Baoji Pharmaceutical Commences Subscription Today: Annual Losses Exceeding RMB 100 Million – How Did the Controlling Shareholder Cash Out RMB 46 Million Early?

ZC Asia has learnt that Baoji Pharmaceutical (Stock Code: 02659.HK) has formally commenced its Hong Kong initial public offering today, running until 5 December. This biotechnology company, currently transitioning from clinical development to commercialisation, plans to offer 37.9117 million H-shares at a maximum price of HK$26.38 per share. Trading is expected to commence on the Main Board of the Hong Kong Stock Exchange on 10 December.

The prospectus indicates Baoji Pharmaceutical's pre-IPO valuation stands at approximately RMB4.87 billion. The company has secured three cornerstone investors, including Anke Bio Hong Kong, who collectively subscribed for approximately HK$200.6 million worth of shares, representing a significant proportion of the global offering.

Baoji Pharma focuses on four therapeutic areas: large-volume subcutaneous drug delivery, antibody-mediated autoimmune diseases, assisted reproductive medicines, and recombinant biologics. The company currently has 12 independently developed pipeline products in development, three of which are core candidates.

The most prominent is KJ017, a recombinant human hyaluronidase that temporarily degrades hyaluronic acid in subcutaneous tissue, enabling rapid absorption of large-volume (e.g., 5mL-20mL) biologics via subcutaneous injection. This product is China's first recombinant human hyaluronidase submitted for regulatory approval and is currently in the New Drug Application (NDA) stage.

Another core product, KJ103, is a low pre-existing antibody IgG degrading enzyme targeting acute autoimmune diseases. It has received breakthrough therapy designation from the National Medical Products Administration (NMPA) and is described as the ‘PD-1 of autoimmunity’ with broad therapeutic potential.

SJ02 represents the company's commercially realised product, being China's first approved long-acting recombinant human follicle-stimulating hormone for assisted reproductive therapy. An exclusive sales agency agreement for this product has been signed with Anke Bio.

Financial Reality: Not Yet Profitable

Financial data indicates Baoji Pharmaceutical currently has no products approved for commercial sale. Revenue primarily stems from minimal sales of materials and technical services.

For 2023 and the first three quarters of 2024, the company recorded net losses of RMB 160 million and RMB 263 million respectively, exceeding RMB 400 million in losses over less than two years.

These losses stem primarily from substantial research and development (R&D) expenditures and administrative expenses. During the reporting periods, R&D expenditure amounted to RMB 133 million and RMB 184 million respectively, with the first three quarters of 2024 seeing R&D spending nearly double that of the same period in the previous year.

The sharp rise in administrative expenses is particularly noteworthy, surging from RMB 34 million in the first three quarters of 2023 to RMB 78 million in the same period of 2024. The company attributed this primarily to share-based payments increasing by RMB 40.1 million due to share incentives granted to management and administrative personnel during the first three quarters of 2024.

Substantial Incentives and Controlling Shareholder's Early Cash-Out

The patent application status of the company's core product KJ017 presents a degree of uncertainty. As of 14 January 2025, five patents had been filed for this product, with three currently in the ‘pending application’ stage. Among the company's total of 19 patents, 12 remain in the pending application status.

Concurrently, competitors are gaining ground. By late 2024, Aimeike's recombinant hyaluronidase injection solution received approval for clinical trials.

Against a backdrop of persistent losses and reliance on external financing, management's substantial remuneration arrangements have drawn scrutiny. During the first three quarters of 2024, the company paid directors and supervisors a total remuneration of RMB 77.5 million.

The three actual controllers (Liu Yanjun, Wang Zheng, and Tan Jingwei) collectively received remuneration totalling RMB 74.45 million during the first three quarters of 2024, with share-based payments accounting for 95.94% of this amount.

Furthermore, prior to the listing application, controlling shareholder Liu Yanjun transferred company shares on two occasions in 2021 and 2023, realising a total of RMB 46 million.

The company's flagship product KJ017 carries significant market expectations. As China's leading subcutaneous drug delivery technology platform, it is benchmarked against Halozyme's ENHANZE® technology, which has collaborated with giants like Roche and Johnson & Johnson to develop dozens of drugs.

As the IPO enters its final stages, within a market environment where investment in innovative drugs is returning to rationality, only those companies possessing genuine clinical value and commercialisation potential will secure the long-term capital favour.

Disclaimer: The content herein is for reference only and does not constitute any form of investment advice. Should any information contained herein prove inaccurate, incomplete, or potentially misleading, please refer to the company's official announcements. Market risks exist; investment requires caution.