On the eve of the IPO, 18A company Shenghe Biotechnology received a lifesaving investment from a private equity firm, once again gearing up for a listing on the Hong Kong Stock Exchange.

The IPO project Sunho Biologics, Inc., known as the "poorest in history," has finally shaken off this embarrassing label.

In a recent updated prospectus submitted to the Hong Kong Stock Exchange, the biopharmaceutical company Sunho Biologics reported a cash and cash equivalents balance of 220 million yuan as of the end of September 2023, a significant improvement compared to the 175,000 yuan cash balance reported at the end of the previous period in March 2023.

This improvement is attributed to the support of the investment firm Shenzhen Yifeng Investment Management Enterprise (Limited Partnership). In the three months leading up to Sunho Biologics' initial IPO application, Yifeng Investment subscribed to 210 million yuan for 88,000 shares.

This injection of funds is undoubtedly a "long-awaited rain" for Sunho Biologics, which has yet to commercialize any products. In the first three quarters of 2021, 2022, and 2023, Sunho Biologics reported net losses of 71 million yuan, 52 million yuan, and 75 million yuan, respectively.

The commercialization goals for Sunho Biologics' core pipeline still remain distant. Their core drugs for solid tumors, IAP0971 (PD-1/IL-15) and IAE0972 (EGFR/IL-10), have only entered Phase 1 and Phase 2 clinical trials, respectively. Meanwhile, IAH0968 (HER2) for colorectal cancer has already received approval for Phase 3 clinical trials.

A "White Knight" Emerges

In August 2023, Sunho Biologics submitted its IPO application to the Hong Kong Stock Exchange for the first time, drawing much attention to its cash position.

As of the end of March 2023 (the end of the first IPO reporting period), Sunho Biologics had a cash and cash equivalents balance of only 175,000 yuan.

At that time, with none of its products commercialized and all nine pipelines in clinical or preclinical stages, the closest to commercialization was the HER2-targeted drug IAH0968, which had received approval for Phase 3 clinical trials. This raised serious questions about Sunho Biologics' sustainability, earning it the title of the "poorest IPO project" in history.

After the failure of the previous prospectus, Sunho Biologics once again submitted its IPO application to the Hong Kong Stock Exchange on February 9, 2024.

Despite the short six-month interval since the last submission, Sunho Biologics' cash position has significantly improved.

According to the latest prospectus disclosed by Sunho Biologics, the cash and cash equivalents balance reached a staggering 220 million yuan as of the end of September 2023, 1258.23 times higher than in March of the same year.

This improvement was made possible with the assistance of investment firms Yifeng Investment and Beijing Yuehe Enterprise Management Development Center (Limited Partnership).

Three months before initiating the IPO, in May 2023, Yifeng Investment, acting as GP, collectively subscribed to 210 million yuan for 14.89% of Sunho Biologics' shares through Yifeng Ansheng Entrepreneurial Investment Partnership (Limited Partnership) and Yifeng Anhe Entrepreneurial Investment Partnership (Limited Partnership). Furthermore, just a few days after submitting the documents, on August 30, 2023, Yuehe Investment also subscribed to 4.09% of Shenghe Biology's shares for 61 million yuan.

The investment funds from Yifeng Investment and Yuehe Investment were received on August 2, 2023, and September 27, 2023, respectively.

As a "three-no company" with no products, no revenue, and no profits, the investment from Yifeng Investment may provide more support for Shenghe Biology's sprint towards an IPO.

However, there have been market voices questioning the existence of special rights clauses between Shenghe Biology and investment institutions such as Yifeng Investment. Not only that, the China Securities Regulatory Commission also requested Shenghe Biology to explain the rationale behind Yifeng Investment's "sudden share acquisition" when submitting the filing materials.

"Please explain the reasons for the sudden share acquisition by Huzhou Ansheng and Huzhou Anhe the day before the issuer submitted the listing documents, as well as the consideration for this capital increase, pricing basis, fairness, and reasonableness, whether there is any transfer of benefits, and provide a clear conclusion." The China Securities Regulatory Commission pointed out.

In the latest version of the prospectus, Shenghe Biology emphasized that it has not signed any subsidiary agreements or arrangements with investment institutions.

"The previous investors were granted customary special rights, including but not limited to the right to be informed and access, preemptive rights, tag-along rights, veto rights, and director appointment rights." Shenghe Biology stated, "The company has not entered into any subsidiary agreements or arrangements with the previous investors."

Haste makes waste

Shenghe Biology's flagship therapy focuses on cytokine therapy, including antibodies or quasi-antibody groups that target tumors, block signaling pathways that regulate tumor growth and proliferation, and activate the immune system within the tumor microenvironment.

In simple terms, this therapy not only inhibits tumor growth but also activates the body's immune system to fight against tumors.

Currently, IAP0971 (PD-1/IL-15), IAE0972 (EGFR/IL-10), and IAH0968 (HER2) in the research pipeline are all core drugs of Shenghe Biology.

Specifically, IAP0971 monotherapy is mainly used for second-line treatment of major diseases such as NSCLC (non-small cell lung cancer), with Phase 1 clinical trials already completed and plans to initiate Phase 2 clinical trials in the first quarter of 2024. The basic principle of IAP0971 is to block the signaling pathway of PD-1 and its ligand PD-1L while accumulating IL-15 at the tumor site to activate nearby immune cells.

As a star target for anticancer drugs, global clinical research on PD-1/PD-L1 inhibitors has exceeded 5,600 studies, with many PD-1 drugs approved for marketing by regulatory authorities. Therefore, research solely targeting the PD-1/PD-L1 target is no longer a novelty in the industry, and "PD-1+" has become a new direction for many companies' research.

In terms of competitive landscape, Shenghe Biology's approach does have a certain uniqueness.

Data from Frost & Sullivan shows that there are currently no approved PD-1/IL-15 similar therapies globally. Apart from Shenghe Biology, companies such as Sanofi (SNY.O), Kadmon/Sanofi, IGM Biosciences (IGMS.O), Beigene (2096.HK), and the Czech investment company PPF Group member SOTIO Biotech are all in the clinical stage with PD-1/IL-15 drugs. The road less traveled is often full of challenges.

On one hand, PD-1/IL-15 drugs do require substantial investment. In December 2023, IGM Biosciences ceased the clinical development of their targeted cytokine candidate products due to continuous losses, including the pipeline development of IGM-7354 (PD-1/IL-15), shifting focus to projects with more immediate benefits.

On the other hand, there are uncertainties in the research progress of IL-15. In November 2023, SOTIO announced poor clinical data for SOT101 (IL-15), leading to a suspension of clinical trials. Against this backdrop, the potential synergies of Shenghe Bio's IAP0971 (PD-1/IL-15) may still hold uncertainties.

In the first three quarters of 2021, 2022, and 2023, Shenghe Bio has already invested 16 million RMB in IAP0971 (PD-1/IL-15). However, as the drug is currently only in Phase 1/2 clinical stage, further investment may still be required.

Moving on to IAE0972 (EGFR/IL-10), its monotherapy is mainly used for second-line treatment of head and neck squamous cell carcinoma (HNSCC) and third-line treatment of colorectal cancer.

Both of these major cancer types have certain market prospects. In 2022, the global number of new patients with late-stage HNSCC in the second line could reach 292,200, expected to increase to 358,600 by 2030; during the same period, the global number of new cases of colorectal cancer in the third line is 353,300, projected to reach 452,200 by 2030.

However, the progress of IAE0972 (EGFR/IL-10) is not particularly fast, currently only in Phase 2 clinical trial stage, with an expected completion by the first half of 2026.

Currently, the fastest progressing pipeline in Shenghe Bio is IAH0968 (HER2), which has obtained approval for a Phase 3 clinical trial for "HER2+ metastatic colorectal cancer" in combination with CapeOX (a chemotherapy regimen using oxaliplatin and capecitabine simultaneously).

Overall, Shenghe Bio's three core pipelines mainly target major cancer types with broad market prospects, showing a certain level of uniqueness in their chosen path in the market.

However, the overall progress of Shenghe Bio is moderate, with the fastest progress seen in IAH0968 (HER2) obtaining approval for Phase 3 clinical trials, while the progress of IAP0971 (PD-1/IL-15) and IAE0972 (EGFR/IL-10) remains uncertain.

Relying solely on IAH0968 (HER2) in combination with CapeOX and two drugs in Phase 1/2 clinical trials, whether Shenghe Bio's IPO will gain recognition in the capital market still holds significant uncertainties.

"For domestic IPOs, pharmaceutical companies generally need to reach Phase 3, which provides higher certainty, but the current market conditions make IPOs quite challenging. For overseas IPOs, there may be more tolerance for the overall clinical speed of the products, but the risks for the company itself are relatively higher." A banker in Shenzhen pointed out.