HK IPO Subscription: Analysis and Application Plan for Huahao Zhongtian Medicine-B IPO

Beijing Huahao Zhongtian Biotechnology Co., Ltd. (hereinafter referred to as the "Company") is a synthetic biology technology-driven biopharmaceutical company dedicated to developing innovative oncology drugs. The company plans to list on the main board of the Hong Kong Stock Exchange through an initial public offering (IPO) to raise funds to support its business development and expansion.

1. Overview of the Issuer

Company Profile: Beijing Huahao Zhongtian Biotechnology Co., Ltd. was established on July 11, 2002, and restructured into a joint-stock company on May 8, 2021. The company primarily engages in the R&D and production of innovative oncology drugs.

Background: The company was co-founded by Dr. Tang Li and Dr. Qiu Rongguo, with a strong in-house R&D team and extensive management experience.

Major Shareholders: As of the latest practicable date, the company's major shareholders include Dr. Tang Li and Dr. Qiu Rongguo.

2. Basic Information of the Offering

Number of Shares Offered: The company plans to offer 364,588,000 shares globally.

Offer Price per Share: The offer price per H-share ranges from HKD 16.0 to HKD 22.0.

Offering Date: The specific offering date will be announced later.

Target Exchange and Board: Main board of the Hong Kong Stock Exchange.

Total Share Capital Post-Offering: The total share capital post-offering will not exceed approximately 25% of the company's enlarged share capital.

3. Core Business

Core Business: The company primarily engages in the R&D and production of innovative oncology drugs, with core products including Utidelone Injection and Utidelone Capsules.

Business Model: Through independent R&D and collaborations with third parties, the company conducts clinical trials and market promotions, aiming to commercialize innovative drugs.

4. Industry and Market Position

Market Position: The company has strong R&D capabilities and market competitiveness in the field of innovative oncology drugs, with core products having high potential demand in domestic and international markets.

Competitive Advantages: The company boasts a robust R&D team, extensive management experience, and a global patent portfolio, enabling effective development and commercialization of innovative drugs.

5. Use of Proceeds

Funding Clinical Trials for Core Products: Approximately 44.9% or HKD 105.1 million will be used to fund clinical trials for Utidelone Injection and Utidelone Capsules.

Funding Other Clinical Trials and Product Research: Approximately 38.9% or HKD 91.1 million will be used to fund clinical trials and preclinical research for products other than core products.

Strengthening Domestic Commercialization Capabilities and Building a Global Marketing Network: Approximately 3.0% or HKD 7.0 million will be used to enhance domestic commercialization capabilities and establish a global marketing network.

Expanding Production Capacity: Approximately 3.2% or HKD 7.4 million will be used to expand production facilities and increase production capacity.

Working Capital and General Corporate Purposes: Approximately 10.0% or HKD 23.4 million will be used for working capital and general corporate purposes.

6. Risk Factors

Drug Reimbursement Risk: Inclusion in the national medical insurance drug catalog significantly impacts market demand. Failure to be included or insufficient reimbursement may affect sales.

Regulatory Approval Risk: Differences in regulatory approvals, pricing, and reimbursement regulations across countries may delay commercialization if approvals are not obtained timely or if price regulations are restrictive.

Market Competition Risk: The pharmaceutical market is highly competitive. Failure to secure market share timely or facing challenges from competitors may impact business development.

Company Pipeline Progress:
 

Offering Information:

Pre-IPO and Cornerstone Investors:

From 2013 to 2020, the company completed multiple rounds of financing before the IPO. The final Series E financing was completed in November 2020, raising a total of RMB 196 million, representing a 26.9% premium to the median offer price. Pre-IPO investors are subject to a 12-month lock-up period.

Huahao Zhongtian Pharma has introduced four cornerstone investors for this offering. At the lower offer price, cornerstone investors account for 76.15% of the offering; at the median price, 64.13%; and at the upper price, 55.38%. Cornerstone investors are subject to a 6-month lock-up period.
 

Sponsors:

The offering is jointly sponsored by CCB International and CITIC Securities, with no stabilizing agent appointed. Both sponsors have a strong track record, which is noteworthy.

Financial Overview:

Revenue:2021 revenue was RMB 32.82 million, 2022 revenue was RMB 66.635 million, and 2023 revenue was RMB 27.047 million.

Gross Profit:2021 gross profit was RMB 23.88 million, 2022 gross profit was RMB 46.825 million, and 2023 gross profit was RMB 18.335 million;

Annual Loss:2021 net loss was RMB 160 million, 2022 net loss was RMB 189 million, and 2023 net loss was RMB 83 million;

Lottery Winning Rate:

The company is offering 14.588 million shares globally, with 200 shares per lot. As of now, the oversubscription rate is 0.75x. Based on current margin financing, there will be no clawback. Groups A and B each have 5,470.5 lots, with an estimated 5K-15K participants. The lottery winning rate is around 50%, and applying for 8 lots ensures 1 lot.

Comprehensive Review:

Huahao Zhongtian Pharma's core product, "Utidelone," is a microtubule inhibitor for advanced breast cancer, approved in 2021. Its revenue primarily comes from this product. Peer company Luye Pharma, also listed on the Hong Kong Stock Exchange, serves as a reference. Luye Pharma has a market cap of HKD 11.323 billion, 2023 revenue of RMB 6.143 billion, and net profit of RMB 530 million, with a static P/E of 19.29x. Luye Pharma's revenue is mainly from oncology drugs (RMB 2.122 billion, 34.55%), CNS drugs (RMB 1.695 billion, 27.59%), cardiovascular drugs (RMB 1.687 billion, 27.47%), digestive and metabolic drugs (RMB 450 million, 7.33%), and others (RMB 188 million, 3.07%).

Huahao Zhongtian's pipeline includes drugs for breast cancer, advanced NSCLC, breast cancer brain metastases, lung cancer brain metastases, solid tumors, liver cancer, ovarian cancer, etc. Luye Pharma already has five marketed products in this area: Lipusu (for ovarian cancer), Beyonuo (for NSCLC and metastatic colorectal cancer), Baitowei (for hormone-receptor-positive breast cancer), Ximena (for head and neck tumors, esophageal cancer, lung cancer, etc.), and Mimexin (for severe pain).

Assuming Luye Pharma's valuation weights are uniform, oncology drugs account for 34.55% of revenue, implying a valuation of HKD 3.912 billion for this segment. Thus, Huahao Zhongtian's valuation exceeding this would be expensive.

Sentiment-wise, the two sponsors' strong track records add credibility. The biotech sector has seen zero breakages in the past year, another positive. No stabilizing agent is common for biotech IPOs, with none breaking so far. The offering size is HKD 233-321 million, with cornerstone investors locking up 55.38%-76.15%. The free float is HKD 56-143 million. This is a small-cap offering to preserve valuation. Pricing at the lower end could ride sentiment and liquidity premiums, but pricing at the upper end is unnecessary greed.

Some may compare this to Tongyuan Kang Pharma-B, but the latter's core products TY-9591 and TY-3021 are potential best-in-class and first-in-class drugs, respectively, targeting EGFR-mutant NSCLC brain metastases—a completely different value proposition. Huahao Zhongtian's core product faces intense competition and is less valuable. Had the company priced conservatively, it could have been a meme stock. The current pricing range feels like a trap.
 

Subscription Plan:

Treat this as a gamble. If margin financing exceeds 10x, skip it. Below 10x and priced at the lower end, bet on sentiment and liquidity premiums. Regardless, sell on listing day. (The above is for personal review only. I'm super, super, super inexperienced—don't blindly follow. For differing views on fundamentals, feel free to discuss deeply. No pointless debates.)

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Disclaimer:Investing involves risks. Proceed with caution. The mentioned securities are for personal tracking only and do not constitute investment advice. I am not responsible for any losses. If this helps, please like, share, and recommend to friends in need. Thank you!