They all say “the next generation of demons.” Recently, another round of IPOs in the Hong Kong stock market caused a “ghost wind.”
Since October 16, the stock price of the sub-new shareholder Zhiyou Biotech B (02496) has been on a “slide” and has repeatedly declined. After a week of continuous decline, the company's stock price has fallen by more than 30%. By the close of the market on October 20, the company's stock price closed at HK$10.80, down more than 45% from its high listing price of HK$19.80.
At the same time, the company's turnover is also very low. The Zhitong Finance App noticed that on October 20, Youzhibao Biotech's turnover was only HK$696,000, and if calculated, the weekly turnover was less than HK$2 million. This is in stark contrast to the turnover of most pharmaceutical stocks which tend to be tens of millions.
2023 is the company's first year of listing, and in less than a month, Tomochiba Bio has been brutally “abandoned” by market capital. What exactly happened behind this?
The prospects for commercialization are uncertain
According to the Zhitong Finance App, Youzhibao Biotech was founded in 2010 and is a biotechnology company. The company is committed to developing bispecific antibody-based (BsAb) therapeutics for the treatment of cancer or cancer-related complications and senile ophthalmologic diseases. It has designed and developed seven clinical-stage drug candidate pipelines, six of which are BSab structures to treat some of the most serious types of cancer and cancer-related complications.
The Zhitong Finance App learned that BsAb is an artificial protein that can identify and specifically bind two antigens or epitopes, and can simultaneously block antigen/epitope-mediated biological function or make antigen cells bind more closely. In recent years, due to people's deepening understanding of the pathogenesis of various diseases and the rapid development of therapeutic mAbs, the global BsAb market has grown rapidly. In 2021, the global BSab market reached $3.8 billion. With further breakthroughs in technology and clinical research, it is expected to further increase to $58.6 billion in 2030. In 2021, China's BSab market size is 100 million yuan (RMB, same below). It is expected to grow at a compound annual growth rate of 251.7% in the future, and is expected to reach 61.5 billion yuan by 2030.
Among them, M701, the core product of Youzhiyu Biotech, is a recombinant BsAb that targets cancer cells that express human epithelial cell adhesion molecule (EpCAM) and T cells that express human differentiation cluster 3 (CD3). According to reports, M701 is Epcam×CD3 BsAb which focuses on the treatment of MA and MPE. The company completed a phase I clinical trial of M701 to treat malignant ascites (MA) in January 2022, and is currently conducting phase II clinical trials to evaluate the efficacy of M701 in combination with systemic treatment for patients with malignant ascites (MA). In addition, the company also conducted a phase IB/II clinical trial of M701 for the treatment of malignant pleural effusion (MPE) in China in November 2022.
According to the 2023 Interim Report, in the direction of malignant ascites (MA), Youzhibao Biotech is currently conducting phase II clinical trials to evaluate the efficacy of M701 monotherapy combined with systemic treatment (including targeted therapy, immunotherapy, or chemotherapy) in treating MA, and has observed good data. In the direction of malignant pleural effusion (MPE), Youzhiyou Biotech is currently conducting phase IB/II clinical trials of m701 to treat MPE in China, and has also observed good data. Currently, Tomochiyu Biotech plans to submit a BLA application for M701 to treat malignant ascites (MA) in the first quarter of 2025.
However, since MA and MPE are often associated with malignant tumors in multiple organs with poor prognosis, advanced cancer patients rarely benefit from marketed drugs, and there are few drug candidates approved to treat MA and MPE, which directly limits the market size of M701.
The Zhitong Finance App notes that in the Chinese market, currently no chemotherapy, immunosuppressants, or anti-angiogenic drugs have been approved by the State Drug Administration to treat MA or MPE, and no drugs have been included in the recommendations of the Chinese MA or MPE clinical guidelines. As a result, the market space for MA and MPE therapies in China is limited.
According to Frost & Sullivan statistics, the market size of MA therapy in China is expected to increase from 10.7 billion yuan in 2021 to 12.4 billion yuan in 2025 and 14.7 billion yuan in 2030, while the market size of MPE therapy in China is expected to increase from 11.6 billion yuan in 2021 to 13.2 billion yuan in 2025 and 15.3 billion yuan in 2030. It can be seen that while its market size is relatively limited, its growth rate is not too fast.
Looking at the competitive landscape, the M701 is still facing competition from many parties. According to public data, globally, as of August 25, 2023, there were 1 drug application for renewal of marketing authorization and 6 innovative global clinical development drug pipelines specially developed to treat MA or MPE in the market, including 2 BsAb, 3 cell therapy lines, 1 polypeptide pipeline, and 1 other protein pipeline.
The profit dilemma is difficult to solve
In addition to the core product M701, which is facing many difficulties, several of the company's other drugs are still in early stages. Currently, Youzhiyou Biotech, which has no commercialized products, is also heavily indebted.
According to the prospectus, in 2021, 2022, and the first half of 2023, Youzhibao Biotech's other revenue was 127.98 million yuan, 2.56 million yuan and 6.919 million yuan, respectively, and the performance fluctuated. Net losses were approximately RMB 149 million, RMB 189 million, and RMB 86.568 million respectively, which increased 27% year-on-year in 2022. Regarding the increase in losses, Youzhibao Biotech admits that this was mainly affected by the increase in R&D expenses. During the reporting period, the company's R&D expenditure increased from 113 million yuan in 2021 to 157 million yuan in 2022, an increase of nearly 40% over the previous year. The figure for the first half of 2023 was 71.598 million yuan.
However, until profits were achieved, the main methods to support the daily operations of Youzhi Youbiotech were financing and borrowing. Currently, Youzhibo Biotech's cash flow is extremely tight. The Zhitong Finance App observed that in 2021, 2022, and the first half of 2023, the net cash from Youzhibou Biotech's financing activities was 810.34 million yuan, 241 million yuan, and 49 million yuan respectively. Under these circumstances, its cash flow was only barely enough to support the current year's expenses. As of the end of June 2023, the company's cash and cash equivalents were only 76.445 million yuan, which was enough to cover the scale of R&D expenditure in the first half of 2023. If future R&D expenditure shows an expansion trend, it will “shut down” the R&D pipeline and plunge the entire company into a liquidity crisis.
This is the main reason why the company is actively going public. According to reports, 80% of the capital raised by the listed company is expected to be used for clinical trials, preparation of registration applications, and commercialization of the core product M701; about 12% will be used for clinical trials carried out by the Y101D program; and about 8% will be used for general corporate purposes.
Taken together, the “steady decline” in the stock price of Tomochiba is not without reason. In a context where it will take time for the company's core products to be commercialized, it is unrealistic to achieve one's own hematopoietic cycle through commercialization of the company's products in the short term. At the same time, the prospects for the core product M701 industry are limited. As market competition becomes fierce, it is still time to test how much of the pie Youzhiba can get.