Shijiazhuang Pharma Group's Biopharma Restructuring: Shiji Innovation Files IPO Prospectus to Forge a RMB 40-Billion Giant

Recently, CSPC INNOVATION PHARMACEUTICAL CO., LTD. (formerly known as CSPC Group Nova Pharmaceutical Co., Ltd., hereinafter referred to as "Nova") announced that the Company intends to acquire 100% equity interest in CSPC Baike(shandong)Bio-Pharmaceutical Co., Ltd. ("Baike Bio") through the issuance of shares and cash payments, and to raise matching funds. This transaction is expected to constitute a major asset restructuring but does not constitute a backdoor listing. The Company's stock has been suspended from trading since the market opening on Thursday, January 11, 2024.

Xinnowei also stated that there are currently uncertainties surrounding this transaction, and details such as the specific acquisition price, transaction method, and counterparties will be subject to information disclosed in subsequent announcements. As of the date of this announcement, the shareholding structure of Baike Bio-Pharmaceutical is as follows: CSPC Group Vitamins Pharmaceutical holds 60.84%, CSPC (Shanghai) Co., Ltd. holds 23.78%, and CSPC Group NBP Pharmaceutical holds 15.38%, making it a wholly-owned subsidiary under CSPC Group.

CSPC Baike, established in 1994 and formerly known as Shandong Grand-Bio Pharmaceutical Co., Ltd., is now a wholly-owned subsidiary of CSPC Pharmaceutical Group. Through independent R&D or collaborative development, CSPC Baike has gradually expanded its product portfolio, focusing primarily on monoclonal antibodies and fusion proteins—all novel biologics with independent intellectual property rights. It has become the largest biopharmaceutical industrial base within CSPC Pharmaceutical Group. To date, CSPC Baike’s total assets amount to RMB 2.64 billion, with fixed assets totaling RMB 355 million.

Backed by CSPC Group and leveraging its own innovative R&D capabilities, Baike Bio possesses strong biotechnology and product advantages, with marketed products including PEG-rhG-CSF (brand name: Jin You Li) and more than seven assets in development.

It is worth mentioning that Jin You Li, a pegylated recombinant human granulocyte colony-stimulating factor (rhG-CSF) injection independently developed by CSPC Baike Bio-Pharmaceutical Co., Ltd., is China’s first long-acting rhG-CSF injection. The project was initiated in 1997, and Phase I, II, and III clinical trials were conducted and completed at institutions including the Cancer Hospital of the Chinese Academy of Medical Sciences starting in 2002. It received marketing approval on October 17, 2011, and is primarily used to reduce the incidence of infection caused by febrile neutropenia in patients with non-myeloid malignancies.

Jinyouli’s market launch filled the domestic gap in long-acting leukocyte-elevating agents. It is the only long-acting leukocyte-elevating agent approved as a Class 1 new drug in China, was included in the National Reimbursement Drug List in 2017, and was listed among the major achievements of 60 years of clinical trials of novel anti-tumor drugs in China in 2021. Since its commercial launch, Jinyouli has maintained strong sales performance. According to data published by Menet, Jinyouli is one of the four chemical drug brands under CSPC Pharmaceutical Group with terminal sales exceeding RMB 1 billion in Chinese public medical institutions.

In addition to Jinyouli, a blockbuster product with annual sales exceeding RMB 1 billion, Baike Bio’s investigational recombinant glucagon-like peptide-1 (GLP-1) candidate, TG103, has also attracted significant market attention and is regarded as the company’s most promising GLP-1 agent for weight loss and glycemic control.

TG103 is an innovative recombinant human glucagon-like peptide-1 (hGLP-1) Fc fusion protein and a GLP-1 receptor agonist. Built on the hyFc long-acting fusion protein platform technology, TG103 features a molecular design that extends the half-life of GLP-1 in vivo. Existing clinical trial data demonstrate that TG103 can be administered via subcutaneous injection once weekly or once every two weeks, significantly improving patient adherence. TG103 has exhibited a favorable safety profile in preclinical studies and in a previous Phase I clinical trial conducted in Germany.

TG103 was not previously an in-house asset under development by Baike Bio. In 2018, Baike Bio entered into a collaboration agreement with I-Mab Biopharma regarding TG103. Under the terms of the agreement, CSPC Pharmaceutical Group will pay I-Mab Biopharma an upfront payment of RMB 15 million and subsequent milestone payments totaling RMB 135 million. In return, CSPC Pharmaceutical Group will obtain exclusive rights for the clinical development and future commercialization of TG103 in China, bear the development costs, and pay sales royalties to I-Mab Biopharma.

In 2023, GLP-1 weight-loss drugs gained widespread prominence following Elon Musk’s endorsement, the successive approvals and market launches of weight-loss medications from Novo Nordisk and Eli Lilly, and the entry of “outsiders” such as Kweichow Moutai. Baike Bio, developer of TG103, also benefited from this surge in interest. Last October, the Shandong Provincial Department of Science and Technology issued the “Notice on the Implementation of Key R&D Programs (Major Scientific and Technological Innovation Projects) of Shandong Province in 2023.” The project undertaken by Baike Bio, titled “Research on Key Technologies for the Industrialization of a National Class 1 Biologic New Drug: GLP-1 Fc Fusion Protein Injection (TG103 Project),” was approved and received financial support from the provincial government.

Currently, TG103 has been approved to conduct clinical trials for indications including type 2 diabetes, overweight/obesity, non-alcoholic steatohepatitis (NASH), and Alzheimer’s disease. Among these, the trial for the overweight/obesity indication is in Phase III, while the Phase II clinical trial for type 2 diabetes has been completed. According to disclosures from CSPC Pharmaceutical Group, TG103 is expected to receive marketing approval in 2026.

Upon completion of this acquisition, CSPC Innovation will acquire all products and core assets of CSPC Baike (Shandong) Bio-Pharmaceutical. This signifies a substantial enhancement in CSPC Innovation’s technological capabilities and product advantages in biopharmaceuticals, further fueling its future growth momentum.

The two parties to this transaction—Xinnuowei and Baike Biologics—are actually “part of the same family,” as both are subsidiaries of CSPC Pharmaceutical Group.

However, Xinuowei’s corporate background warrants attention. Established in 2006, CSPC Xinuowei Pharmaceutical Co., Ltd. is a wholly-owned subsidiary of CSPC Pharmaceutical Group, a constituent of the Hang Seng Index. In 2019, Xinuowei listed on the ChiNext board of the A-share market, becoming the first Chinese red-chip company to spin off and list domestically on the A-share market. Since then, CSPC Pharmaceutical Group has achieved a dual capital structure with listings in both Hong Kong and the A-share market.

Previously, CSPC Innovation was primarily engaged in the functional food and functional ingredient sectors. Its core business involved the research and development, manufacturing, and sales of functional foods within the broader health and wellness industry. The company’s main product portfolio consisted of functional ingredients and health supplements. Key functional ingredients included caffeine, acarbose, and anhydrous glucose, while its primary health supplement offerings were Guoweikang Vitamin C lozenges and B-complex vitamin lozenges.

According to Xinnowei’s official website, the company is one of the largest production bases for chemically synthesized caffeine globally and ranks among the top tier in China’s health food industry. Its caffeine production scale and market share hold a leading position worldwide, and it serves as a global supplier to three major international beverage companies: PepsiCo, Coca-Cola, and Red Bull. The company enjoys a global advantage in the production scale of acarbose active pharmaceutical ingredients (APIs), effectively meeting the substantial clinical demand for blood glucose management among individuals with diabetes or at risk of developing the condition.

According to the financial report released by Xinnuowei, the company’s revenue in the first three quarters of 2023 reached RMB 1.902 billion, a year-on-year increase of 0.46%; net profit attributable to shareholders of the parent company amounted to RMB 583 million, representing a year-on-year increase of 12.74%. This performance was still primarily driven by active pharmaceutical ingredients (APIs). Company data indicates that revenue from functional ingredient products accounted for approximately 85% of total revenue, while health food products contributed around 13%.

However, 2023 was a “turning point” for Xinnuowei and also a year in which it shone brightly in the A-share biopharmaceutical sector. According to Wind data, among companies in the Shenwan Pharmaceutical and Biological Industry Index, Baili Tianheng posted the highest full-year gain (336.51%), followed by Xinnuowei (320.58%). Starting from August 30, 2023, Xinnuowei’s share price surged continuously, tripling over the course of the year and pushing its market capitalization above RMB 40 billion.

On August 30 last year, Xinnuowei disclosed its plan to make a cash capital injection into Jushi Biologics, a subsidiary of CSPC Pharmaceutical Group, to acquire more than 51% equity interest and achieve controlling stake. On September 11, Xinnuowei announced that it had signed a capital increase agreement with Jushi Biologics and NBP Pharmaceutical, confirming a capital injection of RMB 1.871 billion to acquire a 51% equity stake in Jushi Biologics. Of this amount, RMB 1.041 billion was allocated to Jushi Biologics’ registered capital, and RMB 830 million was allocated to the capital reserve. In addition, Xinnuowei conducted a private placement of RMB 4 billion, with RMB 2 billion used to supplement working capital and RMB 2 billion designated for the acquisition of Jushi Biologics.

Jushi Biologics is one of the core biopharmaceutical innovation assets of CSPC Pharmaceutical Group. It is an innovative biopharmaceutical company focused on frontier areas such as antibody-based therapeutics, antibody-drug conjugates (ADCs), and mRNA vaccines. Its pipeline products primarily target indications including breast cancer, cervical cancer, gastric cancer, and psoriasis.

Currently, Jushi Biologics has two approved products: SYSA1802, a PD-1 monoclonal antibody for the treatment of recurrent or metastatic cervical cancer, and Duentai, an mRNA COVID-19 vaccine. In addition, the company currently has more than 20 R&D pipelines, with eight products undergoing clinical trials at various stages in China or filing for marketing approval. Among these, two products are in the marketing approval application stage, three are in Phase II/III clinical trials, and three are in Phase I clinical trials.

Furthermore, Jushi Biopharma holds a relatively leading position in the domestic ADC sector. The development and commercialization rights for its two core ADC assets, SYS6002 and SYSA1801, in certain overseas markets were licensed to Corbus Pharmaceuticals and Elevation Oncology, with upfront payments of $7.5 million and $27 million, respectively.

The prominence of Jushi Biologics is self-evident. Xinnuowei is poised to leverage this opportunity to enter the biopharmaceutical sector, transforming from a functional food company into an innovative drug enterprise, thereby significantly boosting its valuation. Subsequently, to underscore its focus on innovative R&D, Xinnuowei changed its full Chinese corporate name to “CSPC INNOVATION PHARMACEUTICAL CO., LTD.”

With the acquisition of Baike Bio-Pharmaceutical, Xinshuowei’s innovative drug R&D capabilities are poised to “reach a new level,” transforming it into an innovative company integrating the R&D, production, and sales of biopharmaceuticals, functional foods, and functional ingredients.

The previous two acquisitions of equity stakes in Jushi Bio and Baike Bio were not Xinuowei’s first acquisitions of “affiliated parties.”

In 2016, Xinnowei acquired Hebei Zhongnuo Guoweikang Health Products Co., Ltd. and CSPC Zhongnuo Pharmaceutical (Taizhou) Co., Ltd., both subsidiaries of CSPC Pharmaceutical Group, thereby obtaining their functional food-related businesses.

In 2022, Xinnoway acquired a 100% equity stake in CSPC Shengxue Glucose Co., Ltd. (“CSPC Shengxue”), a subsidiary of CSPC Pharmaceutical Group, for a consideration of RMB 800 million. CSPC Shengxue’s main products include acarbose active pharmaceutical ingredients (APIs) and anhydrous glucose APIs. It is the largest domestic producer of acarbose APIs and supplies most formulation manufacturers. This transaction further enriched Xinnoway’s API segment and enhanced the company’s profitability. Data showed that CSPC Shengxue achieved a net profit of RMB 90.0882 million in 2022, thereby fulfilling its first-year performance commitment.

These recent acquisition transactions follow an identical pattern: if the deals proceed, CSPC Pharmaceutical Group will divest its direct equity stakes in the subsidiaries and instead hold them 100% indirectly. Upon payment by Sinobioway, CSPC Pharmaceutical Group and Enbipu will receive the transaction proceeds.

However, the market appears unconvinced by the asset restructuring of CSPC Pharmaceutical Group and New Norwell, as there has been no substantive breakthrough in CSPC’s overall business fundamentals. On January 10, following New Norwell’s announcement of its acquisition of equity in Baike Bio-Pharmaceutical, CSPC’s share price plummeted by 6.23% in a single day.

As a leading pharmaceutical manufacturer in China, CSPC Pharmaceutical Group boasts comprehensive strength comparable to many biopharmaceutical companies. It has multiple marketed products across various therapeutic areas, including neurological disorders, oncology, and cardiovascular diseases. Currently, 60 drug candidates are in clinical development or under regulatory review, with seven marketing authorization applications submitted. Over the next five years, more than 40 innovative drugs and novel formulations are expected to be launched. The company has also demonstrated strong financial performance. According to data released by CSPC Pharmaceutical Group, its revenue increased from RMB 17.717 billion in 2018 to RMB 30.937 billion in 2022, representing a compound annual growth rate (CAGR) of 14.95%.

However, amid the downturn in the pharmaceutical industry and the capital winter, CSPC Pharmaceutical Group has inevitably been impacted. Its operating revenue for the first three quarters of 2023 amounted to RMB 23.865 billion, a year-on-year increase of 1.6%; net profit reached RMB 4.715 billion, up 2% year on year, indicating a continued slowdown in performance growth.

Furthermore, the company’s core products are facing a patent cliff. NBP, its flagship product with annual sales of RMB 7 billion, has seen its injection patent expire, while the capsule patent is set to expire in December this year. Jinyouli has long passed its patent protection period, and currently, five long-acting G-CSF products have been approved for marketing in China. Additionally, Kelai was included in the centralized volume-based procurement program in the first half of 2023, leading to a significant decline in its sales revenue thereafter.

While CSPC Group’s finished drug business faces headwinds, its innovative drugs have yet to turn a profit. For instance, although Jushi Biopharma boasts an impressive pipeline of investigational assets, most remain in clinical stages. Despite the inclusion of China’s first domestically developed mRNA COVID-19 vaccine in emergency use, it has not generated substantial revenue.

Therefore, CSPC Group, which is in a critical period of transition from generic manufacturing to innovation-driven development, urgently needs to "save itself." The purpose of Xinnuowei's listing in 2019 was to establish an independent financing platform for CSPC Group on the A-share market and to strengthen the development of its health product business. By gradually transferring low-valuation Hong Kong-listed assets to the higher-valuation A-share platform, CSPC Group can not only obtain cash but also provide an additional financing channel for its innovative drug assets, thereby achieving a relatively higher valuation.

As of press time, Xinnuowei’s market capitalization on the A-share market stood at RMB 40.765 billion, while CSPC Pharmaceutical Group’s market capitalization on the Hong Kong Stock Exchange was HKD 72.491 billion.

By gradually transferring its innovative drug assets to CSPC Innovation, CSPC Group is building a new platform for innovative drugs, aiming to continuously advance the R&D progress of its pipeline and strengthen its layout in the innovative drug sector. In the future, can CSPC Group continue to hold its ground in the fiercely competitive market for innovative drugs? Time will tell!