CSPC Innovation plans to acquire CSPC Pharma for 7.6 billion, as CSPC Pharma Group plays the "left hand to right hand" capital game

CSPC Innovation's 7.6 billion acquisition of CSPC Pharma's transaction is accelerating, marking another strategic move in CSPC Pharma's innovative drug assets. With the completion of the acquisition, CSPC Pharma's innovative transformation is expected to take another step forward.

CSPC Pharma once again showcases its "asset reshuffling" strategy.

On October 16th, CSPC Innovation announced that the company plans to acquire 100% equity of CSPC Pharma Biotech, held by Weishi Pharmaceutical, CSPC Shanghai, and Enbipu Pharmaceutical, through issuing shares and paying cash, with a transaction value of 7.6 billion RMB. At the same time, the company plans to raise up to 1.78 billion RMB through private placement to be used for paying the cash consideration of the transaction, target company project construction, supplementary working capital, etc.

The announcement indicates that the three target companies in this transaction are all part of the CSPC Pharma group, making it another internal asset reshuffling within CSPC Pharma after CSPC Innovation's acquisition of Giant Bio last year.

It is reported that CSPC Pharma Biotech is one of CSPC Pharma's largest biopharmaceutical industrial bases, with exclusive commercialized product "Jinyouli," which has contributed over 2 billion RMB in revenue to CSPC Pharma almost every year in the past few years.

If this transaction is successfully completed, on one hand, CSPC Innovation's strength in innovative drug research and development and profitability will see a significant improvement, and on the other hand, CSPC Pharma's long-planned path of innovative drug transformation will also take a big step forward.

CSPC Innovation's 7.6 billion acquisition of CSPC Pharma Biotech

After nearly 9 months of planning, CSPC Innovation's latest transaction plan to acquire CSPC Pharma Biotech has been unveiled.

According to CSPC Innovation's announcement on October 16th, this transaction consists of two parts: issuing shares and paying cash to purchase assets and raising matching funds, with a transaction price of 7.6 billion RMB.

The draft shows that as of the valuation reference date of June 30th, the valuation of 100% equity of CSPC Pharma Biotech is 7.622 billion RMB, an increase of 3.346 billion RMB from the book value of 4.276 billion RMB, with an appreciation rate of 78.25%.

Specifically, CSPC Innovation plans to issue 326 million shares to Weishi Pharmaceutical, CSPC Shanghai, and Enbipu Pharmaceutical at a price of 20.95 RMB per share, accounting for 18.86% of the total post-issuance share capital of the company, with a value of 6.84 billion RMB, and the remaining 0.76 billion RMB will be paid in cash.

In addition, CSPC Innovation also plans to issue shares to no more than 35 specific investors and use the raised approximately 1.78 billion RMB matching funds for paying the consideration of this transaction, CSPC Pharma Biotech's project construction, supplementary working capital, etc. After the transaction is completed, CSPC Pharma Biotech will become a wholly-owned subsidiary of the company.

Among the transaction parties, Enbipu Pharmaceutical is the controlling shareholder of CSPC Innovation, CSPC Shanghai is a wholly-owned subsidiary of the company's controlling shareholder, and Weishi Pharmaceutical is an enterprise controlled by the company's actual controller, all three transaction parties can be traced back to CSPC Pharma. The completion of the transaction will not result in changes to the controlling shareholder or actual controller of CSPC Innovation. In other words, this transaction is actually another internal asset reshuffling within CSPC Pharma.

Information shows that CSPC Innovation was originally a controlling subsidiary of the health sector under CSPC Pharma, jointly established by CSPC Holdings and CSPC Import and Export in April 2006. In 2019, CSPC Pharma split and listed it separately CSPC Innovation's main business originally focused on the research, production, and sales of functional foods in the field of big health. In September 2023, CSPC Innovation announced its plan to increase its capital in CSPC Biotech by 1.871 billion yuan to achieve controlling stake, officially entering the innovative drug track. The relevant equity transfer of CSPC Biotech has been completed.

Earlier, in July 2021, CSPC Innovation also announced the acquisition of 100% equity of CSPC Shengxue from its controlling shareholder, Enbeta Pharma, through issuing shares, with a transaction price of 800 million yuan.

Data shows that CSPC Baike is one of CSPC Pharma's largest biopharmaceutical industrial bases, with its core product being the self-developed polyethylene glycolated recombinant human granulocyte colony-stimulating factor injection (trade name "Jinyouli").

If this acquisition is successfully completed, CSPC Innovation's innovative drug industry map will further expand.

It is worth mentioning that as CSPC Pharma continues to inject innovative drug assets into CSPC Innovation, the market value of CSPC Innovation has been soaring. At the end of August last year, CSPC Innovation's stock price was hovering around 12 yuan, with a market value of less than 15 billion yuan. After the disclosure of the acquisition of CSPC Biotech, CSPC Innovation's stock price skyrocketed. In December of the same year, the company's stock price reached as high as 48.74 yuan per share, and the total market value once exceeded 57 billion yuan.

Unlike the "carnival" shown in the secondary market during the acquisition of CSPC Biotech, investors in the acquisition of CSPC Baike appear to be much calmer. On the day CSPC Innovation announced its intention to acquire the latter in January this year, the company's stock price fell by 6.35%. On the day of the announcement of the latest acquisition plan, the company's stock price also dropped by 11.04%.

CSPC Innovation's Performance Cools Down

Under the asset shuffling of CSPC Pharma, CSPC Innovation's stock price has been rising, but its performance has lacked strong support.

The semi-annual report for 2024 shows that CSPC Innovation achieved revenue of 972 million yuan, a year-on-year decrease of 27.71%, with a net profit attributable to the parent company of 137 million yuan, a year-on-year decrease of 48.27%.

In terms of business segments, revenue from functional raw materials and health food products still accounts for the majority of the company's main revenue, at 844 million yuan and 95.374 million yuan respectively, accounting for 86.89% and 9.81% of the revenue. Biopharmaceuticals and others achieved revenue of 3.313 million yuan.

From the data perspective, the innovative drug business has not yet brought substantial performance growth to CSPC Innovation. The semi-annual report shows that CSPC Biotech, acquired at a high price last year, incurred a loss of nearly 222 million yuan in the first half of the year, and until June of this year, it had not commercialized any products. In June of this year, CSPC Biotech's Enlonsu Baidankang (recombinant anti-PD-1 fully human monoclonal antibody, trade name Enshuxing®) was just approved for listing, with the first indication for the treatment of recurrent or metastatic cervical cancer patients who have failed platinum-based chemotherapy with positive PD-L1 expression (CPS≥1). It is still unknown how much performance increment it will bring to CSPC Innovation in the future.

As for CSPC Baike, which CSPC Innovation plans to acquire this time, its products are already on the market. Jinyouli (polyethylene glycolated recombinant human granulocyte colony-stimulating factor injection) is the first domestically self-developed long-acting recombinant human granulocyte colony-stimulating factor injection, used for the prevention and treatment of infections and fever caused by neutropenia in chemotherapy patients At the same time, the company's Simcere Glucagon research has entered Phase III clinical trials.

Data shows that in the first half of 2022, 2023, and 2024, the revenue of CSPC Baike was approximately RMB 2.235 billion, RMB 2.316 billion, and RMB 0.922 billion respectively, with corresponding net profits attributable to the parent company of approximately RMB 0.621 billion, RMB 0.785 billion, and RMB 0.39 billion. The net profit attributable to the parent company is higher than that of CSPC Innovation during the same period.

As of June 30, 2024, CSPC Baike had cash and cash equivalents of approximately RMB 1.386 billion, in addition to around RMB 0.778 billion in financial assets at fair value through profit or loss. The total assets were approximately RMB 4.591 billion, with total liabilities of around RMB 0.316 billion.

It is worth noting that in this acquisition, CSPC Baike also made performance commitments to CSPC Innovation. The commitment states that if the equity transfer is completed before December 31, 2024, the net profit of the company from 2024 to 2026 shall not be less than RMB 0.435 billion, RMB 0.393 billion, and RMB 0.436 billion respectively; if the equity transfer is completed after that date, the commitment is that the net profit for the three years from 2025 to 2027 shall not be less than RMB 0.393 billion, RMB 0.436 billion, and RMB 0.502 billion.

CSPC Innovation also stated that after the acquisition is completed, the company will further extend its layout in the field of innovative biopharmaceuticals to frontier areas such as long-acting proteins, which will help to upgrade the company's product structure and innovative biopharmaceutical pipeline, accelerating the establishment of a leading innovative biopharmaceutical platform.

The announcement indicates that after this acquisition is completed, CSPC Innovation's asset size, revenue, net profit attributable to the parent company, etc., will be significantly increased. In the first half of this year, the company's total assets will increase by 78.02% year-on-year to RMB 10.477 billion; revenue will increase by 94.92% year-on-year to RMB 1.894 billion; net profit attributable to the parent company will increase from approximately RMB 0.137 billion to RMB 0.525 billion, a growth rate of 282.82%.

CSPC Group's "Quest for Change"

The "capital maneuvering" that CSPC Group staged on CSPC Innovation is actually related to the group's development direction in recent years.

As an established pharmaceutical company, CSPC Group originated from bulk drugs and is known in the industry along with Hengrui, Fosun, and Zhongsheng Pharmaceutical as the "Four Major Players in Innovative Transformation." With regard to the transformation into innovative drugs, CSPC Group has always had the determination to grow and strengthen.

In 1999, CSPC Group established the Central Institute of Medicinal Research and began research and development of innovative drugs and new formulations. At that time, CSPC Group boldly invested almost all profits from the previous year to acquire the "Enbipu" project technology from the Institute of Materia Medica, Chinese Academy of Medical Sciences.

In 2004, Enbipu was approved for listing and became the third innovative drug in China with independent intellectual property rights after artemisinin and bisoprolol. It remains the core product of CSPC Group to this day, with sales exceeding RMB 6 billion in 2022.

In addition to Enbipu, CSPC Group has several other innovative drugs that have been approved for listing, such as Mingfule, Duo'enyi, Jinlitai, Haiyitan, Duo'enda, Ouyuexin, and more. Currently, CSPC has over 130 innovative drug projects in research, and it is expected that nearly 50 new products and indications will be applied for listing in the next 5 years However, in terms of performance, the results of CSPC PHARMA's new product "baton passing" are not as expected. After three consecutive years of growth slowdown in 2021, 2022, and 2023, the company's revenue and net profit in the second quarter of 2024 decreased by 9% and 8.5% year-on-year, respectively.

It is worth mentioning that in September of this year, CSPC PHARMA announced an important personnel change, appointing Liu Yongjun as the CEO and Global R&D President, responsible for the group's research and development, pipeline strategy, and international business development.

Looking at Liu Yongjun's resume, he has over 30 years of rich experience in the biopharmaceutical industry. His research achievements have provided key drug targets such as TSLP, OX40 (CD134), plasmacytoid dendritic cells (pDCs) in the fields of immunology and oncology, enabling many candidate drugs to move from laboratory discovery to clinical trials. He has previously served as head of R&D in well-known companies such as Xinda Biotech, Sanofi, and AstraZeneca.

From asset reorganization, R&D pipeline, to personnel changes, one can glimpse CSPC PHARMA's intention for innovative transformation