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Yangtze Business Daily News● Changjiang Business Daily reporter Zhang Lu

Riding on the popularity of GLP-1, the "magic drug for weight loss", Jiuyuan Gene, the leader in bone repair materials, has once again started the IPO process.

Recently, Hangzhou Jiuyuan Gene Engineering Co., Ltd. (hereinafter referred to as "Jiuyuan Gene") updated its prospectus for listing in Hong Kong. The company first submitted its prospectus in January 2024, and Huatai International and CITIC Securities are the sponsors.

Founded in 1993, Jiuyuan Gene has been deeply involved in the biopharmaceutical and medical device industry for more than 30 years. It has now developed a business path covering four major sectors: orthopedics, metabolic diseases, tumors, and blood. It currently has 8 products on the market and more than 10 products under development.

The Yangtze Business Daily reporter noted that in recent years, Jiuyuan Gene seems to have fallen into a dilemma of stagnant performance growth, and the company's main products are facing the risk of centralized procurement. At present, Jiuyuan Gene has set its sights on the generic drugs of semaglutide, a "magic weight loss drug", but the market competition in this field is fierce and the prospects are unpredictable.

As of the end of April 2024, Jiuyuan Gene had only approximately RMB 69.22 million in cash and cash equivalents, and the company urgently needs to replenish its capital.

Traditional businesses face challenges in centralized procurement

Founded in 1993, Jiuyuan Gene is a company that applies genetic engineering to the pharmaceutical industry. The company focuses on four major therapeutic areas: orthopedics, metabolic diseases, tumors and blood. As of now, the company has 8 products on sale, including bone repair material Bone Youdao, as well as 5 types of tumor drugs (Gilifen, Jijufen, Jioting, Jifuwei, and Jitansu) and 2 types of drugs for venous thromboembolism (Yi Luojia and Jipalin).

Judging from the performance, Jiuyuan Gene's own performance is not ideal. According to the prospectus, from 2021 to 2023, the company's revenue will be 1.307 billion yuan, 1.125 billion yuan, and 1.287 billion yuan, respectively, with an overall downward trend in revenue; net profit will be 119 million yuan, 59.867 million yuan, and 120 million yuan, respectively, and net profit has also stagnated in recent years; adjusted profits will be 120 million yuan, 60.047 million yuan, and 142 million yuan, respectively, maintaining a slight growth trend.

It can be seen that Jiuyuan Gene's performance fell sharply in 2022, with revenue and net profit falling by 13.93% and 49.7% year-on-year respectively. The company stated that this was due to the decrease in sales revenue of Geotin and Enoxaparin APIs. The performance rebounded in 2023 due to the increase in sales revenue of Guyoudao.

In terms of business revenue, Jiuyuan Gene's revenue mainly comes from three products: Guyoudao, Yiluojia and Jilifen. From 2021 to 2023 and the first four months of this year, the above three products contributed 56.9%, 75.1%, 81.1% and 75.9% of the total revenue respectively.

Among them, Bone Youdao was acquired by Jiuyuan Gene from Hangzhou Huadong Medicine Group Co., Ltd. in 2010. According to data from Frost & Sullivan, in 2023, the top four manufacturers in China's bone repair material market accounted for approximately 48.5% of the total market share. Jiuyuan Gene accounted for 21.8%, ranking first.

Bone Guide has also become the company's top product in terms of revenue contribution in recent years. The prospectus shows that from 2021 to 2023, the revenue share of Jiuyuan Gene's Bone Guide products was 27.2%, 39.5% and 55.1% respectively. In the first four months of 2024, the revenue share further increased to 56.8%, supporting half of the company's revenue.

However, Bone Youdao, as Jiuyuan Gene's core product, faces the challenge of centralized procurement. In 2023, the National Procurement Office published the "Announcement on the National Organization of Centralized Volume Procurement of Artificial Lenses and Sports Medicine Medical Consumables", Article 5 of which stipulates that BMP bone repair material manufacturers can voluntarily choose to participate in centralized procurement.

Although Guyoudao has not been included in the centralized procurement for the time being, the future trend has already emerged. In addition, the company's other three products on the market (Jioting, Yiluojia and Jifuwei) have all participated in the centralized procurement.

Taking Jiuyuan Gene's product Jioting as an example, after the centralized procurement, the average selling price of Jioting dropped from 25,900 yuan in 2021 to 11,900 yuan in 2022, and further dropped to 3,400 yuan in 2023. At the same time, Jioting's sales volume also dropped sharply due to intensified competition, from 9,500 pieces in 2021 to 5,700 pieces in 2022, and further to 4,800 pieces in 2023.

In this regard, some industry insiders said that products that win bids in centralized procurement often face substantial price cuts. If companies can exchange price for volume, they can still make up for some of the losses from the price cuts.

The prospect of betting on domestically produced "magic weight loss drugs" is unpredictable

In the pharmaceutical industry, sales often occupy an important position. Some pharmaceutical companies build their own sales channels or control sales companies, while Jiuyuan Gene's drugs are mainly sold to distributors. From 2021 to 2023, distribution revenue accounted for 72.8%, 73.8% and 65.9% of Jiuyuan Gene's total revenue respectively.

Therefore, Jiuyuan Gene also stated in the risk warning that "all our distributors are independent third parties over whom we have limited control, and we cannot guarantee that the distributors will always effectively distribute our products."

In addition, the prospectus also shows that Jiuyuan Gene's dependence on related customers continues to deepen. In 2021, Jiuyuan Gene's sales from related parties Huadong Medicine and its subsidiaries accounted for 7.4% of the total. By April 2024, this proportion has increased to 12.6%, and Huadong Medicine and its subsidiaries have become the company's second largest customer.

In addition to being a major customer of the company, Huadong Medicine is also one of the top five suppliers of Jiuyuan Gene. Data shows that from 2021 to 2023, Jiuyuan Gene's purchases from Huadong Medicine were RMB 11.7 million, RMB 6.7 million, and RMB 7.5 million, respectively, accounting for 2.9%, 2.7%, and 3.3% of the procurement cost.

In fact, the relationship between Jiuyuan Gene and Huadong Medicine can be described as "close". In terms of equity, Huadong Medicine holds 21.06% of Jiuyuan Gene's shares through its wholly-owned subsidiary Sino-US Huadong, making it the single largest shareholder of Jiuyuan Gene.

According to the prospectus, Jiuyuan Gene developed liraglutide biosimilars based on the company's peptide drug technology platform in 2005. In August 2017 and May 2019, Jiuyuan Gene transferred the new drug technologies of liraglutide for diabetes indications and liraglutide for obesity indications to Sino-US Huadong for RMB 80 million and RMB 25 million respectively, and received a total of RMB 105 million in technology licensing fees.

After transferring the new drug technology of liraglutide, Jiuyuan Gene still has a layout of "weight loss drugs". Among Jiuyuan Gene's more than 10 products under development, there is a semaglutide biosimilar JY29-2. Compared with liraglutide, semaglutide, as a second-generation GLP-1 receptor agonist, is also more popular in the market.

According to the prospectus, Jiuyuan Gene's JY29-2 product has the brand name "Jiyoutai" and can be used to treat type 2 diabetes, and has the brand name "Jikeqin" and can be used to treat obesity and overweight.

In January 2024, Jiuyuan Gene obtained IND approval from the National Medical Products Administration for evaluating the efficacy of "Ji Keqin" in the treatment of obesity and overweight. On April 3, Jiuyuan Gene's semaglutide injection "Jiyoutai" was accepted for listing. This is also the first semaglutide biosimilar drug to be listed in the mainland for the control of type 2 diabetes.

At present, dozens of domestic companies have already laid out in the GLP-1 field, the market competition is increasingly fierce, and the R&D pipeline has become a red ocean. As of July 15, 2024, China has approved 15 GLP-1 receptor agonist products for the treatment of type 2 diabetes, including five domestic products, and there are 240 ongoing clinical trials evaluating GLP-1RA drugs under development for the treatment of type 2 diabetes, including 45 Phase III clinical trials.

In terms of cash abundance, as of the end of April 2024, Jiuyuan Gene had only approximately RMB 69.22 million in cash and cash equivalents, while the company's interest-bearing bank loans due within one year were approximately RMB 155 million, and the funds were no longer able to cover bank debts.

At present, Jiuyuan Gene has more than 10 products under development that require continuous R&D funding, and may face significant operating capital needs in the future.

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