Shanghai Cellular Therapy Group Files for Hong Kong IPO Amid Mounting Losses and Weak Competitive Moat in Core Business
Shanghai Cell Therapy Group
Cell Health Medical Products and Service Provider
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Source: Sina Finance Listed Company Research Institute
Author: Tianli
Recently, Shanghai Cell Therapy Group Co., Ltd. (hereinafter referred to as "Shanghai Cell") submitted an application for listing on the Main Board of the Hong Kong Stock Exchange.CICC, CCB International as its joint sponsor.
The prospectus shows that, according to Frost & Sullivan, Shanghai Cell Therapy Group is the first and only company in China to cover the entire value chain of cell healthcare. The company’s businesses encompass cell storage, cancer treatment, cell-based drugs, and cell recharging. Among these, its immune cell storage business ranks first in China's immune cell storage market, and if successfully listed, it may become the first stock in the immune cell storage sector.
However, after combing through and analyzing the company's prospectus, numerous hidden concerns have emerged. First, the company’s operating losses have been expanding year by year, with negative operating cash flow for three consecutive years. The period expense ratio and asset-liability ratio remain persistently high. Second, the company’s core business of immune cell storage lacks a competitive moat, offering limited market potential. Meanwhile, businesses such as cellular immunotherapy drug research and development and hospitals are still in their early stages or continue to incur losses, dragging down the company’s performance. Additionally, early investors exited at cost price just before the IPO filing, possibly indicating that the company’s prospects are not optimistic.
Persistently High Operating Expense Ratio, Expanding Annual Operating Losses, and Negative Operating Cash Flow for Three Consecutive Years Resulting in Net Current Liabilities
From the financial data, Shanghai Cell has been in continuous loss in recent years, with annual loss totals of 4.66 billion yuan, 5.42 billion yuan, and 4.88 billion yuan for 2021 to 2023 respectively. Even after excluding financial costs, losses attributable to associates accounted for using the equity method, etc., and only looking at the operating portion, the company is also in a loss state with the amount of loss showing an increasing trend year by year. The annual operating loss during the reporting period was 2.6 billion yuan, 2.85 billion yuan, and 3.47 billion yuan respectively.
From a business perspective, Shanghai Cell's main operations include cell storage and related services, tumor medical services, cell drug products and services, and cell recharging products. Among these, its immune cell storage business ranks first in China’s immune cell storage market and is also the primary source of the company’s revenue, generating 396 million yuan, 357 million yuan, and 599 million yuan in 2021, 2022, and 2023 respectively, accounting for 79.5%, 57.7%, and 78.9% of total annual income. The second largest business segment is tumor medical services, which accounts for approximately 20% of revenue.
The business of immune cell storage not only provides the main revenue for the company but also serves as the primary source of profit, while the tumor medical services business was in a loss state during the reporting period.
Considering the performance of various business lines of the company, and from the perspective of the industry chain, although Shanghai Cell Business covers cell storage, cell therapy drug research and development, and tumor medical services, its main revenue and profit-generating businesses are still concentrated in cell storage. Private tumor hospitals continue to suffer from heavy losses, while cell recharging and other services have just started. In the cell therapy drug pipeline, only one CAR-T cell therapy product for solid tumors, BZDS1901, received IND approval for Phase I and II clinical trials in December 2023.
The Drug Clinical Trial Registration and Information Disclosure Platform shows that BZDS1901 has not yet started patient recruitment, and of course, no clinical trial data is available. The pipeline is still in the early stage of development, and its market potential and whether it can ultimately become a drug face significant uncertainties.
Therefore, although Shanghai Cell covers the entire value chain of cell healthcare, it does not seem to have brought a positive impact on the company so far. Instead, it has dragged down the overall performance, which is also reflected in the company's relatively high period expense ratio. Among listed companies in the same industry,Zhongyuan UnionThe main business is stem cell storage. Although there are distinctions in the types of cells stored, there is no significant difference in the storage technology itself, making it a comparable company. A comparison shows that the expense ratios of Shanghai Cell during various periods are significantly higher than those of Zhongyuan Xiehe.
This has also led to the company's operations falling into continuous losses, with cash flow under pressure for years and a persistently high asset-liability ratio. In terms of cash flow, the net cash flow from operating activities generated by Shanghai Cell in 2021-2023 was -122 million yuan, -143 million yuan, and -28.224 million yuan, respectively, marking three consecutive years of negative figures.
During the reporting period, the company's capital liability ratio for each year was 162.13%, 186.08%, and 78.35%, respectively, with net assets turning from negative to positive in 2023. Meanwhile, current net assets have been declining annually and recorded a current net liability in 2023.
Not Seen as Promising? Early Investors Cash Out at Cost Price Ahead of Filing
From the perspective of business development prospects, immune cell storage refers to the use of biotechnology to extract a certain number of healthy immune cells from the human body. After testing and verification, these cells are stored in deep低温液氮罐中，以长期保持免疫细胞的活性和功能。
China's immune cell storage market is the most mature segment in the cell therapy industry. The technology itself does not pose a high barrier to market entry, and there are numerous manufacturers participating in China. Leading companies include, apart from Shanghai Cell, Zhongyuan Xiehe, Boya Stem Cells, and Beike Biotechnology.BGIUnder its umbrella, BGI Cell,Nanhua Bio, Qilu Cells, HAN's United, Shanghai Zhangjiang Biological Bank, etc., along with thousands of small and medium-sized enterprises.
Therefore, although Shanghai Cell is the first representative company in the industry to attempt an IPO, its business itself lacks scarcity, and its future prospects may offer limited room for imagination. Early investors transferring their shares at cost price before the filing might also indicate a lack of optimism regarding the company’s future development.
The prospectus shows that in March 2023, Shanghai Junqi transferred its registered capital of RMB 13.9261 million in Shanghai Cell to Beijing Junlian Chengye Equity Investment Partnership (Limited Partnership) for a consideration of RMB 86.25 million; transferred RMB 6.5934 million of registered capital to Ms. Ye Qiaoli for a consideration of RMB 37.5 million; and transferred RMB 1.7751 million of registered capital to Lhasa Qingde Investment Center (Limited Partnership) for a consideration of RMB 10 million. After calculation, the per unit registered capital amount of the above transactions were RMB 6.19, RMB 5.69, and RMB 5.63, respectively.
Shanghai Junqi subscribed to 17.0414 million yuan of Shanghai Cell's additional registered capital at a cost of 96 million yuan in 2016, with each unit of registered capital costing 5.63 yuan. It can be seen that in this investment, Shanghai Junqi accompanied the company for seven years with almost no returns and directly transferred its equity at nearly the cost price just before the company filed for an IPO.
And three months later, Shanghai Cell underwent a series of equity transfers, including Lianxin Phase II transferring the company's registered capital to Shanghai Yanyao, Shanghai Bohuan, Shanghai Zhihuan, Shanghai Yuhuan, Shanghai Qihuan, Shanghai Shunsui, and Shanghai Jinhuan. Xingsheng Zhongze transferred the registered capital to individuals like Zhang Lei and Kaifeng Shangxi Enterprise Management Consulting Partnership, etc. After conversion, the transfer price per unit of registered capital was approximately 25 yuan.
Why did the equity transfer price differ so much in just three months? According to Tianyancha, the counterparties such as Shanghai Yanyao, Shanghai Bohuan, Shanghai Zhihuan, and Kaifeng Shangxi were basically all registered in 2023, and their actual controllers are all early strategic investors of the company. Therefore, behind this series of equity transfers may simply be a "left hand to right hand" move among early investors to inflate the company's valuation.
Editorial Responsibility: Company Observation