Recently, the “one-size-fits-all notice” probably caused Tengsheng Pharmaceutical-B (02137) to “bleed” more than once.

On March 4, the Shenzhen Stock Exchange and the Shanghai Stock Exchange issued separate Hong Kong Stock Exchange adjustment notices. Tengsheng Pharmaceuticals was removed from the Hong Kong Stock Connect list, which will take effect today.

Affected by this news, Tengsheng Pharmaceutical-B (02137) plummeted for two consecutive days. On the 4th, its stock price fell sharply, plummeting 27.06%. It was almost the stock with the worst drop from the list. On the 5th, its stock price continued to fall. At one point, it fell more than 28% during the intraday period, and finally closed down 17.74% to HK$1.02, with a total market value of HK$744.2 million.

It dropped nearly 45% on the second day. This paper's exclusion announcement certainly hurt Tengsheng Pharmaceutical-B a lot. However, as the stock with the worst decline on the list, the reason behind the successive sharp declines of Tengsheng Pharmaceutical-B is not just an appearance on paper. So what would the “dark surge” hidden under the paper be?

Successive losses, revenue for the first half of the year was only 0.1 billion yuan

Judging from the business situation, Tengsheng Pharmaceutical-B is “deeply injured”, or unrelated to its “unsatisfactory” fundamentals.

Established in May 2018, Tengsheng Pharmaceutical is a biomedical enterprise spanning China and the US, focusing on the development and commercialization of innovative drugs in the fields of infectious diseases, liver and lung diseases, COVID-19 and HIV. In July 2021, Tengsheng Pharmaceuticals successfully listed on the Hong Kong Stock Exchange.

The company was successfully listed on the Hong Kong Stock Exchange after only three years of establishment. It can be seen that the capital behind it is a strong driving force. Judging from the previous prospectus, on the eve of its listing, Tengsheng Pharmaceutical brought together star capital such as Boyu Capital, Tonghe Yucheng, and Arch Venture Partners.

However, it should be noted that since its listing, Tengsheng Pharmaceuticals's stock price has fluctuated downward, falling all the way from the issuance price of HK$22.25 to HK$1 today. However, this may also be related to the performance of its core products, which have not yet been commercialized, and losses over the years.

The Zhitong Finance App learned that Tengsheng Pharmaceutical has now established a pipeline of more than 10 innovative candidate products, focusing on infectious diseases and central nervous system diseases. The company's key projects are HBV projects mainly carried out in China and PPD/MDD projects in the US. Additionally, the company reserves the option to introduce two additional innovative HBV projects authorized by partners. Last year, Tengsheng Pharmaceutical announced the discontinuation of production of COVID-19 neutralizing antibodies. This is its only commercial product, contributing all revenue in 2022.

This means that with the exception of the commercialization of COVID-19 neutralizing antibodies that have already been discontinued, none of the products developed by Tengshengbo Pharmaceutical have been commercialized at present.

The core products have yet to be commercialized, which is clearly reflected in the fundamentals of Tengsheng Pharmaceutical — revenue was recorded only in 2022, and net profit was in a state of continuous loss.

According to relevant financial data, from 2020 to 2022, the company achieved revenue of 0 billion yuan, 0 billion yuan, and 52 billion yuan respectively, and net losses attributable to the company's owners were 1,190 billion yuan, 4.164 billion yuan, and 484 million yuan respectively, with a cumulative loss of about 5.8 billion yuan over three years. As of the first half of 2023, the company achieved revenue of 0.1 billion yuan, and a net loss attributable to the company's owners was 190 million yuan.

Despite losing money over the years, in reality, Tengsheng Pharmaceutical is not a “poor money” company.

According to financial data, from 2020 to 2022, the company's cash and cash equivalents were RMB 1,035 million, RMB 2,855 billion, and RMB 1,191 billion respectively. As can be seen, even after losing money year after year, Tengsheng Pharmaceutical is still not bad at all.

Losses over the years are still not bad. Why is that?

According to information, Tengsheng Pharmaceuticals mainly follows the “asset-light” path, mainly introducing innovative products from abroad through the Lisence in model, rather than a Biotech developed independently in the full sense of the word. This means that compared to pharmaceutical companies that follow the path of independent research and development, Tengsheng Pharmaceuticals does not spend much on research and development. According to reports, from 2020 to the first half of 2023, the company's R&D expenses were 876 million yuan, 495 million yuan, 441 million yuan, and 202 million yuan respectively, decreasing year by year.

However, it should be noted that in the innovative pharmaceutical industry that focuses on R&D capabilities, R&D capability is “hard power”. For Tengsheng Pharmaceuticals, which follows the Lisence in model, although growth is “easy”, the strength is not “hard core” enough.

Can new hepatitis B drugs reverse the unfavorable situation?

Everyone is probably familiar with the hepatitis B virus (HBV).

According to World Health Organization (WHO) statistics, hepatitis B virus (HBV) is the most common serious liver infection in the world. There are more than 292 million chronically infected patients worldwide. The sign of chronic HBV infection is that HBV surface antigen (HBsAg) persists for 6 months or more, and about 900,000 people die of HBV-related complications every year.

However, in China, the HBV treatment market is largely undeveloped, so there is a huge patient population that does not meet treatment needs. According to Tengsheng Pharmaceutical's semi-annual report, China is currently the world's largest HBV market, with 87 million infected people and 200 million susceptible people.

According to reports, once the hepatitis B virus forms cccDNA in liver cells, it is difficult to completely eliminate it. Functional cure, on the other hand, is an ideal treatment goal recommended by domestic and foreign hepatitis B treatment guidelines: that is, HBsAg remains negative even after stopping antiviral treatment; HBV DNA cannot be detected in serum; liver biochemical indicators are normal, and liver tissue lesions improve.

This means that, relying on the large market for functional hepatitis B treatment, Tengsheng Pharma's main core products are expected to boost the company's overall performance growth.

According to the Zhitong Finance App, Tengsheng Pharmaceutical is committed to ending hepatitis B from prevention to cure. In terms of therapeutic products, it includes the three major products BRII-179 (VBI-2601), BRII-835 (VIR-2218), and BRII-877 (VIR-3434), while prevention includes the product PrehevBri, which has now been approved for commercial use in many countries.

Among them, BRII-179 (VBI-2601) is a novel HBV immunotherapy candidate based on recombinant protein. It can express Pre-S1, pre-S2, and ShBV surface antigens, and aims to induce and enhance B-cell and T-cell immunity. BRII-835 (VIR-2218) is an N-acetylgalactosamine (GalNAc) -conjugated siRNA targeting all HBV virus RNAs. It blocks viral transcription, reduces viral proteins, and mitigates immunosuppression.

Although both drugs have been introduced, Tengsheng Pharmaceutical has developed an original combination therapy. Through BRII-835 and BRII-179 collaboration, it induces the body to achieve the effect of curing the HBV virus.

To a certain extent, this combination therapy has built a core competitive advantage for Tengshengbo Pharmaceutical - according to Tengshengbo Pharmaceutical's announcement, the BRII-835 and BRII179 combination therapy for chronic HBV infection is safe and well tolerated. Compared with separate medication, the combination therapy induces a stronger HBsAg (hepatitis B surface antigen) antibody response.

However, it should be noted that Tengshengbo Pharmaceutical's previous clinical data, which fell short of expectations, inevitably caused people to worry

According to reports, hepatitis B virus surface antigen (HBsAg) clearance (HBsAg <0.05 IU/ml) is a core indicator of functional cure. According to this index, in the phase II clinical trial announced by Tengshengbo Pharmaceutical, the test data for BRII-835 and BRII179 combination therapy with or without interferon were not as good as the test data for BRII-835 single drug plus interferon.

According to data previously released by Tengsheng Pharma, the HBsAg clearance rate for 48 weeks of BRII-835 combined with interferon treatment of chronic hepatitis B was 30.8%. However, in the clinical data released this time, out of the 25 patients that could be assessed, only 2 patients reached HBsAg levels below the lower quantification limit (LLOQ), which means that the HBsAg clearance rate was only 5%. This means that BRII-835 and BRI179 had a negative effect when used together, and the patient's HBsAg clearance rate decreased. Based on the performance of this clinical data, the stock price of Tengsheng Pharmaceutical once fell by more than 30% at the time.

Therefore, I'm afraid it is still too early to conclude that Tengshengbo Pharmaceutical's new hepatitis B drug will reverse the unfavorable situation. But in fact, with Tengsheng Pharmaceuticals being removed from the Hong Kong Stock Connect list, there isn't much room left for investors to imagine.