Almost Burned IPO Funds, Lost Over 3 Billion

A rumor of layoffs involving thousands of people has pushed the innovative pharmaceutical company, Rongchang Biopharma (688331.SH, 09995.HK), into the spotlight.

Recently, media reports have claimed that the significant staff reduction at Rongchang Biopharma affects multiple departments including R&D and production, and the layoffs are still ongoing.

Rongchang Biopharma denied the rumors of layoffs, responding that it is "a personnel adjustment based on the company's strategic development needs."

Since its listing, Rongchang Biopharma has accumulated a net loss of over 3 billion yuan, with operating capital mainly relying on external financing.

This year, the company has been repeatedly rumored to be facing cash flow issues.

With a total financing of over 6 billion yuan from dual listings, years of losses and high R&D expenditures have almost "burned through" the financing.

As of the end of the second quarter, Rongchang Biopharma's cash scale was 676 million yuan, the lowest value since its listing, and the remaining amount from the A-share IPO was only about 60 million yuan.

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The company's annual R&D expenditure exceeds 1 billion yuan, making its operating capital extremely tight.

Under financial pressure, Rongchang Biopharma decided to "reach out for more money" from the market.

In March this year, it announced a plan for a private placement, and several months later, it reduced the planned fundraising amount from 2.55 billion yuan to about 1.9 billion yuan, which has not yet been approved by regulators.

The current A-share price of Rongchang Biopharma is 50% below the issue price, and the H-share price is even less than one-fifth of the issue price.

Compared to the high proportion of stock price breaks, whether this "blood transfusion" private placement can be smoothly implemented is a focus of investor attention.

The "personnel adjustment" mentioned by Rongchang Biopharma, which is due to years of losses and almost "burning through" IPO financing, is reflected in the financial statements.

The mid-year report shows that Rongchang Biopharma's administrative expenses in the first half of the year decreased by 9.92% year-on-year, from 164 million yuan to 147 million yuan, with the company stating that the reason is the optimization of various expenditures, leading to a reduction in expenses.

In the first half of the year, Rongchang Biopharma's sales and R&D expenses increased to varying degrees, with only administrative expenses decreasing.

Reporters noticed that the number of R&D personnel at Rongchang Biopharma has also decreased.

As of the end of the second quarter, the total number of R&D personnel was 1,216, a decrease of 55 people compared to 1,271 in the same period last year, and the proportion of R&D personnel in the total workforce decreased by 0.13 percentage points year-on-year to 34.77%.

However, the average salary of R&D personnel increased from 161,500 yuan in the same period of 2023 to 194,100 yuan.

Behind the layoff storm at Rongchang Biopharma is a series of annual losses and almost "burning through" IPO financing.

Financial statements show that Rongchang Biopharma, which relies on the Hong Kong Stock Exchange's Rule 18A, "allowing biotech companies without revenue or profit to submit listing applications," went public in Hong Kong on November 9, 2020, and listed on the STAR Market in March 2022.

This is an innovative biopharmaceutical company mainly focused on the field of therapeutic antibody drugs such as antibody-drug conjugates (ADC), antibody fusion proteins, monoclonal antibodies, and bispecific antibodies, with main products including Taitaxysip and Videxicidu Monoclonal Antibody.

From 2022 to the end of the first half of this year, Rongchang Biopharma's net profit attributable to the parent company after deducting non-recurring gains and losses accumulated a loss of 3.453 billion yuan, and as of June 30, the company's undistributed profit loss was 3.634 billion yuan.

According to institutional profit forecasts, Rongchang Biopharma's net profit attributable to the parent company in 2025 is expected to continue to lose 796 million yuan.

The reason for the continued loss in performance in the first half of this year, according to Rongchang Biopharma, is the continuous increase in R&D investment in research projects.

During the reporting period, the company's R&D expenses were 806 million yuan, a year-on-year increase of 49.18%.

To date, Rongchang Biopharma's total R&D expenses have been about 3.1 billion yuan.

As of the end of the report, there are a total of 26 main R&D pipelines, involving three major categories: autoimmune diseases, tumors, and ophthalmology.

Since the main business does not have the ability to make a continuous profit, the source of R&D funds for Rongchang Biopharma can only rely on IPO financing.

The net amount of Rongchang Biopharma's A-share IPO financing was 2.506 billion yuan, and the total amount of H-share financing was 3.911 billion yuan, totaling about 6.4 billion yuan.

However, this financing has almost run out, with the mid-year report showing that the balance of the company's A-share IPO funds was 60.025 million yuan, and the funds raised were basically used for research projects.

Rongchang Biopharma's sales expenses and administrative expenses also continue to consume cash flow.

From 2022 to June 2024, the company's sales expenses continued to grow, amounting to 441 million yuan, 775 million yuan, and 389 million yuan respectively, totaling 1.605 billion yuan; administrative expenses were 266 million yuan, 304 million yuan, and 147 million yuan respectively, totaling 717 million yuan, plus R&D expenses, the total of the three expenses since listing has been nearly 5.5 billion yuan.

Rongchang Biopharma's mid-year report stated that if it cannot achieve profitability or complete new financing within a certain period in the future, the company will be forced to postpone, reduce, or cancel R&D projects, and the commercialization progress of research drugs will directly affect the operating performance.

In March this year, Rongchang Biopharma initiated its first private placement plan after listing, intending to raise 2.55 billion yuan.

However, the private placement plan has not been implemented, and under financial pressure, Rongchang Biopharma recently released a revised draft of the private placement plan, reducing the fundraising amount to 1.953 billion yuan, with all the funds planned to be invested in new drug R&D projects.

Regarding the necessity of this financing, Rongchang Biopharma explained that the company's core product Taitaxysip for the treatment of systemic lupus erythematosus and rheumatoid arthritis has been fully approved for marketing in China, and Videxicidu Monoclonal Antibody for the treatment of gastric cancer and urothelial cancer has been conditionally approved for marketing in China, and still needs to carry out a variety of indications for multiple clinical trials (including international multicenter clinical trials), which involve a large number of specific indications and patients, requiring a large R&D investment.

In terms of Rongchang Biopharma's current financial level, this financing is crucial.

Rongchang Biopharma's operating capital has always depended on external financing.

In the first half of the year, the net cash flow from operating activities of Rongchang Biopharma was -820 million yuan, and the monetary funds were only 676 million yuan, the lowest scale since listing, and according to the company's net profit loss scale in the first half of the year, the cash will be depleted by the end of the year.

Financial statements show that as of the end of June 2024, Rongchang Biopharma's total liabilities were 3.09 billion yuan, compared to 2.091 billion yuan at the end of the previous year.

Among them, short-term borrowings were 930 million yuan, long-term borrowings were 1.342 billion yuan, and the asset-liability ratio was 53.7%, a significant increase of nearly 16 percentage points compared to the end of 2023.

Under the uncertainty of profit realization, funds are selling off Rongchang Biopharma.

On September 20, Rongchang Biopharma's A-shares closed at 22.95 yuan per share, the lowest since listing, down 72% from the historical high of 48 yuan per share set in February 2023, and more than 50% off the issue price of 48 yuan per share.

In the recent rebound of the Hong Kong stock CXO (pharmaceutical outsourcing) and innovative drug sector, Rongchang Biopharma's stock performance is dismal.

On September 16, it just fell to the historical low of 10.2 Hong Kong dollars per share, and as of the latest closing date, it reported 10.72 Hong Kong dollars per share, with a cumulative decline of 71.38% for the year, a cumulative decline of 88.72% since 2021, and is now less than one-fifth of the issue price (the issue price was 52.10 Hong Kong dollars per share).

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