approximately 26,000 bottles of 3 ml Utiradio injection, which are mainly produced for the Phase III clinical trial for the treatment of NSCLC and for applying to the National Medical Products Administration for changes in bottle specifications.

Huahao Zhongtian said that the company plans to expand production capacity by establishing a production line for Ultedron Capsules in the first phase of production facilities and developing the second phase of production facilities. The second phase of production facilities is expected to be put into operation in 2025."We expect the total production capacity of our production facilities to reach at least 1 million bottles of Utidelon injection and at least 2 million Utidelon capsules per year by 2025."

No controlling shareholder, previously raised 1.15 billion yuan

Jiemian News learned that Huahao Zhongtian has no controlling shareholder and its equity is quite dispersed. As of the last practicable date, the company's founder Tang Li, 61, directly held approximately 1.03% of the company's issued share capital, while Baygen QTInc., Beijing Beijinyuan, Zhuhai Huaxin, Zhuhai Huajin, Zhuhai Jingrong and Zhuhai Huarong (all controlled by Tang Li) held a total of approximately 28.44% of the company's issued share capital.

Therefore, Tang Li and her spouse Qiu Rongguo, Baygen QTI Inc., Beijing Beijinyuan, Zhuhai Huaxin, Zhuhai Huajin, Zhuhai Jingrong and Zhuhai Huarong are entitled to exercise approximately 29.47% (slightly less than 30%) of the Company's voting rights and constitute the single largest shareholder group. Tang Li currently serves as the company's chairman, chief scientist and chief marketing officer.

Image source: Huahao Zhongtian released the Hong Kong stock prospectus on August 12, 2024

From November 2013 to November 2020, Huahao Zhongtian completed five rounds of equity financing, and successively obtained investments from investment institutions or government agencies such as Zhongguancun Development Government Investment, Chengdu Venture Capital, Matrix Partners China, Morningside Venture Capital, MPCVI, and Longpan Venture Capital, with a total financing amount of 1.155 billion yuan.

As of May 31, 2024, the company had unused funds of approximately RMB505 million, accounting for approximately 43.7% of the funds raised.

After the latest round of financing in November 2020, the company's valuation was approximately 4.49 billion yuan.

Image source: Huahao Zhongtian released its Hong Kong stock prospectus on August 12, 2024 and is still losing money, saying that Utidelon Injection will not face a price cut before the end of 2026

Financial data shows that Huahao Zhongtian's revenue for the years ended December 31, 2022 and 2023 and the five months ended May 31, 2024 was RMB 32.82 million, RMB 66.635 million and RMB 28.564 million, respectively.

Image source: Huahao Zhongtian released the Hong Kong stock prospectus on August 12, 2024

The prospectus shows that Huahao Zhongtian's revenue growth in recent years is mainly attributed to the increase in sales of core products after they were officially included in the national medical insurance drug list in 2022. In March 2021, Utidelon Injection was approved for marketing by the National Medical Products Administration, and each treatment cycle requires about five bottles of Utidelon Injection.After being officially included in the national medical insurance drug list on January 1, 2023, the price of Utidelon Injection has dropped by more than 60% since March 1, 2023. At the same time, the sales volume in 2022, 2023 and the first five months of 2024 was 18,483 bottles, 90,021 bottles and 38,577 bottles respectively, and the gross profit margins were 72.8%, 70.3% and 85.1% respectively.

Huahao Zhongtian said that in the future, if the sales growth of the product is not as expected after it is included in the national medical insurance drug list, it may still have a negative impact on the company's long-term operating performance and profitability. In addition, the agreement to include it in the national medical insurance drug list is valid until the end of December 2024; if Utidelon Injection is removed from the list or the price is reduced by much more than expected during the adjustment of the national medical insurance drug list in the future, it may have a negative impact on the core competitiveness of the product, sales or the company's profitability.

However, Huahao Zhongtian later said that the above negotiated price is valid until December 31, 2024, when the company will seek to renew the drug negotiation agreement. "Based on the current sales estimates, the directors believe that Utidelon Injection will meet the conditions set out in the renewal rules and will not face price cuts before the end of 2026."

Huahao Zhongtian said that as a marketed product, Utidelon injection for the treatment of advanced breast cancer will continue to be the company's main source of revenue and profit in the near term, limiting the company's profitability to a single product. "If there are major adverse changes in the market environment for Utidelon injection or unexpected delays in expanding indications and developing formulations, it may have an adverse impact on our business performance."

Despite continued revenue growth, Huahao Zhongtian has remained loss-making in recent years. The company has incurred losses and net operating cash outflows in each period since its inception. In 2022, 2023 and the first five months of 2024, the company recorded losses of 161 million yuan, 190 million yuan and 57.453 million yuan, respectively. "We expect to continue to incur losses in the foreseeable future, and we expect such losses to increase as we continue to expand our research and development of products and product candidates while increasing sales and marketing investment."

During the reporting period, the company's R&D expenses were RMB 82.739 million, RMB 127 million and RMB 43.825 million, respectively, of which the R&D expenses of core products (including IIT) were approximately RMB 50.8 million, RMB 98.6 million and RMB 30.7 million, respectively, accounting for 61.4%, 77.9% and 70.1% of the total R&D expenses and 21.9%, 37.1% and 33% of the total operating expenses in the same period. In addition, the company's sales and distribution expenses were RMB 97.91 million, RMB 95.397 million and RMB 29.278 million, respectively.

At the same time, Huahao Zhongtian recorded net cash used in operating activities of RMB 79.438 million, RMB 149 million and RMB 51.014 million in 2022, 2023 and the first five months of 2024, respectively. The company admitted that its operating cash flow during the historical record period was negative, mainly due to cash-intensive R&D activities and increased marketing of listed products.

However, the directors of Huahao Zhongtian believe that, taking into account the available financial resources, including cash and cash equivalents and the Fund Raising, plus the cash consumption rate, the Company has sufficient working capital to cover at least 125% of its costs, including research and development expenses and administrative expenses, for at least the next 12 months from the estimated date of this document.