Hengrun Dasheng's IPO Raises Concerns: Seeking RMB 2.54 Billion Amid No Revenue, Mounting Losses, and Questionable Commercial Viability

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Source: Sina Finance Stock Market Research Institute

Author: Tianli

Recently, Shanghai Hengrun Dasheng Biotechnology Co., Ltd. (hereinafter referred to as "Hengrun Dasheng") updated its prospectus data. The company plans to list on the Sci-Tech Innovation Board, and its listing application was accepted in October 2022. However, after undergoing one round of inquiries and waiting in line for over two years, Hengrun Dasheng has yet to appear before the listing committee.

Behind the Slow Progress of IPO: The Company Still Faces Numerous Issues. First, Hengrun Dasheng has no products on the market yet and has incurred continuous losses during each reporting period, with accumulated losses exceeding 800 million yuan. Second, the cellular therapy market is highly competitive, and due to the high prices, the commercial prospects for the company’s core products remain uncertain even if they are successfully launched. Additionally, the company aims to raise 2.539 billion yuan, more than seven times its total assets, and its estimated valuation after going public is expected to exceed 10 billion yuan, significantly higher than the valuation levels of other companies in the industry.

　No Commercialized Products Yet, Valuation Exceeds 10 Billion, Accumulated Losses of 833 Million Yuan Aiming to Raise "7 Times Its Own Value"

The prospectus shows that Shanghai Hengrun Dasheng Biotechnology Co., Ltd. is an innovative biopharmaceutical company focusing on the research and development and production of breakthrough immunotherapy cell therapy products, primarily targeting treatment areas such as malignant hematological diseases and solid tumors. The company has established a comprehensive and differentiated pipeline comprising 11 R&D programs corresponding to 10 major products, including CAR-T, CAR-NK, and other technologies.

Currently, Shanghai Hengrun Dasheng Biotechnology Co., Ltd. has no products on the market and is still in the clinical trial stage, with no profitability achieved yet, and has been incurring losses during each reporting period. In 2021-2023 and the first half of 2024, the company's net profit attributable to shareholders was -RMB 193 million, -RMB 274 million, -RMB 284 million, and -RMB 116 million, respectively. As of the end of June 2024, the company's accumulated deficit has reached RMB 833 million.

Under consecutive years of losses, the company's cash flow has continued to experience net outflows, and its cash reserves have dwindled due to losses. During the reporting period, the total amounts of monetary funds and financial assets held for trading by Shanghai Hengrun Dasheng Biotechnology Co., Ltd. were 5.81 billion yuan, 3.33 billion yuan, 2.02 billion yuan, and 1.37 billion yuan, respectively. Notably, despite its already strained financial situation, the company had undergone multiple rounds of financing prior to its IPO.

In the year before the IPO, in April 2021, 14 investors including Yingtai Jiuyun, Shaanxi Junying, Yangming Venture, Chengjing Heyi, New Times Capital, and October Investment increased their capital in Shanghai Hengrun Dasheng Biotechnology Co., Ltd. at a price of 43.4824 yuan per registered capital. In October 2020, eight investors including Zhongxin Wu Hao, Zhangjiang Torch, Jinghao Fund, Xinyu Shangrun, and Hengzhen Center increased their capital in Shanghai Hengrun Dasheng Biotechnology Co., Ltd. at a price of 22.5625 yuan per registered capital.

However, the funds obtained from the two capital increases only lasted for two years before being almost completely depleted. As cash reserves rapidly dwindled, the company's debt repayment capacity also significantly declined. As of the first half of 2024, the company's total current liabilities amounted to 189 million yuan, surpassing its cash and cash equivalents. Both the current ratio and cash ratio fell below 1, dropping to 0.88 and 0.72, respectively.

At the same time, from 2021 to 2023 and the first half of 2024, the company's asset-liability ratio continued to rise, reaching 14.61%, 20.34%, 59.98%, and 71.45% respectively in each period, with increasing financial pressure. With products yet to enter the commercialization stage, the company still needs to continuously invest huge amounts of R&D funds to secure potential growth. Based on the calculation of cash assets/annual R&D expenses, even if all available funds were allocated to R&D, they would only sustain normal R&D operations for about half a year.

In this STAR Market IPO, Hengrun Dasheng plans to raise 2.539 billion yuan, which is intended to be invested in three projects: the research and development of tumor immunotherapy products, the headquarters and industrialization base (Phase I) project, and replenishing working capital. However, as of the end of June 2024, the company's total assets were only 342 million yuan, with net assets at 98 million yuan. The fundraising amount is 7.42 times and 25.9 times the company’s total assets and net assets, respectively.

From the valuation perspective, after the capital increase in October 2020, the company's valuation reached 1.868 billion yuan; after the capital increase in April 2021, the company's valuation reached 4.273 billion yuan, surging by 128.75% within half a year. Based on rough estimates of the fundraising amount and issuance ratio, if the company successfully goes public, its valuation will exceed 10 billion yuan.

Due to the particularity of the innovative drug industry, some companies are still in the early stages of development and have not yet achieved profitability. The core value logic often lies in the positive expectations for future development rather than current performance, causing the commonly used price-to-earnings ratio valuation method to present distortions. In this context, the price-to-research ratio has been introduced as a key quantitative valuation indicator and can serve as a reference for the valuation of relevant companies.

Based on the R&D expenditure of 256 million yuan in 2023, the price-to-research ratio of Shanghai Hengrun Dasheng Biotechnology Co., Ltd. after its listing is approximately 39.06 times. According to Wind data, the median price-to-research ratio of the 17 unprofitable biopharmaceutical companies listed on the Sci-Tech Innovation Board is 18.06 times, with an arithmetic average of 28.67 times. The valuation of Hengrun Dasheng has significantly exceeded the industry level.

　　Payment Dilemma Under High-Priced Pricing: Commercial Prospects May Not Be Optimistic

In recent years, although the CAR-T industry has been regarded as a popular track in the capital market, there is currently no company in China's A-share capital market that has gone public solely by relying on CAR-T technology. The reason is that the unclear commercial prospects are an important factor hindering the listing of related companies.

In terms of product pricing, the average cost of the 11 CAR-T therapies currently available globally is $370,000 per treatment course. For example, Kymriah costs approximately $475,000 per treatment, Yescarta costs about $373,000 per treatment, and the price of Fosun Kite's Axicabtagene Ciloleucel in China is also set at 1.2 to 1.29 million RMB.

The payment difficulties caused by the high pricing have become a problem that CAR-T drug commercialization has to face. Data from 2022 shows that in the U.S. market, which has a relatively well-established payment system, only about 35% of commercial insurance plans cover CAR-T treatment. In the 2023 medical insurance negotiations in China, after a 30% price reduction, JW Therapeutics' Relma-cel was included in the medical insurance at 1.29 million yuan, but the payment ratio still depends on local supplementary insurance.

At the same time, restricted by the approved indications, the patient population covered by CAR-T therapy is relatively limited. Taking China as an example, there are less than 30,000 patients each year who meet the conditions for CAR-T treatment, which further exacerbates the payment difficulties. In 2024, the global CAR-T market size will be approximately 2.6 billion US dollars, far lower than the market size of PD-1 monoclonal antibody, which exceeds 40 billion US dollars. Therefore, during the review process, the Shanghai Stock Exchange repeatedly questioned Shanghai Hengrun Dasheng Biotechnology Co., Ltd about issues related to the market space and commercialization of its main products under development.

Currently, the CAR-T cell therapy product targeting CD19 developed by Shanghai Hengrun Dasheng Biotechnology Co., Ltd., HR001It is currently the pipeline closest to commercialization, and this product is used for the treatment of relapsed/refractory B-cell non-Hodgkin lymphoma (B-NHL) indications. Relapsed/refractory B-cell non-Hodgkin lymphoma (B-NHL) is a broad disease classification that includes multiple different subtypes, such as diffuse large B-cell lymphoma (DLBCL), mantle cell lymphoma (MCL), small lymphocytic lymphoma (SLL), and follicular lymphoma (FL).

From the perspective of the competitive landscape, the approved indications of competing products in the same category, such as Novartis' Kymriah, Gilead Science's Yescarta, Gilead Science's Tecartus, and JW Therapeutics' Relma-cel, overlap with the indications for which HR001 is seeking marketing approval. With similar products already available on the market, Shanghai Hengrun Dasheng Biotechnology Co., Ltd., which lacks commercialization experience, may face significant challenges in capturing a share of the market.

From the sales data of competing products, take Benoda, produced by WuXi AppTec's Juno Therapeutics, as an example. The product was approved for marketing in September 2021, with global sales revenue of 31 million yuan, 146 million yuan, and 174 million yuan from 2021 to 2023 respectively. The growth rate of product revenue in 2023 has significantly slowed down. This shows that product launch is just the starting point, and commercial validation remains the ultimate challenge that Shanghai Hengrun Dasheng Biotechnology Co., Ltd must face.

Editorial Responsibility: Company Observation