China's Top Psychiatric Drugmaker Hansoh Pharma Files for Hong Kong IPO as Power Couple Sets Up A+H Listing Rivalry with Hengrui Medicine

Recently, Hansoh Pharmaceutical Group Company Limited (a company incorporated in the Cayman Islands, hereinafter referred to as “Hansoh Pharma”) updated its listing application with the Hong Kong Stock Exchange.

Hansoh Pharma’s indirect wholly-owned subsidiary in mainland China, and its primary operating entity, is the renowned Jiangsu Hansoh Pharmaceutical Group Co., Ltd.Jiangsu Hansoh is a “close relative” of Hengrui Medicine, the bellwether blue-chip stock in the A-share market and the most valuable company in the pharmaceutical sector.

Zhong Huijuan, founder and group chairwoman of Hansoh Pharma, is married to Sun Piaoyang, the actual controller and chairman of Hengrui Medicine (600276.SH); the couple has consistently ranked among the top on the Hurun Rich List for many years.

The story of this couple is a well-known anecdote in the pharmaceutical industry.Perhaps, in the near future, the couple will each own their own publicly listed company.

Hengrui Medicine’s “Triple Bid” Falls Short

In recent years, Kangning Hospital, the psychiatric hospital backed by CDH Investments (a prominent private equity firm), sought an A-share listing. Its prospectus disclosure that one in eight Chinese people suffers from a mental disorder sparked widespread discussion.

In fact, from the perspective of scale, the market size of private psychiatric medical services is continuously rising.China's mental health market is expected to reach a size of RMB 65 billion in 2019, with the private psychiatric healthcare market projected to grow to RMB 13.6 billion.

Among the thousands of pharmaceutical companies in China, Jiangsu Hansoh Pharmaceutical Group Co., Ltd. has topped the sales rankings in the field of psychiatric drugs for four consecutive years, in 2017Market share has already reached 9.1%.

Today, Jiangsu Hansoh has become China's largest pharmaceutical company specializing in psychiatric disorders., it gained early fame for its exceptional capability in “fast-follow” generic development, becoming a leading player in China’s first-to-market generic drug market.

In addition, the company is also an industry leader in four therapeutic areas: central nervous system (CNS), oncology, anti-infectives, and diabetes.Currently, there are 13 main products, including the National Class 1.1 new drug Meilingda, Oulanning, and Pulaile.

For the years 2015, 2016, 2017, and the six months ended June 30, 2018, these 13 products accounted for more than 80% of the Company’s total revenue.Furthermore, it is particularly noteworthy that the company’s gross profit margin is remarkably high, exceeding 92% in each of the past three years.

Such “fat meat” is, of course, enviable.Sun Piaoyang, Chairman of Hengrui Medicine, publicly expressed his intention to acquire Hansoh Pharma, which is controlled by his wife Zhong Huijuan, on three occasions, but these ultimately remained unfulfilled verbal promises.

According to Sina Finance, in 2006, Sun Piaoyang publicly stated during the shareholding reform of Hengrui Medicine that the company would acquire Hansoh Pharma in the future. This was also Sun Piaoyang's first explicit statement on the matter in public information.As late as 2008, Sun Piaoyang stated in an interview with China Times during the Two Sessions that “Hansoh would definitely be acquired.”

By 2015, Sun Piaoyang’s attitude toward mergers and acquisitions had changed.At the investor communication meeting in May 2015, when addressing the issue of acquiring Hansoh Pharma, Sun Piaoyang stated, “Regarding when Hansoh will be merged, we currently have no clear public statement.”

"The Female Teacher's 'Comeback'"

Jiangsu Hansoh is now one of the four major pharmaceutical companies in Lianyungang and has joined the ranks of innovative, modern pharmaceutical enterprises in China.

Zhong Huijuan, the company’s actual controller, earned her bachelor’s degree in Chemistry from Jiangsu Normal University (formerly known as Xuzhou Normal College) in July 1982 and subsequently became a chemistry teacher. Through diligence and talent, she forged a remarkable path of upward mobility.

Just like many legendary tales,Her first “turnaround” was marrying Sun Piaoyang, the chairman of Hengrui Medicine, known as the “leading pharmaceutical company.”

In 1996, Sun Piaoyang had not yet become Chairman of Hengrui Medicine.However, Zhong Huijuan had already resigned from her job to join Jiangsu Hansoh Pharmaceutical Group Co., Ltd., which had been established for just one year, to engage in corporate management.

Although Zhong Huijuan had no prior experience in pharmaceuticals or related fields, after assuming the role of corporate leader at Hansoh Pharma,Through diligence, he advanced from Executive Deputy General Manager and General Manager to Chairman and President.

Under the leadership of Zhong Huijuan, Jiangsu Hansoh Pharmaceutical Group Co., Ltd. has gradually emerged as a dark horse in the pharmaceutical industry.。Its first flagship product, the antibiotic drug “Meifeng,” was launched in April 1997, achieving sales of RMB 30 million that year.Jiangsu Hansoh now boasts one of China’s largest R&D and manufacturing bases for antineoplastic and psychotropic drugs.

In recognition of her contributions to the pharmaceutical industry and pharmaceutical commercial enterprises, Zhong Huijuan has received numerous awards and honors.She also served as a deputy to the 12th and 13th Jiangsu Provincial People's Congresses.

To speak of Zhong Huijuan’s second “comeback,”The company can go public.

In September 2018, Hansoh Pharma submitted its IPO application to the Hong Kong Stock Exchange.The joint sponsors are Morgan Stanley and Citibank.

Recently, Hansoh Pharma updated its prospectus to include information on its 2018 financial report and the second round of pre-IPO investment completed in February 2019 with Boyu Capital.

Following this round of financing,Jiangsu Hansoh’s valuation reached approximately HK$65 billion (about RMB 55 billion), representing a substantial increase of HK$20 billion from the HK$45 billion valuation when Hillhouse Capital invested US$179 million on February 19, 2016.

"Couple Competing Together"

2018 Hurun Rich List: Sun Piaoyang and Zhong Huijuan ranked 20th with a wealth of RMB 82.5 billion.

In the industry, Jiangsu Hansoh was once referred to as a “shadow company” of Hengrui Medicine, with allegations such as being a “husband-and-wife shop” and suspected benefit transfers persisting for over a decade. However, a closer examination of the shareholder information of both companies reveals that, from a capital perspective, the two firms are indeed deeply interconnected.

First, there is an overlap in shareholders between the two companies.Hengrui Medicine’s current second-largest shareholder, Tibet Dayuan Investment Management Co., Ltd., is the former Lianyungang Dayuan Investment Co., Ltd.

And Cen Junda, another shareholder of Tibet Dayuan Investment Management Co., Ltd., is APEXMEDICAL, APEX MEDICAL is a shareholder of Hansoh Pharma, holding 19% of the company's ordinary shares.

Secondly,It involves transactional affiliations and overlaps in business lines.

According to available records, prior to 2015, Hengrui Medicine’s annual financial statements consistently disclosed related-party transactions with Jiangsu Hansoh Pharmaceutical Group Co., Ltd., involving material transfers and processing services.The proportion of related-party transaction amounts to the amounts of similar transactions ranged from 1.67% to 52.37%.

In 2012, some media outlets questioned that the development of two new drugs, Sipatinib and Hainatinib, from Jiangsu Hengrui Medicine had been suspended due to objective reasons.

However, in the same year, the applications for clinical trial approvals of these two drugs were filed by Hansoh Pharma. Due to the marital relationship between Sun Piaoyang, Chairman of Hengrui Medicine, and Zhong Huijuan, General Manager and legal representative of Hansoh Pharma, the arrangement whereby “Hengrui ceased R&D while Hansoh applied for approval” faced allegations of “conflict of interest.”

The overlap between their business lines is also quite significant, particularly in the field of anti-tumor drugs.Due to their rapid growth, both have become thorns in the side of multinational pharmaceutical companies, leading to multiple lawsuits.

From the perspective of product categories, while the portfolios of Hengrui Medicine and Jiangsu Hansoh appear to operate in different fields, they are in fact highly complementary within broader therapeutic classes.For instance, Hansoh Pharma’s flagship product is olanzapine—an atypical antipsychotic—while Hengrui Medicine’s key portfolio also includes sedative medications.

According to a research report on Hengrui Medicine published by He Juying, an analyst at CITIC Construction Investment, in June 2018, Hengrui received clinical trial approval for SHR-2042 (a long-acting GLP-1 analog).The approved product SHR-2042 is an oral formulation, and multiple GLP-1 drugs from domestic companies are also in clinical trials in China.Among them is pegylated loxenatide from Jiangsu Hansoh Pharma.

Hansoh Pharma's prospectus shows that,Jiangsu Hansoh Pharmaceutical Group Co., Ltd. is the only domestic company in the Chinese market to have submitted a new drug application for an independently developed, long-acting GLP-1 receptor agonist.

In other words,For the same drug, Hengrui is developing an oral formulation while Hansoh is testing an agonist—what another “coincidence.”

So, do you think Hansoh Pharma’s listing will pose a challenge to Hengrui Medicine?