China Medicine Acquires 70% Stake in Zezheng Pharma for RMB 525 Million to Strengthen Complex Formulations Pipeline

On the night of December 30, China Meheco announced that it had signed a share purchase agreement with He Dunwei (Chairman and General Manager of HQ PHARMA) and 12 other counterparties, acquiring a 70% equity stake in Shanghai HQ PHARMA Technology Co., Ltd. (hereinafter referred to as “HQ PHARMA”) for a cash consideration of RMB 525 million.

Upon completion of the transaction, HQ PHARMA will become a controlled subsidiary of China Meheco and be included in the Company’s consolidated financial statements.

The announcement pointed out that this transaction will enhance the comprehensive strength in China's pharmaceutical R&D and innovation sector, address current shortcomings in the R&D system, and achieveFrom Generic Drug Research, to Modified New Drug Research, to Innovative Drug Research...in-depth layout in these fields, and achieve full industrial chain integration from R&D to production, building an industrial layout with coordinated development of pharmaceutical R&D, pharmaceutical manufacturing, and pharmaceutical commerce, which helps to further enhance the competitiveness of listed companies.

HQ PHARMA, established in 2017, is a pharmaceutical R&D enterprise specializing in improved new drugs and complex formulations, offering end-to-end R&D services covering drug research, clinical trials, and regulatory submission.

Financial data shows that HQ PHARMA’s revenue declined significantly year-on-year in 2025: its full-year revenue in 2024 was approximately RMB 257 million, with a total profit of RMB 38.98 million; whereas in the first three quarters of 2025, revenue amounted to only about RMB 107 million, resulting in a loss of RMB 40.85 million. Although the CRO industry is generally characterized by concentrated payments in the fourth quarter and longer accounts receivable cycles,Revenue Halved, Swinging from Profit to LossStill highlights the operational pressure it faces.

HQ PHARMA’s Audited Key Financial Data for 2024

According to the management reports (unaudited), as of September 30, 2025, HQ PHARMA’s consolidated total assets amounted to approximately RMB 422 million, with net assets of RMB 265 million.

According to the "Appraisal Report," the asset-based approach yielded an appraised value of total equity of approximately RMB 559 million, representing an increase of approximately RMB 275 million and a appreciation rate of 96.54%. In contrast, the income approach, which focuses on future profitability, produced an appraised value (the final appraisal conclusion) of approximately RMB 759 million, with an increase of RMB 474 million and an appreciation rate of 166.73%. Through mutual agreement among all parties, the transaction price for 100% equity interest in HQ PHARMA was determined to be RMB 750 million.

This means that China Meheco’s acquisition of a 70% equity stake for RMB 525 million involves a certain degree of premium pricing.

In terms of consideration payment method, China Meheco will make payments in four installments（20%、40%、20%、20%）Completion of payments to founding shareholders, with a total cycle of approximately 24 months.The down payment accounts for 20%, or it may indicate the presence of requirements related to key milestones, performance-based valuation adjustment mechanisms (VAM), and the continued service of the founding team.; 40% shall be paid within 10 business days from the date on which all conditions precedent to the second payment are satisfied; thereafter, 20% shall be paid upon completion of the preceding payment and for each full year elapsed since the Closing Date. The remaining individual shareholders shall be subject to a payment structure of 20% as down payment and 80% as secondary payment; institutional shareholders shall receive 100% as down payment.

The announcement explicitly states that the transaction price is expected to exceed the fair value of the identifiable net assets, thereby resulting inGoodwill—Primarily derived from HQ PHARMA’s proprietary core technologies, R&D and management teams, existing multiple R&D service platforms, and future profitability.and other resources.

As "“China’s first platform company dedicated to the R&D and internationalization of complex formulations,” HQ PHARMA’s core business is pharmaceutical R&D, with a key focus onImproved New Drugs, High-End Generic Drugs, Complex FormulationsR&D. It currently has eight major R&D technology platforms for complex formulations, including a pediatric drug technology platform, an oral sustained- and controlled-release platform, a liposome and emulsion technology platform, a drug-device combination technology platform, an in situ gel technology platform, a nanocrystal technology platform, and a topical formulation development platform,Sterile Formulation Technology Platform (Chemical Drugs& peptide preparations, etc.).

Currently, laboratories and offices have been established in Shanghai, Jinan (Shandong), and Zibo (Shandong).(Including pilot plant and high-end formulation laboratory)、High-Potency Drug Laboratory), with an experienced and relatively stable R&D and management team. The company currently has over 400 employees, more than 82% of whom are engaged in research and development.

Currently, HQ PHARMA has established a business model that provides customers with R&D services (pharmaceutical + clinical) and facilitates the commercialization of proprietary technological achievements.Establishing a Global Presence(ASEAN, Europe and America, Latin America, the Middle East, North Africa)Clinical Operations, Regulatory Affairs, and Marketing Teams. WithJohnson & Johnson, Fresenius Kabi, Merck, etc.Five of the Global Top 20 Multinational Corporations,as well as Shanghai Pharmaceuticals Group, Sinopharm Group, 3SBio Inc., Ruiyang Pharmaceutical, Beijing Honglin, and Huluswa PharmaceuticalOver 40 of China’s Top 100 Pharmaceutical CompaniesEstablished a cooperative relationship.

From its establishment to the date of issuance of this assessment report, HQ PHARMA has led or participated in the R&D of multiple generic drug and improved new drug projects. It has successfully filed over 100 R&D service applications with the National Medical Products Administration (NMPA), among which it has obtained marketing authorization for 55 drugs (including 23 products that passed consistency evaluation, 17 generic drugs, one Class 2 improved new drug, one FDA-approved generic drug, and 13 other pure clinical-stage products), and has secured eight clinical trial approvals.

Leveraging multiple core technologies, HQ PHARMAIt has independently initiated and laid out multiple R&D projects for improved new drugs, first-to-market generics, and complex formulations. These self-developed pipeline assets may constitute another key value driver in China Meheco’s recent acquisition.

It is worth noting that HQ PHARMA possesses an animal health API platform, comprising laboratories at its headquarters in Jiading, Shanghai, and in Jinqiao, Pudong. This platform supports R&D projects for small-molecule active pharmaceutical ingredients (APIs) at scales ranging from grams to kilograms. The Jinqiao branch is equipped with HQ PHARMA’s eight major API synthesis platforms—including semi-synthetic APIs, steroid compounds, polymers, chiral synthesis, metal-catalyzed coupling reactions, hydrogenation, and crystallization process research—as well as a synthetic analysis laboratory.

Currently, HQ PHARMA owns five wholly-owned subsidiaries and holds equity stakes in three companies:

From a broader perspective, HQ PHARMA points toThe Rapidly Rising Chinese Market for High-End Drug Formulations in Recent Years——A report on China’s pharmaceutical formulation industry, released several years ago by the China Chemical Pharmaceutical Industry Association, pointed out that among more than 6,000 pharmaceutical formulation products in China at the time, only 100 were advanced formulations. Of these 100 advanced formulations, approximately 70% were relatively simple types, such as sustained-release tablets, sustained-release capsules, and sustained-release granules.

He Dunwei, Chairman and General Manager of HQ PHARMA, previously pointed out in an interview with VCBeat, “At that time, there were basically no truly high-end formulations such as nanocrystals, liposomes, and in situ gels in China. It was not until 2015, when relevant laws and regulations were successively promulgated in China, that the industry began to focus on the field of high-end formulations. Later, with the implementation of the centralized volume-based procurement policy, the prices of conventional formulation products were compressed, and domestic pharmaceutical companies gradually began to recognize the differentiated clinical value and market value of high-end formulations.”

In 2005, He Dunwei joined the GSK Research Centre, where he was responsible for formulation development and process optimization of various dosage forms. In 2008, he joined Johnson & Johnson’s Asia-Pacific R&D Center, leading his team to successfully launch several products and establish external innovation collaborations with multiple global enterprises.

““If you open the textbook Pharmaceutics, you will find that, with the exception of pills, pellets, ointments, and powders—which were invented in China—nearly all other dosage forms originate from the West. I believe China should advance its pharmaceutical formulation development and possess world-leading drug delivery technologies.”At that time, He Dunwei was employed at the Asia-Pacific R&D Center of Johnson & Johnson Pharmaceutical, where he was primarily responsible for leading his team in formulation development and assisting Johnson & Johnson in identifying innovative pharmaceutical companies in China for collaboration.

In 2016, He Dunwei seized the opportunity to establish HQ Pharma Co., Ltd. in the High-Tech Zone of Zibo City, Shandong Province.To raise capital, He Dunwei sold his house and invested all of his savings accumulated over 11 years of prior employment.

In 2019, He Dunwei relocated the headquarters of HQ PHARMA to Shanghai, where it quickly garnered capital market interest. In 2021, HQ PHARMA completed its Series A and Series B financing rounds in succession, raising a total of hundreds of millions of RMB. Meanwhile, HQ PHARMA collaborated with the Shanghai Biomedical Technology Development Center to jointly operate the “Pilot-Scale Technical Service Platform for Advanced Drug Formulations” in Zhangjiang.

At the end of the interview, He Dunwei stated that he divides the development of HQ PHARMA into two decades: the goal of the first decade was to become a leader in drug delivery system R&D in China, while the second decade will focus more on nanocrystals, nucleic acid delivery, and other areas.Truly Innovative Drug Delivery Systems, committed to becoming a globally renowned leader in the research and development of drug delivery systems, capable of continuously developing new delivery technologies to help Chinese pharmaceutical companies stay at the forefront of global R&D.

As HQ PHARMA Embarks on Its Second Decade and Joins a Central State-Owned Enterprise, How Will It Continue to Write the Chinese Story of Modified New Drugs and Complex Formulations?