“Investor Network” Cai Jun
Rongchang Biotech (688331.sh, hereinafter referred to as the “Company”) has reached another critical point.
At the end of March, the company announced a fixed increase plan. It plans to raise up to 2.55 billion yuan, all of which will be used for “new drug research and development projects”, including RC18, RC48, RC28, RC88, RC148, and RC198.
Around the same time, the company also released its 2023 annual report. Up to now, the company's core marketed products include tetracip, verdicitumab, etc. During the reporting period, the company's revenue increased by 40.26% year on year, net profit to mother - 1.51 billion yuan, and losses increased compared to 2022.
Just 3 months ago, the company's stock price experienced a sharp fluctuation. It revolves around all the right and wrong, making this fixed increase even more conspicuous. On the one hand, the company has responded to market questions. On the other hand, the size of the company is at a critical stage from small to large, and fixed growth has a richer connotation.
This time, Rongchang Biotech cannot be lost.
Constant amplification under a magnifying glass
In January of this year, Rongchang Biotech caught off guard against a fall in stock, attracting investors to “watch.”
At the time, there were rumors in the market about the company's shortage of cash flow, difficulties in granting bank credit, and potential risk of litigation from suppliers. In response, the company clarified that the content and statements of these reviews were untrue and extremely misleading. What's even more intriguing is the point where the incident occurred.
Prior to the incident, company CEO Fang Jianmin discussed “the upgrade path from biotech to biopharma” at the J.P. Morgan Healthcare Annual Conference in the US. Biopharma is larger in scale and stronger, covering R&D, production, sales, etc., and is also a necessary path for all pharmaceutical companies from small to large.
After the incident occurred, cash flow seemed to be a necessary hurdle on Rongchang Biotech's upgrade path, and attracted the attention of the market with a magnifying glass.
As of 2023, the company's monetary capital was 743 million yuan, a significant contraction from 2,187 billion yuan at the beginning of the year. In the same period, the company's management, sales, R&D expenses were 304 million yuan, 775 million yuan, and 1,306 million yuan respectively, up 14.24%, 75.9%, and 33.01% year-on-year respectively.
In other words, the company's various additional expenses have indeed consumed cash. In response, “Investor Network” asked if this round of fixed increases indicates tight cash flow. Rongchang Biotech responded, “The company is operating normally and orderly. The fixed increase plan is to better promote related R&D projects and achieve domestic and foreign product listing.”
In fact, the company's financing channel is not limited to the capital market. In 2023, the company borrowed 643 million yuan from banks as collateral for projects under construction, fixed assets, and intangible assets. During the reporting period, the company established a production system that complies with global GMP standards, and the total production capacity of the stock solution is expected to expand to more than 80,000 liters by 2025.
More than that, Rongchang Biotech has three spiritual figures: Chairman Wang Weidong, CEO Fang Jianmin, and Chief Medical Officer He Ruyi. The three have built a huge pharmaceutical kingdom, with tentacles covering the upstream medium Cypress Biology, Rongchang Biotech, which develops pharmaceuticals, and McBerry, which produces pharmaceuticals.
The pharmaceutical system is like a machine in operation, which rotates to maintain the daily operations and even financial transactions of various enterprises. In 2019, before Rongchang Biotech was listed on the Science and Technology Innovation Board, the company borrowed 584 million yuan from related parties. Since then, along with the successful commercialization of pharmaceuticals, the company's cash flow has gradually increased.
Moreover, the operation of this system has also fed back new capital operations. In 2023, McBerry passed the Shenzhen Stock Exchange GEM IPO review. During the reporting period, the amount of R&D services purchased by the company from Maxbray was $36 million.
Rongchang Biotech stated to “Investor Network” that “related transactions are necessary for the normal operation of the company, and all have been approved by the shareholders' meeting; McBerry is currently queuing up for registration and listing at the Securities Regulatory Commission.”
Refine the path to commercialization
To upgrade from biotech to biopharma, any pharmaceutical company must go through the test of commercialization.
In 2023, the company's revenue was 1,083 billion yuan, an increase of 40.26% over the previous year. It should be pointed out that during the same period, the company's accounts receivable amounted to 298 million yuan, an increase of 47.34% over the previous year. By product, the sales volume growth rates of titacept and verdicitumab were 59.37% and 15.24% respectively, which is a significant decline from 2022.
At the performance briefing, the company also bluntly stated that achieving the 2023 sales target did not seem ideal. The company also stated to “Investor Network” that “there are certain objective factors in 2023, and we are confident in sales in 2024.”
In 2023, Rongchang Biotech's sales expenses were 775 million yuan. Among them, employee remuneration and market development expenses were 436 million yuan and 260 million yuan respectively. There are 1,185 sales employees, about half of the self-defense and oncology teams. During this period, Tang Gang, the former vice president of the company, moved to Haichuang Pharmaceutical. During his tenure at the company, he completed the construction of a marketing system from 0 to 1 and was responsible for the commercialization and promotion of verdicitumab.
The company revealed at the performance briefing that the sales expenses rate will drop significantly this year. In 2023, the indicator will be 71.6%. The company also stated to “Investor Network” that “the size of the sales team will not be drastically adjusted, but the quality of the team will be further optimized and improved.”
Rongchang Biotech is still refining its commercial path. In the industry, Cinda Biotech, which is recognized as a successful upgrade, has revenue of 6.206 billion yuan in 2023, sales expenses of about 3 billion yuan, and a sales team of about 3,000 people. On the one hand, the company invests heavily in sales; on the other hand, it has many marketed drugs and covers a wide range of indications.
It can be said that the initial R&D choices determined the subsequent commercialization development to a certain extent.
Take verdicitumab, the single product in the company's famous market, as an example. This drug is an ADC (antibody coupling) product and is known as a magic bullet, which can accurately locate cancer cells and carry out attacks. Up to now, only one company has marketed similar drugs domestically; the rest are foreign investors such as Roche, Pfizer, Takeda, AstraZeneca/Daiichi Sankyo, and Gilead.
Domestic “singlehandedly” imports attracted attention for a while. In selecting indications, the company avoided the breast cancer fronts of major international manufacturers, and gastric cancer indications were approved for listing in 2021. In 2021 and 2022, the sales volume of verdicitumab was 84 million yuan and 412 million yuan, respectively.
However, Rongchang Biotech did not disclose sales in its 2023 report. Judging from the sales growth rate, another drug, titacipr, may support the company's growth.
Meanwhile, domestic ADC manufacturers completely opened up the pattern during the same period, and the back wave represented by Baili Tianheng gradually rose. They developed a wider range of indications and were recognized by major international manufacturers, and won huge equity concessions (license-outs). Under the changing circumstances, the company strengthened its determination to “adapt to remedial courses”.
Rongchang Biotech told “Investor Network” that this year it will “focus on key products such as 18, 48, 28, and 88.” Among them, 18 and 48 represent newly developed indications for tetacept and verdicitumab. (Produced by Thinking Finance) ■