Wise Pharma's business spans comparable to WuXi AppTec. Why is it the second-to-last in the industry?

Author: Huang Zhongping

The CXO track, which is in a booming boom this year, has gained momentum this year.
WuXi Biologics has secured the No.
1 spot in the pharmaceutical market value of Hong Kong stocks, and WuXi AppTec has repeatedly topped the pharmaceutical market value list in A-shares, leading the rise in various segments.
The trend is even more fierce.
The stock price of Medicilon, the leading pre-clinical CRO, has risen 4.
5 times this year, and Zhaoyan New Drug, the leading safety evaluation, has successfully landed on the Hong Kong Stock Exchange and so on
.

Participants on the CXO track are showing a trend of explosive growth along with the surge of innovative drugs.

But under this craze, Wise Medicine, which was once in the first echelon of CXO, has fallen behind
.

What is the root cause of poor performance

What is the root cause of poor performance

In the first half of this year, Ruizhi Pharmaceutical's total revenue was 845 million yuan, a year-on-year increase of 26.
14%; net profit was 5.
138 million yuan, a sharp drop of 87.
43%; non-net profit attributable to parent deductions unexpectedly showed a loss, a loss of 1.
008 million yuan, a decrease of 103.
26%
.

The main reason for the increase in revenue but not profit is that the commercial production project of Jiangsu Qidong Biopharmaceuticals has been put into use, and the early various expenses have increased and the scale of revenue needs to be further improved

Among them, the pharmaceutical R&D and production outsourcing service (CRO/CDMO) segment of Ruizhi Pharmaceutical achieved operating income of 684 million yuan in the first half of the year, a year-on-year increase of 28.
93%; net profit was 5,946,300 yuan, a year-on-year decrease of 88.
47%
.

Among the segmented business module revenues, biological CRO revenue was 367 million yuan, an increase of 42.
09% year-on-year; chemical CRO revenue was 210 million yuan, an increase of 22.
84%; macromolecule CDMO revenue was 37,401,400 yuan, an increase of 5.
99%; small molecule CMO revenue was 6,630.
53 10,000 yuan, an increase of 15.
57%
.

Source: Wise Medicine 2018-2020 Semi-Annual Report

From the perspective of the volume of CRO/CDMO revenue, it is not small among the domestic CXO companies, surpassing the 621 million yuan of Yaoshi Technology, 535 million yuan of Zhaoyan New Medicine, and 485 million yuan of Medicilon during the same period
.

Moreover, compared with the leaders in these segments, Wise Pharmaceuticals not only has both CRO and CDMO business, but also the biological CRO business, which has a higher growth in the CRO business, occupying the main revenue position

However, the profitability of Ruizhi Pharmaceutical ranks at the bottom of the industry.
In the first half of this year, the gross profit margin of the CRO/CDMO sector was 25.
06%, which not only did not increase but decreased by 4.
3 percentage points
.

The overall gross profit margin is 29%, which is less than the 45.

In addition, there are still a large number of related transactions in the CRO/CDMO section of Wise Medicine.
In the first half of this year, Wise Medicine and related parties have a total transaction amount of 42.
486 million yuan
.

Among them, the medical R&D outsourcing transactions with the former chairman Huixin and his family-controlled companies totaled 11.

In the first half of the year, Ruizhi Pharmaceutical's micro-ecological health sector had revenue of 162 million yuan, an increase of 11.
04% year-on-year, but its net profit was only 30,649,100 yuan, a decrease of 14.
64%
.

Mainly due to business reorganization, the parent company’s micro-ecological nutrition business was transferred and invested in Quantum Guangdong, a wholly-owned subsidiary.

As a result, the current growth rate, net profit, and gross profit margin of Ruizhi Pharmaceutical are far lower than those of its peers, and it may have to start from the root cause
.

The shareholder relationship is not pure, and the hegemony is collapsed.

The shareholder relationship is not pure, and the hegemony is collapsed.

In fact, Ruizhi Pharmaceutical's predecessor, Ruizhi Chemical, was once the veteran of China's CXO industry that was on the same starting line as WuXi AppTec
.

Today, the development of the two is not the same.

Ruizhi Chemical was established in April 2003, earlier than Tigermed and Kanglong Chemical which were established in 2004
.

Shanghua Pharmaceutical, the parent company of Ruizhi Chemical, was listed on the New York Stock Exchange in 2010 and then delisted in 2013

After the delisting of the U.
S.
stock market, Ruizhi Chemical continued its high growth trend.
In 2015, its revenue reached 770 million yuan, which is at the same level as Kanglong Chemical and Tigermed; it developed to 2017 revenue reached 960 million yuan and net profit 140 million yuan, with more than 1,700 R&D personnel and 192 PhDs
.

After several equity transfers in 2017, Ruizhi Chemical was finally acquired by Quantum Hi-Tech from Ruiyun Investment, Ruizhao Investment, CGHK, Mega Star, Zhang Tianxing, Zeng Xianjing in May 2019 by a combination of share issuance and cash payment.
Waiting for 6 counterparties to obtain 90% of the equity of Ruizhi Chemical, the transaction value was 2.
144 billion yuan
.
This acquisition is also regarded as a backdoor listing of Wisdom Chemicals.
After all, Quantum Hi-Tech’s total revenue in 2017 was only 275 million yuan, and there was no strength in acquiring Wisdom Chemicals in terms of volume
.

In June 2018, Quantum Hi-Tech was renamed "Quantum Biology"
.

From the perspective of the shareholding structure after the major restructuring transaction, Zeng Xianjing and his concerted actors own 20.
58% of Quantum Bio after the transaction and are the actual controllers; Huixin, the original actual controller of Wisdom Chemicals, and his family’s concerted actors own Quantum Biology 10.
39% equity; Mega Star owns 4.
53%; Zhang Tianxing owns 0.
59%
.

Huixin, the former actual controller of Wise Chemicals, who brought in the main revenue business, failed to become the ultimate actual controller.
This kind of shareholder relationship also laid a hidden worry for the development of Wise Pharmaceuticals
.

Major shareholders' equity after the acquisition of Ruizhi Chemical in 2018

Source: Wise Pharmaceutical Announcement Content

In June 2019, Quantum Biology announced that in order to be more conducive to the company's strategic development and personal needs, the former chairman Zeng Xianjing resigned as chairman, and Huixin was elected as the new chairman by the company's board of directors
.

In September 2020, Quantum Bio was renamed "Smart Medicine" again
.

However, only one and a half years later, Huixin resigned as chairman, which may be related to the receipt of the regulatory letter from the regulatory authority in December 2020
.
The supervisory letter determined that Huixin, the then chairman of the board, and many companies controlled by his family had accounts payable to Ruizhi Chemical, a wholly-owned subsidiary of Ruizhi Pharmaceutical, which exceeded the reasonable age, which constituted the occupation of operating funds of related parties, involving 33.
45 million funds Yuan
.

On the board of directors of Ruizhi Medicine in January 2021, Huixin resigned as chairman and was joined by Hu Rui
.
Huixin's resignation is also expected.
As of the end of the first half of this year, among the top 10 shareholders of Ruizhi Pharmaceutical, Huixin and its family-controlled Shanghai Ruiyun only hold 8.
95% of Ruizhi Pharmaceutical
.
However, Shanghai Yingli, Shanghai Huaiyue, Guangzhou Zaiji, and Shanghai Pioneer, both under the control of Huixin and its family, have made progress in the field of new drug research and development.
The prospects are bright.
It is not ruled that Huixin's business focus may be placed on these.
It is impossible for the company to do its best to manage Smart Medicine
.

What makes people laugh and cry is that the new chairman Hu Ruilian just took office two months after he was involved in his personal investment in the equity dispute of Jilin Jifushen Biological Development Co.
, Ltd.
, and the public security organs took criminal coercive measures on suspicion of occupational occupation
.
Hu Ruilian is a Malaysian national and holds multiple titles of chambers of commerce.
He is also the director and vice chairman of Perfect (China) Co.
, Ltd.
He currently holds 48.
16 million shares of Ruizhi Pharmaceutical, accounting for 9.
64% of the total share capital
.

The actual controller Zeng Xianjing does not personally end the business, so what reason do other small shareholders have to work hard?

Is it hopeful to turn over?

Is it hopeful to turn over?

The constant replacement of the chairman candidates has also caused turbulence in the operation of Ruizhi Pharmaceutical, but after all, the lean camel is bigger than Marathon.
With the advantages it has accumulated before, Ruizhi Pharmaceutical still has the possibility of turning over
.
Especially in the research and development of biological drugs, Ruizhi Medicine has a strong leading edge
.

As one of the earliest companies in China to establish biological drug research and development services, Ruizhi Pharmaceutical has a full range of service capabilities for early detection of biological drugs, covering the construction of protein expression platforms to the generation of clinical candidate antibodies, and the development and accumulation of "full human antibody development" Platform”, “Bispecific Antibody R&D Platform” and “Antibody Conjugated Drug (ADC) R&D Platform” and other cutting-edge technology platforms
.
In terms of protein expression, Ruizhi Pharmaceutical’s biological drug R&D department has cumulatively delivered more than 900 histone products through the use of different expression systems, covering recombinant proteins, recombinant antibodies and other types; in terms of antibody screening, it compares with traditional hybridomas that take 2 months.
Compared with the antibody recognition method, the deployed Beacon single-cell cloning platform can be shortened to one day, effectively shortening the customer's antibody drug development process
.

In terms of biologics process development and production, Ruizhi Pharmaceutical has established a team with rich production experience, and can provide one-stop services covering DNA to IND.
The specific content includes stable cell line development, process development, and preparations.
Research and development, aseptic filling and freeze-drying, druggability research, packaging material extractables and precipitates research, analytical method development and release testing, and GMP production
.

In the early stage of drug discovery, Ruizhi Pharmaceutical has established a series of technology platforms based on CRISPR target verification, gene-encoded compound library (DEL), peptide synthesis, fragment-based drug screening (FBS), etc.
, covering target verification to optimized synthesis of candidate compounds.
Effectively promote the early drug development process
.

In addition, in vitro pharmacology and pharmacodynamics research, cell biology research, neuropharmacology and other pre-clinical research, Wise Medicine has also established a technologically leading platform
.

As a macromolecule CDMO that is expected to become a new growth point for Smart Medicine, it has also made new progress in the number of service items and delivery records
.
In terms of service items, in the first half of 2021, there will be a total of 45 CDMO service items for Wise Medicine's macromolecules, of which 34 are in the pre-clinical stage, 10 are in the clinical phase I, and 1 are in the clinical phase II
.

At the same time, as the core project for the expansion of CDMO production capacity of Wise Pharmaceuticals macromolecules, Jiangsu Qidong’s "Innovative Biological Drug R&D and Production Base" Phase I completed a 2000L-scale clinical sample batch that meets GMP requirements on the basis of successful trial production.
Production, the "Innovative Biopharmaceutical One-Stop R&D and Production Service Platform" project has so far invested more than 410 million yuan
.

Concluding remarks

Concluding remarks

In fact, the current main problem of Ruizhi Pharmaceutical is definitely not the problem of the external market, but the management
.
Whether it is the current chairman Hu Ruilian, the current general manager Zeng Xianwei, or the actual controller Zeng Xianjing, they all entered the CXO industry halfway through acquisitions
.

However, this industry has a significant feature.
The objects of dealings are scientists.
Therefore, as a counterparty, there must be a top leader with the same level and sufficient expertise to take charge of the overall situation.
Otherwise, one wants to survive in this high-knowledge-density industry.
I'm afraid it will be difficult
.

Yaozhi.
com will continue to pay attention to the follow-up development
.

Reference materials:

Announcement, Annual Report, Official Website of Wise Medicine

"Wisdom medicine is chaotic", Securities Market Weekly, July 13, 2021

"The chairman of the board of directors was detained by Xingju; Smart Medicine occupies a "stall" on the golden track", China Business Network, March 29, 2021