Capital "Player" Returns To The World

It has been nine months since the registration of Renhui biology has suffered from dystocia, which is rare in the science and technology innovation board.

On July 31, 2020, the application for biological registration of Renhui passed the deliberation of the municipal Party Committee on the science and technology innovation board and passed the meeting successfully. In August of that year, Renhui biology submitted its registration draft to the SFC.

Nine months later, the company is still in the inquiry stage of the CSRC, setting a record of the longest time taken for the company to go public under the registration system on the science and technology innovation board. At present, Renhui biology has been asked by the CSRC for three rounds. However, due to the outstanding problems in the on-site inspection by the CSRC, it has not been approved so far. Therefore, it is still uncertain whether it can be listed on the science and technology innovation board.

In August 2014, Renhui biology was listed on the new third board. The concept of R & D and industrialization of innovative drugs was sought after by aerospace industry fund, CITIC Securities, Orient Securities and other institutions.

According to preliminary statistics, during the listing period, the accumulated financing scale was nearly 700 million yuan, and the market value was once more than 8 billion yuan, becoming the God like existence of the new third board market.

However, in the past seven years, the main business of Renhui biological industry has been difficult to improve. Since its establishment in 1999, the company has focused on R & D for many years, with a total investment of more than 1.4 billion yuan, according to its official website. At present, the only product that the company can face the market is Yisheng taibenalutide injection, an innovative biological drug product.

Since 2014, the company has made 68 million yuan in the A-share market and achieved a profit of 24.5823 million yuan only in 2015 by virtue of Sang Huiqing, chairman and actual controller of Renhui biology. In the rest years, the company's performance has been in a state of huge losses. According to the statistics of 21st century economic report, by the first half of 2020, since the listing of the new third board, the accumulated loss amount of Renhui biology has reached 865 million yuan.

At the beginning of this year, Renhui biological Co., Ltd., which entered the registration process, encountered on-site inspection by China Securities Regulatory Commission (CSRC). As a result, the company's operation problems were exposed, which were mainly inquired by the regulatory authorities. At present, there was no reply from Renhui bio. However, the business problems revealed may bring new challenges to the IPO.

"Standard 5" for accurate operation

According to the data, Renhui bio is a high-tech enterprise focusing on independent research and development and industrialization of innovative biological drugs. Its chairman, sang Huiqing, directly holds 25.11% of the company's shares, indirectly holds 45.99% of the company's shares through 100% control of Renhui group, and 0.79% of shares of Renhui biology through 100% control of No.1. Sang Huiqing directly and indirectly holds 71.89% shares of Renhui biology, and is the controller of the company.

Compared with Renhui biology, sanghuiqing was well-known in the capital market earlier.

According to the prospectus, sang Huiqing served as an employee of China Southern Fund Management Department from March 1994 to March 1996, and manager of trading department of Securities headquarters of China Economic Development Trust and Investment Corporation (hereinafter referred to as China economic development development development) from March 1996 to February 2000.

In 2011, kunjian technology, a 100% invested enterprise of sanghuiqing, transferred 100% equity of Huayi biological (the predecessor of Renhui Biology) and its creditor's rights of 64.17 million yuan at a price of 196 million yuan. In 2012, Huayi biological changed its name to Renhui biology, and in January 2014, it was changed into a joint-stock company.

Before accepting Renhui biology, sang Huiqing had been involved in the capital market for many years. Later, it was reported that China Economic Development Corporation (CEEC) manipulated the shares of Dongfang Electronics Co., Ltd., and had been dormant for more than 10 years.

According to media reports, China Economic Development Co., Ltd., once the only trust and investment company wholly owned by the Ministry of finance, has successively involved in major capital market violations such as the famous 327 national debt and Changhong's share allotment, and was eventually punished and dissolved for manipulating shares of Dongfang Electronics and Yinguangxia.

As for what role sang Huiqing played in the Dongfang Electronics Stock case and how the company commented on the media reports, the 21st century economic report reporters have successively sent letters to Renhui biology, but up to the time of publication, there has been no response from the company.

In 2011, sang Hui Qing turned to the medical track, focusing on the Benevolent Society biology. At the end of 2011, sang Huiqing won Huayi biology in Shanghai United Property Exchange with a price of 196 million yuan. The most valuable asset of Huayi bio is the research product benaluptide (i.e. yishengtai product of the company), which is mainly used for the treatment of type 2 diabetes and has a broad market prospect. Some analysts have questioned that sang Huiqing, who has been dormant for ten years, suddenly took out a huge sum of money to steer Huayi biology. The source of its capital may be the previous improper profits.

From the perspective of the capital operation of Renhui biology, the sanghuiqing can be described as precise step by step.

According to wind information, in 2012, the biological revenue of Renhui association was 629600 yuan, and the loss was 28267100 yuan; In 2013, the revenue was 190700 yuan and the loss was 8.0861 million yuan; In 2014, the revenue was zero and the loss was 6.1679 million yuan. In August 2014, Renhui biological listed on the new third board.

According to wind data statistics, in less than eight months after listing, Renhui biology has successively conducted four fixed increase financing, with a fund-raising scale of 399 million yuan and a market value of 8 billion yuan at one time. It has become the God like existence of the new third board company in that year, and has been subscribed by aerospace industry fund, CITIC Securities, Orient Securities and other institutions.

However, in sharp contrast to the smooth flow of financing, the application for production registration of yishengtai products has gone through several years, and this progress obviously exceeds the expectations of many institutions.

Perhaps it is expected that the company's products will face operational risks. After March 2015, it will be difficult for Renhui biological to follow the investment of institutions. In March 2015 and April 2017, the company planned to increase financing to major shareholders and domestic natural persons to supplement working capital, but they had to stop implementation. Previously invested institutions are hard to find in their latest prospectuses.

In January 2019, the company launched project financing again, and planned to raise 375 million yuan. The private placement completed in September of that year can only be implemented to major shareholders, affiliated institutions and natural persons. The total amount of funds raised is 259 million yuan, of which 179 million yuan is for cash subscription, and 80 million yuan is for the creditor's rights conversion of the actual controller sang Huiqing. And the last "internal" fixed increase also locked in the market valuation of Renhui biological company exceeding 6 billion yuan.

This provides conditions for the breakthrough of the science and technology innovation board. Renhui biology plans to adopt the fifth set of listing standards of the science and Technology Innovation Board: the market value is expected to be no less than 4 billion yuan. According to this standard, the company can go public with huge losses, and can operate and finance at a loss in the next three years.

Before the suspension of the new third board on January 15, 2020, the valuation of Renhui biology was fixed at 6.6 billion yuan.

The double dilemma of single product and insufficient competitiveness

Behind the capital operation, the competitiveness of Renhui biological products is insufficient. The company's main business is highly dependent on yishengtai, and the market performance of the product is lower than expected.

Huayi biological, the predecessor of the company, is one of the earliest enterprises in the world to carry out GLP-1 drug research. In 2000, it started to research benaluptide project; In June 2010, phase III clinical trials were completed; In May 2011, the application for production registration of "benaluptide" freeze-dried powder injection was submitted to the State Food and drug administration.

Analysts pointed out that it was the market potential of nearly 100 billion US dollars in the diabetes market that Renhui biology won the favor of sanghui Qinghe and some institutions in the loss state.

It is worth noting that in May 2011, Huayi biology submitted an application for production registration of benaluptide lyophilized powder injection to the State Food and drug administration, and it was not finally approved until December 2016.

However, after 16 years of research and development, the market performance of Renhui biological benaluptide products is not good.

As the only main business of Renhui biology, benaluptide did not bring expected high revenue. During the reporting period from 2017 to 2019, the income of taibenaluptide, the main business of Renhui biology, was 13.6071 million yuan, 26.8169 million yuan and 55.8808 million yuan, respectively, accounting for 96.58%, 98.15% and 98.26% of the revenue in the same period.

Renhui biology said that at present, there are many hypoglycemic drugs on the market, and yishengtai may face market competition from other hypoglycemic drugs. At present, the treatment cost of yishengtai is relatively high, and has not been included in the national medical insurance, so the payment ability of domestic patients may be insufficient.

Market analysts pointed out that the current domestic diabetes drug industry competition is more intense, hypoglycemic drugs may be divided into three routes, including traditional oral hypoglycemic drugs, insulin and GLP-1 drugs. GLP-1 drugs are one of the fast-growing segments of the domestic diabetes drug market. There are 7 kinds of GLP-1 drugs on the market in China. At present, the more mainstream diabetes drugs in China are traditional oral drugs and insulin drugs, and the overall market share of GLP-1 drugs is not high. In 2018, GLP-1 drugs only accounted for 1.2% of the overall diabetes market, and the market share of yishengtai in the postprandial blood glucose market was about 0.10%.

Compared with similar drugs, the half-life of yishengtai products of Renhui biology is only 11 minutes, while the products of other companies are calculated in hours; The injection frequency of the company's products is too frequent, which needs three times a day, while the similar drugs can basically do once a day, or even once a week; At the same time, the company's yishengtai product price is high, need to pay more medical costs, which also caused the company repeatedly failed in the medical insurance bidding.

Renhui Bio said that yishengtai's products are facing multiple operational risks, such as market development, competition of the same kind, commercial operation, adjustment of medical insurance catalogue and market access of products, which reminds investors to pay attention.

The company's yishengtai products were officially put into commercial production in December 2016, with the original production capacity of about 240000 pieces / year. In 2019, the company will greatly expand its production capacity to 2.4 million pieces / year. However, from 2017 to 2019, the output of yishengtai products is only 177500 pieces, 78900 pieces and 299400 pieces respectively, and the capacity utilization rate is 73.96%, 32.88% and 16.10%, showing a downward trend year by year. This means that Renhui biology is facing greater market development pressure.

Renhui Bio said that the company's products are still in the market introduction period, other products are in the research and development stage, commercial production and sales have not been carried out, the company has not yet made profits and is expected to continue to lose money.

However, from the asset management of Renhui biological, its valuation is obviously suspected of being overestimated.

In terms of key financial data, from 2017 to 2019, Renhui biological's operating revenue was 14.0896 million yuan, 27.3231 million yuan and 56.8715 million yuan respectively. In the same period, the net profit attributable to the parent company was - 160 million yuan, - 214 million yuan and - 262 million yuan respectively. During the reporting period, the accumulated operating income of Renhui biological was less than 100 million yuan, but the accumulated loss was as high as 636 million yuan.

As of the first half of 2020, the total assets of Renhui biological association was 450 million yuan, 4.66% lower than that at the end of 2019, and the total liabilities was 418 million yuan, an increase of 37.21%; However, the owner's equity and attributable equity of the company were only 31.5491 million yuan, a decrease of 81.10%; The company's asset liability ratio jumped from 64.61% to 92.98%.

It is worth noting that intangible assets account for a large proportion of its assets; At the end of each reporting period, the book value of the company's intangible assets was 144 million yuan, 130 million yuan and 115 million yuan respectively. In addition to the land use right, the intangible assets of the company are mainly patent rights formed by independent research and development.

That is to say, apart from the patent rights that can not predict the market revenue, Renhui biology is already operating in negative assets. Can it support the minimum market value of 4 billion yuan?

Cause continuous regulatory attention

Renhui Bio said that from 2017 to 2019, the net cash flow generated by the company's operating activities was - 125 million yuan, - 87.5446 million yuan and - 213 million yuan, respectively. It was necessary to supplement working capital through financing channels such as equity and creditor's rights.

Renhui biology, which has a net equity interest of only 31.5491 million yuan, plans to finance as much as 3 billion yuan, including 1.24 billion yuan for new drug research and development, 1.08 billion yuan for the construction of pharmaceutical platform, and the remaining 670 million yuan for supplementary working capital.

At present, the company's market development and new product research and development is still bottomless, which requires a large amount of funds to continue to invest.

From 2017 to 2019, the company's R & D investment was 69.3115 million yuan, 52.8383 million yuan and 91.4379 million yuan respectively, accounting for a large proportion of operating revenue. The company's sales expenses were 60.5915 million yuan, 85.3275 million yuan and 154 million yuan respectively, accounting for 430.04%, 312.29% and 271.35% of revenue respectively.

The company's sales expenses have not seen considerable marketing benefits, but they have become the focus of supervision.

At the beginning of this year, Renhui biology, which has entered the registration process, encountered the on-site inspection by the CSRC and received three rounds of inquiries from the regulatory authorities. During the on-site inspection, the CSRC found various suspicious points of the company. The reporter of 21st century economic report learned that the on-site inspection of Renhui biology has strong pertinence to the pharmaceutical industry.

Renhui biology is included in the academic promotion meeting held by the sales expenses. The company's sales personnel directly pay the lecture staff's labor expenses in cash, but there are many mismatches between the reimbursement expenses of the sales personnel and the daily records. In addition, some of the meetings attended by Renhui biology did not even provide valid proof of participation, and sales personnel bought fake invoices.

In the on-site inspection, Renhui biological even appeared abnormal flow of suspected commercial bribery, which was noted by the CSRC on-site inspection. For example, during the period from 2017 to 2020, Renhui bio has a large amount of payment records for purchasing Shande gift cards, and according to the nature of the receiving department, they are treated as administrative expenses, manufacturing costs and R & D expenditures, but there is no written record supporting the issuance and collection of relevant gift cards.

If Renhui biology is involved in the anti-corruption problem of medicine which is under strict supervision, the company's listing plan may run aground, and the company will face difficulties in sustainable operation.

As of the end of 2019, the undistributed profit of Renhui biology was - 670 million yuan, and there were huge losses that had not been made up. If the company could not obtain new financing injection, the accumulated uncollected loss of the company would still increase significantly, or there would be a business crisis.