Chongqing Zhengchuan Pharma Packaging Material Co., Ltd. Files Prospectus for Convertible Bond Offering

Recently, ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. (hereinafter referred to as "Zhengchuan Shares") announced the "ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. Public Issuance of Convertible Corporate Bonds 2024 Tracking Rating Report".

The announcement stated that, based on a comprehensive analysis and assessment of ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd.’s (hereinafter referred to as “Zhengchuan Shares”) credit status, operational risks, financial risks, and bond terms, Lianhe Ratings has affirmed the company’s long-term issuer credit rating at A+ and the credit rating of its “Zhengchuan Convertible Bonds” at A+, with a stable outlook. A credit rating of A indicates that the rated entity has a strong capacity to meet its financial commitments, is relatively susceptible to adverse economic conditions, and has a low probability of default; the “+” sign denotes a rating slightly above the base level.

It is reported that the publicly issued convertible corporate bonds of Zhengchuan Shares are named “Zhengchuan Convertible Bonds.” The funds raised from the convertible bonds are primarily intended for two ongoing projects: the Type I Borosilicate Medicinal Glass Production Project and the Compatibility Study Project on Type I Borosilicate Medicinal Glass with Pharmaceuticals. The former has an estimated total investment (comprising raised funds and self-raised funds) of RMB 368 million, while the latter has an estimated total investment (comprising raised funds and self-raised funds) of RMB 30 million. Both projects are expected to reach their intended usable status within this year.

As of the end of March 2024, the total investment in projects under construction at ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. (“Zhengchuan Shares”) amounted to RMB 468 million, with RMB 354 million already invested and an additional RMB 105 million yet to be committed. According to the company’s announcement, “Overall, the scale of future investment required for Zhengchuan Shares’ projects under construction is manageable, posing limited pressure on capital expenditures and minimal need for external financing.” Given the current industry landscape, why does this company maintain such a relaxed stance toward projects involving hundreds of millions of yuan? What industrial dynamics lie behind pharmaceutical glass vials? Let us explore the answers together.

Zhengchuan Shares was preceded by Tankou Glass Factory, which was established in 1989. In 1997, the Beibei District Township Enterprise Administration Bureau of Chongqing Municipality issued the Approval on Agreeing to the Establishment of Chongqing Zhengchuan Glass Co., Ltd., approving the establishment of Chongqing Zhengchuan Glass Co., Ltd. on the basis of the original Tankou Glass Factory, with a registered capital of RMB 10 million.

In July 2017, Zhengchuan Shares conducted its initial public offering (IPO), issuing 27 million new shares, which increased the company’s registered capital to RMB 108 million. The stock is abbreviated as “Zhengchuan Shares” and trades under the ticker symbol 603976, making it the first privately owned A-share listed enterprise among domestic pharmaceutical glass packaging manufacturers. Over the years, the company has increased its share capital through the conversion of capital reserves into share capital. As of the end of March 2024, Zhengchuan Shares’ registered capital stood at RMB 151.202 million, with a total share capital of 151.202 million shares. The shares held by the company’s controlling shareholder and actual controller are not subject to any pledges.

Currently, Zhengchuan Shares is primarily engaged in the research and development, production, and sales of pharmaceutical packaging materials, such as controlled tubular glass bottles for pharmaceutical use., with main products including borosilicate glass tubular vials and soda-lime glass tubular vials of various types and specifications, as well as pharmaceutical closures such as aluminum caps and aluminum-plastic combination caps. These products are primarily used for the primary packaging of pharmaceuticals—including water-based injections, powder injections, and oral solutions in the categories of biological products, traditional Chinese medicine preparations, and chemical drug preparations—as well as health supplements.

The company operates in the pharmaceutical packaging materials industry, an essential supporting segment of the pharmaceutical formulation manufacturing sector. One characteristic of this industry is the presence of channel barriers; due to considerations such as drug safety and compatibility validation, customers are generally reluctant to switch pharmaceutical packaging suppliers. Consequently, there is strong stickiness between upstream and downstream players in the supply chain. Once a robust sales channel and customer base are established in this industry, they can continuously generate positive competitive advantages.

Furthermore, the pharmaceutical packaging materials industry falls under the broader consumer goods sector, where brand identity serves as a core competitive advantage for enterprises. After more than three decades of development, the “Zhengchuan” trade name owned by ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. has gradually gained recognition and familiarity among customers, suppliers, and the general public, establishing a certain degree of reputational influence.

In December 2014, the “Zhengchuan” trademark (Registration No. 1194551) held by ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. was recognized as a “Chongqing Famous Trademark” by the Chongqing Administration for Industry and Commerce. In December 2016, the “Low-Borosilicate Glass Tubular Injection Vials (1–50 ml)” produced by the company were awarded the title of “Chongqing Brand-Name Product.” Since 2018, ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. has been repeatedly honored as a “Chongqing Excellent Private Enterprise.” In 2022, it was designated as a “Chongqing Specialized, Refined, Differential, and Innovative Enterprise,” and in 2023, it was ranked among the “Top 100 Chongqing Private Enterprises in Technological Innovation Index.”

After more than three decades of development, Chongqing Zhengchuan Pharmaceutical Packaging Co., Ltd. has rapidly grown into one of the leading enterprises in the niche sector of pharmaceutical tubular glass vials and one of the largest manufacturers of tubular glass bottles in Asia, based in the mountainous city of Chongqing.

As of June this year, ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. has partnered with approximately 700 clients, including most of the industry’s large and medium-sized pharmaceutical manufacturers such as Sinopharm Group, Guangzhou Pharmaceutical Holdings, China Resources Pharmaceutical Group, Fosun Pharma, Yangtze River Pharmaceutical Group, Yunnan Baiyao Group, and Infinitus. With the extension of the industrial chain, the company is also actively expanding into the packaging market for medical aesthetics products, having established business partnerships with leading enterprises in the medical aesthetics and cosmetics sectors, such as Bloomage Biotech and Botanee.

As of the end of 2023, Zhengchuan Shares reported total consolidated assets of RMB 2.043 billion and owners' equity of RMB 1.216 billion (all attributable to the parent company); in 2023,The company achieved a total operating revenue of RMB 901 million,Total Profit: RMB 45 million.

From January to March 2024, the company’s total operating revenue reached RMB 246 million, a year-on-year increase of 8.94%, primarily driven by increased sales of its middle-boron products due to changes in market demand; the total profit amounted to RMB 24 million, representing a year-on-year growth of 44.85%, mainly attributable to the combined effects of decreased costs for raw materials and fuel/power, as well as an increase in other income; the operating profit margin was 20.30%, a year-on-year increase of 3.07 percentage points.

It is evident that in 2023, ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. (“Zhengchuan Shares”) saw a year-on-year increase in total operating revenue, driven by rising downstream demand for sodium-calcium glass controlled-vial bottles within the industry. However, due to increases in fuel and power costs as well as higher depreciation expenses, the company’s overall gross profit margin experienced a slight year-on-year decline. From January to March 2024, Zhengchuan Shares reported a modest year-on-year increase in both total operating revenue and operating profit margin, while its total profit surged significantly year on year.

Overall, as of the end of March 2024, ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. reported total consolidated assets of RMB 2.061 billion and owners’ equity of RMB 1.237 billion (all attributable to equity holders of the parent company), underscoring its continued strength as a leading player in its niche segment.

In June this year, ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. also released an announcement regarding the use of idle proprietary funds for cash management. The company plans to utilize idle proprietary funds with a maximum daily balance not exceeding RMB 300 million (inclusive) to purchase investment products characterized by high security, good liquidity, and medium-to-low risk, thereby improving capital utilization efficiency and enhancing corporate returns.

From an annual revenue of RMB 900 million, to the proposed use of RMB 300 million in idle funds for wealth management products, and further to the statement at the beginning of the article that the investment scale for projects worth hundreds of millions is controllable, with limited pressure on capital expenditure and modest external financing needs—what underpins Zhengchuan Shares’ confidence? It stems from its four major advantages:

First, the advantages of scale and integrated production,After more than three decades of development, ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. has established four major production bases and put into operation more than ten kilns, making itOne of the Largest Manufacturers of Pharmaceutical Tubular Glass Vials in the Industry.It is worth noting that ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. has established a highly integrated production process encompassing “glass tube drawing, bottle forming, and cap manufacturing.” This integration eliminates dependencies on externally sourced glass tubes, enabling the company to rapidly meet customer demands, provide pharmaceutical enterprises with comprehensive full-industry-chain services, and fully address their personalized requirements for pharmaceutical packaging materials.

Next are the advantages in R&D technology, as well as in intelligence and automation.In its 2023 annual report, ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. stated that it held 47 patented technologies, including 8 invention patents.

Leveraging over three decades of accumulated expertise in glass tube drawing kilns and bottle manufacturing processes, its technical team undertook specialized technological upgrades and breakthroughs. The company introduced and independently retrofitted a fully automated precise batching system, a fully automated laser online inspection system, a glass tube packaging production line, an automatic stacking and identification system, an automated glass bottle production line, and an automated glass bottle inspection and packaging line. As a pioneer in the industry, it has comprehensively implemented fully automated operations across the entire “batching–tube drawing–bottle forming–inspection” production workflow.

In bottle manufacturing, Zhengchuan Shares has achieved 100% automated production. Its high-precision bottle-making equipment integrates automatic tube insertion, automated bottle removal from the forming machine, vertical annealing, and automatic bottle loading onto inspection machines. The system employs 360-degree automatic imaging for automated detection of specifications, dimensions, and appearance, along with real-time statistical data recording and analysis. Currently, the company operates a digital workshop for pharmaceutical glass bottle manufacturing and an enterprise technology center. By implementing highly integrated automated production, it can significantly enhance product quality and pass rates.

In addition, ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. also possesses certain product and quality advantages,It offers a comprehensive range of products in the field of pharmaceutical tubular glass vials, with a rich and complete product portfolio that includes low-to-moderate borosilicate tubular injection vials, pre-filled syringe assemblies, cartridge vials, ampoules, coated vials, and oral liquid bottles, among various types and specifications. Zhengchuan’s tubular glass vials feature excellent sealing performance, corrosion resistance, high-temperature resistance, and pressure resistance, capable of meeting diverse customer requirements and fully addressing the personalized packaging material needs of pharmaceutical enterprises.

In terms of quality, ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. ensures the stability and continuous improvement of product quality through rigorous management controls, including self-inspection, mutual inspection, and patrol inspection during raw material sourcing and production, complemented by comprehensive backend oversight involving 100% inspection, batch inspection, and pre-shipment inspection. Over years of development, the company has established stringent production management processes and a robust quality management system. It was among the first in its industry to achieve certifications under premier domestic and international standards, including the ISO 15378 Quality Management Standard and ISO/IEC 17025 Laboratory Accreditation, thereby delivering products with high safety profiles and strong quality consistency.

Currently, the specific details of Zhengchuan Shares' main products are as follows:

① Borosilicate glass tubular vials:Primarily used for the primary packaging of injectables, such as water-based injections and powder injections (including lyophilized powder injections and conventional powder injections), as well as oral liquid medications. Borosilicate glass tubular vials exhibit excellent physicochemical properties, including resistance to acids, alkalis, and high temperatures. They are characterized by minimal reactivity with the contained drugs, thereby preventing contamination of the medication. These vials offer superior barrier properties and sealing performance, meeting the specific requirements of pharmaceutical products. Furthermore, they are recyclable and easier to dispose of compared to plastic packaging materials, thus avoiding environmental pollution.

② Sodium-calcium glass tubular vials:The material composition of soda-lime glass tubular vials differs from that of borosilicate glass tubular vials. Due to their lower chemical stability compared to borosilicate glass vials, soda-lime glass tubular vials are primarily suitable for packaging oral liquids, solid powders, or tablets. These vials offer a relatively lower cost, excellent barrier properties, and superior sealing performance, thereby meeting the specific requirements of pharmaceutical products. Additionally, they are recyclable and easier to dispose of than plastic packaging materials, without causing environmental pollution.

③ Pharmaceutical Bottle Caps:Zhengchuan Shares’ pharmaceutical bottle caps mainly include aluminum caps and aluminum-plastic combination caps, which are sold in conjunction with the company’s pharmaceutical glass bottles. These caps offer high sealing performance, an aesthetically pleasing appearance, and convenient opening mechanisms.

④ High-value products such as pre-filled syringe assemblies and cartridge vials:Currently, in the pharmaceutical packaging sector, particularly within high-end production lines, refined and high-quality packaging solutions such as pre-filled syringes and cartridge vials are gaining popularity. These containers typically have small capacities, enabling precise dosing, and are primarily used for packaging high-value medications that require accurate administration, including biologics, vaccines, insulin, and premium medical aesthetics products. Pre-filled syringes and cartridge vials offer advantages such as reducing the risk of secondary contamination during use and improving operational efficiency.

Furthermore, the brand influence and supply chain stickiness mentioned above are also among the advantages of ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd.

It is evident that, bolstered by its array of advantages, ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. possesses the solid foundation to thrive against market headwinds and ensure sustainable prosperity.

In 2023, ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. achieved an annual production capacity of 10 billion controlled tubing glass vials for pharmaceutical use and 3.3 billion pharmaceutical caps. According to data from Xiangyang Lunyi Tanyao, as a leading enterprise in the controlled tubing bottle sector, Zhengchuan holds a 33% market share in low-borosilicate and soda-lime controlled tubing bottles, with its downstream partnerships extending to over 700 pharmaceutical companies.

Sustainable enterprises never stand still, as is evident from the use of proceeds from the convertible bond issuance mentioned at the beginning of this article (primarily for the production project of neutral borosilicate pharmaceutical glass and the compatibility study project between neutral borosilicate pharmaceutical glass and drugs).ChongQing Zhengchuan Pharmaceutical Packaging Co., Ltd. will next focus on the layout of the Type I borosilicate pharmaceutical glass industry.

Pharmaceutical packaging materials can come into direct contact with drugs, and their quality directly affects the safety of the drugs and the stability of their efficacy.For pharmaceutical glass, one of the primary quality metrics is hydrolytic resistance: the higher the hydrolytic resistance, the lower the risk of reaction with the drug, and the higher the quality of the glass. Based on hydrolytic resistance from low to high, pharmaceutical glass can be classified into soda-lime glass, low-borosilicate glass, and neutral borosilicate glass.

In the Pharmacopoeia, glass is classified into Type I, Type II, and Type III. Type I high-quality borosilicate glass is suitable for packaging injectable drugs; Type II neutralized soda-lime glass is suitable for most acidic and neutral liquid preparations, both injectable and non-injectable; and Type III soda-lime glass is used for packaging oral liquids and solid drugs, but is not suitable for injectable drugs.

Currently, pharmaceutical glass in China is still dominated by low-borosilicate glass and soda-lime glass, with the usage share of neutral borosilicate glass remaining very low. In contrast, since the United States, Europe, Japan, and Russia all mandate the use of neutral borosilicate glass packaging for all injectable preparations and biologics, the international pharmaceutical industry has widely adopted neutral borosilicate glass. Notably, the low-borosilicate packaging materials prevalent in China are not included in international standards and are not recognized globally.

According to statistics, the current penetration rate of neutral borosilicate medicinal glass in China is only about 10%, whereas neutral borosilicate glass pharmaceutical packaging is the mainstream packaging for injectables in the international market. In the United States, neutral borosilicate glass packaging accounts for as high as 84% of the market. Therefore, there is still significant room for growth in the penetration rate of neutral borosilicate glass in China in the future.

The accelerated promotion of consistency evaluations for injectables has hastened the industrial upgrade of China’s pharmaceutical glass sector, driving the transition from low-borosilicate to medium-borosilicate glass. With the continuous introduction of relevant policies, China’s medium-borosilicate pharmaceutical glass industry has achieved notable development and progress in recent years.

Specifically, in the “Catalogue for Guiding Industrial Restructuring (2019 Edition)” released by the National Development and Reform Commission (NDRC) in November 2019, the development and production of novel pharmaceutical packaging materials and technologies—such as neutral borosilicate medicinal glass, functional materials with good chemical stability, biodegradability, and high barrier properties, as well as novel packaging and drug delivery systems and devices including aerosols, powder inhalers, self-administration systems, pre-filled syringes, and automatic drug-mixing devices—were explicitly listed under the “encouraged” category. The introduction of these national industrial policies has provided development recommendations and clear direction for the pharmaceutical glass industry, thereby helping to promote innovation and progress within the sector.

In May 2020, the National Medical Products Administration (NMPA) and the Center for Drug Evaluation (hereinafter referred to as “CDE”) successively issued announcements and technical requirements related to the consistency evaluation of injections, marking the official launch of the consistency evaluation for existing injection products. In the issued *Technical Requirements for Quality and Efficacy Consistency Evaluation of Generic Chemical Injection Products*, the CDE explicitly stated that the quality and performance of packaging materials and containers used for injections shall not be inferior to those of the reference listed drug, so as to ensure that the drug quality is consistent with the reference listed drug.

Previously, China adopted a registration and approval system for pharmaceutical packaging materials, requiring separate applications and licenses for packaging materials and drugs. The associated review system treats pharmaceutical packaging and drugs as an integrated whole, mandating that packaging materials be submitted in conjunction with drug clinical trial or production applications. This will compel domestic enterprises to accelerate the R&D of neutral borosilicate glass tubes, leading to a gradual increase in the substitution rate of related products in the future.

According to data from Pharmaceutical Network,As of 2022, the penetration rate of neutral borosilicate glass was generally only 10%-15%,From the perspective of molded bottles, market demand stands at approximately 10 billion units. This is driven by the expanding trend of upgrades in pharmaceutical packaging materials, as well as the advancement of generic drug consistency evaluations and centralized procurement.It is projected that around 2025, the penetration rate of demand for medium borosilicate molded bottles will reach 50%.By 2025, the volume of molded neutral borosilicate glass bottles is projected to reach 5 billion units, corresponding to a market size of RMB 3.25 billion. In terms of tubular glass bottles, the demand for injection vials is 20 billion units, and that for ampoules is 40 billion units. With the current penetration rate at 15%, assuming it rises to 50% after 2025, the market size for neutral borosilicate tubular glass bottles is expected to reach approximately RMB 4 billion.

From the perspective of revenue product structure, borosilicate glass molded vials and soda-lime glass molded vials of Zhengchuan Shares contributed to the majority of the company's revenue sources. In the first half of 2023, the revenue proportions of borosilicate glass tubes and soda-lime glass molded vials were 48% and 3%, respectively. In terms of gross profit margin, borosilicate glass molded vials had the highest gross profit margin, reaching 24.65% in 2022. Undoubtedly, as Zhengchuan Shares gradually shifts its business structure towards the high-margin mid-borosilicate pharmaceutical glass market, there will be further room for improvement in gross profit margins.

Despite the rapid growth of the neutral borosilicate glass industry and the significant potential for domestic substitution, there are also numerous industry players seeking to capitalize on this blue ocean market.

Currently, there are over 200 pharmaceutical glass manufacturing enterprises in China., according to data from the National Medical Products Administration (NMPA), as of January 2024, there were 164 approved registration documents for injections packaged in neutral borosilicate glass controlled tubes, including those from imported manufacturers such as Schott, Nipro, and Gerresheimer.Overall, the domestic controlled glass bottle industry in China is characterized by a large number of enterprises, the coexistence of large and small-to-medium-sized enterprises, fragmented operations, and intense competition.

Leading companies hold a distinct advantage in this competition.

First, leading enterprises possess stronger financial resources and deeper accumulations of resources and technology, enabling them to rapidly consolidate their advantages in preparation for industrial upgrading.

Furthermore, pharmaceutical packaging material enterprises exhibit extremely high supply chain stickiness with downstream pharmaceutical companies.In the pharmaceutical R&D and manufacturing process, particularly for marketed products, a change in pharmaceutical packaging materials by a company triggers a linked review and approval process. This submission typically takes no less than six months, involves high costs, and carries significant uncertainty. Therefore, downstream pharmaceutical companies are reluctant to change packaging materials easily; once a supplier is selected, they tend to maintain long-term cooperation.

More importantly, when selecting suppliers for packaging materials, raw materials, and equipment, many pharmaceutical companies tend to partner with industry players that demonstrate stable and consistent quality as well as a high degree of scale, in order to ensure supply chain security and stability.

By capitalizing on future blue-ocean opportunities and its own competitive advantages, Chongqing Zhengchuan Pharmaceutical Packaging Co., Ltd. has established a clear medium- to long-term plan for the development of various neutral borosilicate glass products. The company plans to construct eight neutral borosilicate glass furnaces, achieving an annual capacity of 50,000 metric tons of neutral borosilicate glass tubing and an annual production capacity of 15 billion converted vials, thereby consolidating its leading position in the converted vial industry.

In addition to the rapid momentum of Chongqing Zhengchuan Pharmaceutical Packaging Co., Ltd. (Zhengchuan Shares), domestic enterprises such as Shandong Pharmaceutical Glass, Linuo Special Glass, Sixing Glass, Ningbo Zhengli, Zhuzhou Kibing, and Kaisheng Junheng are also undergoing rapid development and iteration.

We look forward to established controlled-vial manufacturers continuing their legacy of excellence while constantly optimizing factory supply chains—by adopting new technologies, adding new equipment, expanding production capacity, and diversifying product offerings—to meet customers’ growing demands and drive progress in the pharmaceutical industry. We also anticipate that, with industrial upgrading and iteration, an increasing number of new entrants will emerge in the controlled-vial sector, collaboratively advancing the development of the entire industry chain.