Blue Whale Finance Reporter Wang Jianwen
As a star product in the field of anti-tumor drugs, news related to antibody conjugated drugs (ADC) in China has attracted market attention multiple times since the beginning of this year.
On October 23rd, Kelun Pharmaceuticals announced that its controlling subsidiary, Kelun Botai, had received a notice from Mercha Oriental that it would terminate an exclusive license for preclinical ADC assets granted by Kelun Botai and obtain an exclusive option to obtain another exclusive license. On the same day, Kelun Pharmaceutical's stock price fell by over 9% during the intraday trading.
The cooperation project was' returned '
Kelun Botai is a holding subsidiary of Kelun Pharmaceuticals and an innovative pharmaceutical enterprise specializing in drug research and development in oncology, immunology, and other therapeutic fields. Its main research and development direction is ADC products.
As one of the first biopharmaceutical companies in China to establish a fully integrated ADC platform, OptiDC, in 2022, Kelenbotai received market attention for its ADC business cooperation with multinational pharmaceutical company MSD. The prospectus shows that the cooperation agreement between Kolenbotai and MSD involves a total of 9 ADC assets, including SKB264, SKB315, and SKB410 products that have been advanced to the clinical stage.
With its cooperation with Mercado, Kolenbotai has achieved significant profits. In the first half of 2023, Colombo Tai's revenue from MSD amounted to 1.037 billion yuan. This revenue increased Kelenbotai's total operating revenue to 1.046 billion yuan in the first half of 2023, a year-on-year increase of 203.3%. During the same period, Kelun Botai's net loss was 31 million yuan, a year-on-year decrease of 88.51%.
But on October 20th, Japanese pharmaceutical company Daiichi Mitsubishi issued a statement stating that MSD would purchase agency rights for three ADC drugs outside of Japan.
This news quickly sparked investors' doubts about the progress of cooperation between Kolenbotai and MSD. In the afternoon trading of the same day, the stock price of Kolenbotai fell 7.23%. And Kolenbotai also announced a temporary suspension of trading in the afternoon and will publish insider information.
On October 23rd, Kelun Pharmaceuticals and Kelun Botai issued announcements confirming that Kelun Botai and MSD would terminate their cooperation on two ADC assets.
Kelun Pharmaceuticals stated that the cooperation between Kelun Botai and MSD involves a total of 9 ADC assets, and the two products terminated this time have not been advanced to the clinical stage, nor are they their core or main products. The cooperation of the remaining seven assets will not be affected. In the future, both parties can also explore other cooperation opportunities regarding the new target ADC assets.
As for the two assets whose cooperation has been terminated, Kelun Pharmaceuticals stated that Kelun Botai will continue to conduct research and development on them and will explore other cooperation opportunities.
Spin off two subsidiaries
As a subsidiary spun off by Kelun Pharmaceuticals, Kelun Botai landed on the Hong Kong Stock Exchange in July this year, but it is not the first subsidiary to be spun off and listed by Kelun Pharmaceuticals. At the end of 2022, Chuanning Biotechnology, a subsidiary of Kelun Pharmaceutical Holdings, was listed on the ChiNext board.
As a former "infusion leader", before 2011, Kelun Pharmaceutical achieved rapid growth in performance through its large infusion business. With the introduction of the strictest "anti drug restriction order" in history in 2012, large infusion companies have also begun to establish new development curves. Therefore, on the one hand, Kelun Pharmaceutical has increased investment in research and development, expanded the variety of drug production, and introduced innovative drug research and development. On the other hand, it has continued to promote the production scale of non infusion drugs, antibiotic intermediates, and other products.
The efforts of Kolen Pharmaceutical have also yielded certain results. From 2012 to 2020, Kelun Pharmaceutical's operating revenue increased from 5.885 billion yuan to 16.464 billion yuan, with a cumulative increase of 174.75%. Since the development of generic drugs in 2013, as of April 2021, a total of 75 generic drugs have been approved for listing by Kelun Pharmaceutical.
However, the above-mentioned expansion and transformation actions have also increased the financial burden on Kelun Pharmaceutical. Compared with companies in the same industry, from 2018 to 2020, Kelun Pharmaceutical's current ratio and quick ratio indicators were significantly lower, while its asset liability ratio was relatively high.
(Drawing: Blue Whale Financial Data Source: Enterprise Financial Reports)
Coincidentally, the release of the new regulations for the spin off in December 2019 made it possible for listed companies to "spin off A". For listed companies, splitting off subsidiaries for listing not only allows them to better focus on their main business, but also allows them to obtain more funds and resources, reduce the difficulty of subsequent financing, and alleviate the financing pressure on the parent company.
Therefore, in June 2020, Kelun Pharmaceutical announced that it would spin off its subsidiary Chuanning Biotechnology for listing on the ChiNext. Chuanning Biotechnology is mainly engaged in the research and industrialization of biological fermentation technology, with its main products being the main intermediates of macrolide antibiotics and broad-spectrum antibiotics.
Kelun Pharmaceutical first chose to split Chuanning Biotechnology, not only because of its high independence between its main business and other business sectors of the enterprise, but also to alleviate its own financing pressure.
At the end of 2020, the Secretary Office of Kelun Pharmaceutical revealed that Kelun Pharmaceutical's financing of 4 billion to 5 billion yuan was mostly used for Chuanning Biotechnology, and the spin off of its listing also considered alleviating the financing pressure of the listed company.
In 2019 and 2020, Chuanning Biotechnology borrowed 911 million yuan and 669 million yuan from Kelun Pharmaceutical, respectively. As of the end of 2019, the accumulated funds borrowed from Kelun Pharmaceutical reached 4.373 billion yuan. The prospectus also shows that out of the 623 million yuan raised by Chuanning Biotechnology through listing, 400 million yuan will be used to repay bank loans.
In addition, in order to promote the successful listing of Chuanning Biotechnology, Kelun Pharmaceutical transferred part of Chuanning Biotechnology's equity on the eve of the listing.
Subject to the "A split A" rule, when a listed company spins off a subsidiary for listing, its net assets attributable to equity in the subsidiary shall not exceed 30% of its net assets attributable to its parent company. Affected by this, in June 2020, Kelun Pharmaceutical transferred 8% of Chuanning Biological's equity to two partnership enterprises, Kelun Ninghe and Kelun Ningbei. In September of the same year, all the partnership shares in the two aforementioned partnerships were transferred for a total price of 376 million yuan.
Chuanning Biotechnology stated that Kelun Pharmaceutical's move is aimed at optimizing its capital structure, rather than meeting the conditions for a spin off listing. However, from the perspective of the results, after the transfer of equity, the net assets of Chuanning Biotechnology enjoyed by Kelun Pharmaceutical based on equity accounted for 27.79% of the net assets attributable to the parent company, which did not exceed 30%. But if calculated based on the fact that Kelun Pharmaceutical has not transferred 8% of its equity, the above proportion will be changed to 30.47%, which does not comply with the splitting rule.
While successfully splitting Chuanning Biotechnology for listing, Kelun Pharmaceutical has also considered reducing financial pressure by promoting Kelun Botai to go public in Hong Kong. As an innovative pharmaceutical enterprise, Kelenbotai invests a large amount of funds in research and development every year.
According to the prospectus, in 2021 and 2022, Kelenbotai spent 728 million yuan and 846 million yuan in research and development expenses, respectively. And the related expenses heavily rely on the injection of funds from Kelun Pharmaceutical. As of the end of 2022, the loans and other borrowings from Kelun Botai Bank were approximately 2.891 billion yuan, mainly from loans from Kelun Pharmaceutical.
After a series of capital operations, in the first half of 2023, Kelun Pharmaceutical's current ratio and speed ratio increased to 1.38 and 1.13 respectively, and its asset liability ratio also decreased to 47.02%. Although its debt level is still relatively high compared to companies in the same industry, it has improved compared to previous years.
The silhouette of the "Koren series" is gradually forming
Although Kelun Pharmaceuticals has the goal of reducing financial pressure behind its subsidiary's spin off and listing. But in addition, it is also to expand the financing channels of subsidiaries and promote their rapid development. And this is mainly reflected in Kolenbotai.
Before going public, in order to solve the funding problem, Kelenbotai conducted three rounds of financing.
In these three rounds of financing, Kelenbotai has introduced well-known enterprises and investment institutions such as MSD, IDG Capital, Advanced Manufacturing Phase II Fund, Leyue Capital, and Cinda Capital to invest. After three rounds of financing, Kelenbotai has accumulated approximately 1.873 billion yuan in financing funds. And its valuation has also increased from 313 million yuan in the Pre A round to 10 billion yuan in the B round, an expansion of about 31.95 times.
Among them, as a partner in the business of Kelenbotai, MSD invested 695 million yuan in the B-round investment and obtained 6.95% of the shares of Kelenbotai, becoming its second largest shareholder, further deepening the connection between the two parties.
By listing in Hong Kong, Kelenbotai has received approximately 1.335 billion yuan in additional funds. Kolenbotai stated in its prospectus that approximately 95% of the raised funds will be used for product research and development, technology platform development, and expansion of production capacity and quality control systems.
With the two subsidiaries being spun off and listed, the territory of the "Kelun series" pharmaceutical enterprise has gradually become clear. As of October 25th, the market value of Kelun Pharmaceutical is approximately 38.189 billion yuan, while the market values of its two subsidiaries Chuanning Biotechnology and Kelun Botai are 19.316 billion yuan and 15.162 billion yuan, respectively. The total market value of the three enterprises will reach approximately 72.7 billion yuan.
In this context, the Liu Gengxin family, standing behind the "Kelun family", also gained a lot. From 2021 to 2023, the Liu Gexin family's ranking on the Hurun Rich List increased from 864 to 521, and their total wealth also increased from 8.5 billion yuan to 11.5 billion yuan.
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