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the news that shuangcheng pharmaceutical (002693.sz) intends to cross-border acquire a semiconductor company has become the focus of market discussion recently. the total market value of the former is less than 3 billion yuan, while the valuation of the latter is as high as 10 billion yuan. while shuangcheng pharmaceutical is performing the "snake swallowing an elephant" strategy, the same actual controllers of the two companies, wang chengdong and wang yingpu, are also in the spotlight.

on the evening of september 10, shuangcheng pharmaceutical disclosed a restructuring plan announcement stating that the company intends to purchase 100% of the shares of ningbo aola semiconductor co., ltd. (hereinafter referred to as "aola shares") held by 25 counterparties including aola investment and win aiming/yingzhun co., ltd. through the issuance of shares and payment of cash, and intends to issue shares to no more than 35 specific investors to raise matching funds.

at the same time, shuangcheng pharmaceutical applied to resume trading on september 11. after the resumption, shuangcheng pharmaceutical hit three daily limit ups in one go. as of the close of september 13, the company's stock price rose from 5.22 yuan per share before the resumption to 6.94 yuan per share, with a total market value of 2.878 billion yuan.

shuangcheng pharmaceutical explained in the announcement that this transaction is expected to constitute a related transaction and a major asset reorganization, but does not constitute a reorganization listing.

despite this, there are still many doubts about this merger. the company's stock price unexpectedly rose before the merger information was disclosed. was the inside information leaked in advance? how can a pharmaceutical company avoid the transfer of benefits when it crosses borders to acquire a semiconductor company owned by its actual controller?

△image source: tuchong creative

a disguised backdoor listing?

shuangcheng pharmaceutical was established in 2000 and listed on the shenzhen stock exchange in 2012. it is mainly engaged in the research, development, production and sales of chemically synthesized peptide drugs. its main products include thymosin for injection, somatostatin for injection, and bivalirudin for injection. aola shares is a semiconductor company that is mainly engaged in the research, development, design and sales of analog chips and mixed analog chips. its main products include clock chips, power management chips, sensor chips, radio frequency chips, etc.

late at night on august 27, around 11:00, shuangcheng pharmaceutical suddenly issued the "announcement on suspension of trading for planning major asset restructuring and related transactions", announcing the planned acquisition of aola shares. however, during the daytime trading, shuangcheng pharmaceutical's stock price soared, even reaching the daily limit. as of the close of the day, the company finally closed up 9.21%, with a total transaction amount of 190 million yuan, far exceeding the previous trading day.

the market can't help but wonder whether the news of the merger and acquisition leaked in advance.

regarding the outside world's speculation, on september 13, a reporter from the times weekly contacted the securities department of shuangcheng pharmaceutical as an investor. the relevant person responded that "the stock price has gone up and down, which is the result of the secondary market. it is not something we can control."

the key factor in launching this acquisition is that shuangcheng pharmaceutical and aola are both controlled by wang chengdong and wang yingpu (wang yingpu, australian nationality), father and son. among them, wang chengdong and wang yingpu control a total of 57.52% of aola shares through aola investment, ningbo shuangquan and ideal kingdom limited.

shuangcheng pharmaceuticals said that after the completion of this transaction, the listed company will shift its development focus to the research and development, design and sales of analog chips and mixed analog chips in the semiconductor industry, and divest pharmaceutical-related assets at an appropriate time in the future. this means that shuangcheng pharmaceuticals will completely transform from a pharmaceutical company to a semiconductor company.

however, shuangcheng pharmaceuticals emphasized in the announcement that the actual controller of the listed company has not changed in the past 36 months. it is expected that the actual controller of the listed company will not change before and after the completion of this transaction. therefore, this transaction is not expected to constitute a reorganization listing (also known as "backdoor listing").

however, an industry insider pointed out in an interview with the media that although shuangcheng pharmaceutical's operation did not constitute a nominal backdoor listing under the current legal provisions, it completed the comprehensive replacement of its main business through mergers and acquisitions, producing a practical effect similar to a backdoor listing. it remains to be seen whether its merger and acquisition review will be strict.

according to the 21st century business herald, in the view of senior investment bankers at securities firms, for companies that go public through disguised backdoor listings, regardless of whether the acquisition is ultimately successful, the announcement of their merger and reorganization plan itself can usually achieve the goal of driving up stock prices.

regarding the question of backdoor listing, the person in charge of the securities department of shuangcheng pharmaceutical emphasized, "i can tell you clearly that it is not a backdoor listing. the company's acquisition still needs the approval of the china securities regulatory commission. you can pay attention to the company's announcement for details."

performance losses and ipo setbacks

behind the cross-border transformation, shuangcheng pharmaceutical and aola holdings can be said to have each gotten what they wanted. the former has had dismal performance for many years, while the latter has a valuation of tens of billions but its ipo has been blocked.

looking at the operating conditions of shuangcheng pharmaceutical in recent years, performance losses can be said to be the norm. financial report data shows that from 2020 to 2023 and the first half of 2024, shuangcheng pharmaceutical achieved operating income of 269 million yuan, 320 million yuan, 275 million yuan, 236 million yuan and 95 million yuan respectively; the net profit attributable to the parent company was -53 million yuan, -20 million yuan, 9.01 million yuan, -51 million yuan and -17 million yuan respectively.

times weekly reporter noted that shuangcheng pharmaceutical relies too much on a single product and its r&d capabilities are not strong. it is understood that shuangcheng pharmaceutical's leading product is thymus alphasin for injection (trade name: jitai), which is a generic drug product. the original drug trade name is ridaxin, which was approved to enter china as early as 1996. thymus alphasin is mainly used for the treatment of chronic hepatitis b, tumors, geriatrics and infectious diseases, and to improve body immunity. at the beginning of the outbreak of the new crown epidemic in 2020, thymus alphasin was also included in the national new crown pneumonia diagnosis and treatment plan, and was once regarded as a "magic drug". so far, nearly 20 pharmaceutical companies in the country have approval numbers for thymus alphasin.

financial report data shows that the sales revenue of thymosin for injection accounts for more than 30% of shuangcheng pharmaceutical's total revenue for many years. in addition, somatostatin for injection and bivalirudin for injection are also generic drug products. as of the end of 2023, the company's total number of r&d personnel is 75, accounting for only 15.50%.

in recent years, with the rapid release of market demand for glp-1 drugs represented by semaglutide, liraglutide, and telpotide, the popularity of the peptide field has continued to rise. many domestic companies have achieved an increase in orders and performance, but shuangcheng pharmaceutical has failed to catch up with this trend.

in november 2022, shuangcheng pharmaceutical published an overview of peptide apis on its official account, mentioning that the dmf (master file of raw materials and excipients, which refers to detailed information on the entire excipient production process provided by pharmaceutical excipient manufacturers) status of its liraglutide is in the stage of completing process scale-up, while semaglutide is under research.

△image source: shuangcheng pharmaceutical wechat official account

the times weekly reporter noticed that the 2020 annual report mentioned that the engineering batch synthesis of liraglutide's api (active pharmaceutical ingredient) had been completed, but due to market reasons, the formulation research and development was suspended. however, in the investor relations record sheet in may 2021, shuangcheng pharmaceuticals told investors that the liraglutide project was still in the research and development stage. using "semaglutide" as the keyword to search the company's annual report and announcement, there was no mention of related products.

the most direct reason for aola's switch to shuangcheng pharmaceutical was its unsuccessful attempt to list on the science and technology innovation board. in december 2022, aola's ipo on the science and technology innovation board was accepted, with plans to raise 3 billion yuan, with the number of shares issued not less than 25% of the total share capital. based on this rough calculation, the company's valuation is 12 billion yuan.

aola's core product is the clock chip, which is a chip used to provide and modulate clock signals, enabling various electronic systems to operate efficiently and stably. the prospectus shows that this product has contributed more than 86% of the company's revenue over the years. based on the sales amount of the company's clock chip products in 2021, the company's market share in similar clock chips in china is 23.51%, and its market share in de-jitter clock chips in china is 61.27%.

after the news of the ipo came out, there were voices in the market saying that if it is successfully listed, aola shares will become the first clock chip stock.

however, after more than a year, aola withdrew its listing application in may this year. during this period, the shanghai stock exchange has repeatedly sent inquiry letters to aola, requiring aola to explain the differences and competition between the company's mainstream and highest-tech products and similar competing products, whether they are still mainstream products in the subdivided fields, whether they are continuously sold, and whether they represent the latest and highest technical level of competitors, based on the application fields, technical indicators, and sales of similar products of comparable companies at home and abroad; and to explain the legality and compliance of the foreign shareholders' establishment of the issuer in the form of proxy holding.

regarding the reasons why aola holdings withdrew its ipo application and the current valuation issue, the relevant person from the securities department of shuangcheng pharmaceutical said that we have no way to respond to the situation of the target. in terms of valuation, since the audit is still under evaluation, we have not yet obtained the relevant data.

in terms of performance, aola's revenue performance is good, but the net profit fluctuations are very obvious. the prospectus shows that from 2019 to 2021 and the first half of 2022, aola's revenue was 134 million yuan, 405 million yuan, 502 million yuan, and 221 million yuan, respectively, and the net profit was 18.93 million yuan, 6.8172 million yuan, -1.096 billion yuan, and -466 million yuan, respectively.

as for the reason for the loss, aola shares explained in the prospectus that it was mainly due to the continuous implementation of multiple rounds of large equity incentives for employees since the end of 2020. data shows that from 2020 to 2021 and the first half of 2022, the company recognized share-based payment expenses of 162 million yuan, 1.204 billion yuan, and 485 million yuan, respectively.

according to the latest announcement released by shuangcheng pharmaceutical, aola shares have now turned losses into profits. data shows that from january to july 2024, aola shares' operating income was 538 million yuan and its net profit was 307 million yuan.

regarding shuangcheng pharmaceutical's current operating conditions and the research and development status of liraglutide and semaglutide, the times weekly reporter contacted several employees of shuangcheng pharmaceutical, but they all said it was inconvenient to disclose the information.

the low-key hainan tycoon father and son

in fact, whether it is involved in pharmaceuticals or the transformation of chip research and development, the father and son of the wang family actually have no relevant professional background. according to the annual report of shuangcheng pharmaceutical and the prospectus of aola, wang chengdong was born in 1953 in anshan, liaoning province, and graduated from the foreign language department of liaoning university; wang yingpu was born in 1981 and graduated from the law department of macquarie university in australia.

△wang chengdong, founder of shuangcheng pharmaceuticals. image source: shuangcheng pharmaceuticals wechat official account

in 2015-2016, wang chengdong and wang yingpu were listed on the hurun rich list with a net worth of 3 billion yuan and 2.1 billion yuan respectively, ranking fifth among hainan's richest people. however, as hainan's richest people, the wangs are very low-key. wang chengdong rarely accepts media interviews, and wang yingpu is even more mysterious. although he joined shuangcheng pharmaceutical in 2008, there is no trace of him or any related news on the company's official website and wechat public account.

similar to the experiences of most wealthy people born in the 1950s and 1960s, wang chengdong's rise to wealth is also inseparable from the times. according to public reports from many media, wang chengdong was once an employee of a state-owned enterprise and became the deputy general manager of anshan international economic and technical cooperation company at the age of 33. during business dealings, wang chengdong came into contact with a wholly-owned japanese company, which was interested in registering a company in china and hired him as general manager.

at that time, hainan province was established as the fifth special economic zone in china, and the famous "30-point" policy was introduced at the same time. the japanese-funded enterprise immediately decided to register the company in hainan, and wang chengdong became the general manager of the newly registered japanese-funded company in 1988.

in 1991, wang chengdong founded hainan shuangcheng metal structure products co., ltd. and participated in the construction of many landmark projects in hainan. while hainan's real estate industry was developing rapidly, wang chengdong also completed his original accumulation.

in 1998, wang chengdong met gao guangxia and tang hong. during their interactions, wang chengdong became interested in the concept of peptide drugs mentioned by gao guangxia, and proposed that wang chengdong should provide the main funding, and tang hong and gao guangxia should recommend and organize a team of overseas students and experts with relevant professional backgrounds to engage in peptide drug research and development through the establishment of shuangcheng limited. in 2000, shuangcheng pharmaceutical was officially established in haikou, and in 2012, shuangcheng pharmaceutical was listed on the sme board (now the main board) of the shenzhen stock exchange.

in 2010, wang chengdong and his son established shuangcheng investment and hsp investment, two main investment companies, and began to get involved in the semiconductor industry. in that year, wang chengdong invested 81.92 million yuan in cash in the semiconductor company tailing micro, holding 60% of the shares.

according to media reports, in 2016, wang chengdong planned to sell off his shares in tailingwei in order to ease his personal financial pressure. the times weekly reporter noted that in 2017, although wang chengdong and his son fell out of the hurun rich list, in august of the same year, shuangcheng investment sold off all of its shares in tailingwei at a high price of 1.252 billion yuan, and the investment ultimately made a net profit of more than 1.1 billion yuan.

after exiting tailingwei, wang chengdong acquired india's aola at the end of 2017 and established aola holdings the following year. during this period, aola holdings established a research and development platform overseas, recruited experienced analog integrated circuit designers from all over the world, formed a research and development team, and successfully taped out the first de-jitter clock chip in september 2018.

the story then slowly developed to the part where aola shares failed in their ipo on the science and technology innovation board and were subsequently acquired by shuangcheng pharmaceutical. after shuangcheng pharmaceutical went public, some people called wang chengdong an entrepreneur, while others regarded him as an investor and a master of capital operation.

in a video released by anshan news media center in september 2023, wang chengdong called himself "anshan's outbound entrepreneur". he said that he had been doing business outside for 35 years, focusing on biomedicine and semiconductors.

wang chengdong said that in the semiconductor field, he has established three chip design companies. the first one has been successfully listed, the second one is in the process of listing, and the third one is under research and development. although he is not sure it will be successful, it is a revolutionary and innovative project.

in addition, wang chengdong emphasized that the funds he invested in were all hard technology and high technology. "my family fund has invested in 16 health industries, all of which have developed very well. some have been listed, and some have already exited."