Bide Pharma Exits Biologics Venture with $0 Sale of Two Subsidiaries, Refocusing on Core Molecular Building Blocks Business

Recently, Bepharm (SH688073) announced that Mr. Dai Long, one of the company’s actual controllers, will acquire a 70% equity interest in Jiaxing Bepharm Biotechnology Co., Ltd. (hereinafter referred to as “Jiaxing Company”) and a 75% equity interest in Bihe Bida Biotechnology (Suzhou) Co., Ltd. (hereinafter referred to as “Suzhou Company”) from Kaimike (Shanghai) Pharmaceutical Technology Co., Ltd. (a wholly-owned subsidiary of Bepharm, hereinafter referred to as “Kaimike”), respectively, at a consideration of RMB 0.

In fact, this June, Kaimaike just acquired a 70% equity stake in the Jiaxing company and a 75% equity stake in the Suzhou company, respectively, for a consideration of RMB 0. Both “zero-cost acquisition” events occurred between the listed company and one of its actual controllers. What thought-provoking stories lie behind these events?

When it comes to Bepharm, those familiar with the field of molecular building blocks should be well acquainted with it.

New drug development companies need to screen, evaluate, and optimize thousands of candidate compounds. Compared with ordinary reagents, building blocks can significantly improve synthesis efficiency. In recent years, several pharmaceutical molecular building block companies have been listed on the STAR Market and have performed well in terms of stock prices. The price-to-earnings ratios of Pharmablock Sciences and Haoyuan Chemexpress have both exceeded 100 times.

Shanghai Bepharm Science&Technology Co.,Ltd. was established in 2007 and is one of the leading domestic enterprises in molecular building blocks at the kilogram scale and below. It was listed on the STAR Market last October.

According to its prospectus, Bepharm has stocked 73,300 drug molecule building block products and can offer more than 300,000 products to customers. Its end customers include innovative pharmaceutical companies, research institutes, and CRO organizations, represented by Roche, Merck, Hengrui Medicine, Harvard University, and Tsinghua University. WuXi AppTec, Fluorochem Limited, and Sigma-Aldrich have been Bepharm’s top three customers in the past two years.

As the “small but beautiful” niche of molecular building blocks accelerates, domestic players such as Bepharm are actively expanding their business models to be broader and more vertically integrated.

The “Zero-Cost Purchase” incident reflects the historical issues left behind as Shanghai Bepharm Science&Technology Co., Ltd. expanded into the new frontier of biotechnology.

Bepharm's Core BusinessEngaged in the research and development, production, and sales of drug molecule building blocks and scientific reagent products, with a primary focus on the upstream segment of the new drug R&D industry chain.In the field of chemistry.Suzhou Company and Jiaxing CompanyEstablished to support Bidi Biology’s operations, its future core business will primarily focus on the research and development, production, and sales of biological reagents, raw materials for biopharmaceuticals, and diagnostic reagents.Focuses primarily on the life sciences sector.

In April this year, Shanghai Bepharm Science&Technology Co.,Ltd. released its 2022 annual report and Q1 2023 quarterly report. It can be seen from the reports that the company officially entered the field of biological reagents in the first quarter of 2023.

In April this year, Kaimeike, a subsidiary of Bepharm, signed an Investment Agreement with Baidi Biology and its related parties. Under the agreement, Kaimeike made a total investment of RMB 40 million by acquiring equity interests from individual shareholders of Baidi Biology and subscribing to additional capital increases in Baidi Biology, ultimately holding a 30% equity stake in Baidi Biology.

In June this year, for the purpose of synergizing with Bidi Bio’s business development and expanding its scope of operations, Shanghai Bepharm Science&Technology Co., Ltd. had its wholly-owned subsidiary, Kaimeike, acquire a 70% equity interest in the Jiaxing Company and a 75% equity interest in the Suzhou Company, both at a consideration of RMB 0.

However, in September, Shanghai Bepharm Science&Technology Co., Ltd. announced that, based on actual circumstances and the requirements of its overall strategic development, and to safeguard the interests of the company and its shareholders, it had reached a consensus with all parties after careful consideration to terminate Kaimeike’s outbound investment matters.

The decision to sell off two sub-subsidiaries at zero consideration is also in line with Bepharm’s strategic requirement to “focus on its core business of R&D, production, and sales of drug molecular building blocks and scientific reagents, thereby consolidating its leading position in the molecular building blocks sector.” Therefore, the company has terminated its investment and business expansion in the field where Baidi Biotechnology operates.

However, based on the assessment of the substantial market potential for domestic substitution in the life sciences and biopharmaceutical sectors, Dai Long, one of the company’s actual controllers, holds a positive outlook on Bidi Bio and the development of its industry. Therefore, Dai Long, one of the company’s actual controllers, will acquire from Kaimeike the 70% equity interest in the Jiaxing Company and the 75% equity interest in the Suzhou Company held by Kaimeike, at a consideration of RMB 0.

Many people, upon seeing a transaction price of zero yuan and that the parties involved are a listed company and one of its actual controllers, may wonder: Is this legal?

In fact, in accordance with the Rules Governing the Listing of Stocks on the STAR Market of the Shanghai Stock Exchange and other relevant regulations, Dai Long, one of the actual controllers of Bepharm, is a related party of the Company. The sale by Kemeike, a wholly-owned subsidiary of the Company, of its 70% equity interest in the Jiaxing Company and 75% equity interest in the Suzhou Company to Dai Long constitutes a disposal of assets to a related party and thus qualifies as a related-party transaction. This transaction does not constitute a major asset restructuring as defined under the Administrative Measures for Major Asset Restructurings of Listed Companies. Therefore, there are no significant legal impediments to the implementation of this transaction.

The transaction price is RMB 0. According to the announcement, given that Jiaxing Company and Suzhou Company are holding grand-subject companies acquired by the Company in June of this year at a transaction price of RMB 0, their registered paid-in capital is RMB 0. As of now, both companies are operating at a loss and have not achieved profitability. Furthermore, all funds injected by the Company during this period were treated as loans, which will be repaid by Jiaxing Company and Suzhou Company to Bepharm Pharmaceutical prior to the registration of changes with the Administration for Industry and Commerce regarding the equity transfer. Therefore, through mutual agreement among all parties, the transaction price for this deal has been set at RMB 0.

The announcement also revealed that Bepharm’s prior investments in the two companies were structured as loans, totaling RMB 27.2 million (RMB 3.5 million to the Jiaxing company and RMB 23.7 million to the Suzhou company), which will be repaid to Bepharm before the completion of the industrial and commercial registration changes for the equity transfer.

Why Is Bepharm, a Listed Company, So "Stingy"?

According to its financial report, Shanghai Bepharm Science&Technology Co.,Ltd. achieved a revenue of RMB 830 million in 2022, a year-on-year increase of 37.6%, and a net profit attributable to shareholders of the parent company of RMB 150 million, a year-on-year increase of 49.6%. In the first quarter of 2023, the company recorded a revenue of RMB 250 million, up 42.6% year on year, and a net profit attributable to shareholders of the parent company of RMB 40 million, up 45.2% year on year.

Compared with most biopharmaceutical companies that remain deeply unprofitable even after going public, Bepharm has fared relatively well during the pharmaceutical industry’s downturn. Logically speaking, while an investment of tens of millions of yuan is not insignificant for the company, it hardly warrants haggling over every penny.

However, as the saying goes, “interloping is like crossing a mountain.” Shanghai Bepharm Science&Technology Co., Ltd. also stated that, influenced by objective factors such as the macroeconomic climate, market conditions, and industry development, there is considerable uncertainty as to whether the company would achieve the expected outcomes if it continues to advance Kaimeike’s investment in Baidi Biologics.

It is easy to understand that as a company grows larger, every move it makes requires careful consideration, especially in this high-risk industry. Perhaps a single initiative that does not align with the company’s development strategy could deliver a fatal blow. The larger the “family business” becomes, the more it must learn to “manage its household affairs” prudently.

It is not just Shanghai Bepharm Science&Technology Co., Ltd. Over the past year or two, many multinational corporations have continuously issued announcements outlining their plans for layoffs, production cuts, and pipeline streamlining. Global giants such as Pfizer, Amgen, and Biogen have all announced layoff plans this year. Moderna, which amassed significant wealth from its mRNA vaccines, also revealed plans to reduce vaccine production in its recently released third-quarter financial report.

While companies are achieving strong sales, they are also actively planning for “cost reduction and efficiency improvement.” Perhaps the onset of a downturn is not necessarily a bad thing; it can help us clear away the immediate bubbles, think about issues more directly, and allocate precious capital to where it matters most.