“Science and Technology Innovation Board Daily”, April 16 (Reporter Zheng Bingxun) “In fact, Kaijing Gene is a subsidiary of our original subsidiary Shunjing Pharmaceutical. In August of last year, we stripped off Shunjing Pharmaceutical, and also stripped Kaijing Gene. Now we are buying Kaijing Gene back again.” In response to Hejing Biotech (688068.SH)'s intention to acquire 100% of the shares of Beijing Kaijing Gene Technology Co., Ltd. (“Kaijing Gene”, the same below), the company's director explained this to the “Science and Technology Innovation Board Daily” reporter.

The reason for this is that on the evening of the 15th, Hejing Biotech announced that it plans to acquire 100% of Kaijing Gene's shares held by Beijing Shunjing Biomedical Technology Co., Ltd. (“Shunjing Pharmaceutical”, the same below), with a transaction consideration of 11 million yuan in cash. After the transaction is completed, Kaijing Gene will become a wholly-owned subsidiary of Hot View Biotech and will be re-included in the scope of the consolidated statement.

Since the current chairman and director of Hejing Biotech are the executive directors and financial directors of Shunjing Pharmaceutical, respectively, this transaction constitutes a related transaction, but it does not constitute a major asset restructuring.

▌Peel off the bioinnovative drug section first

Looking further, what the company personnel mentioned above said was “buy back the Kaijing Gene” actually has its roots.

As early as March 2022, Kaijing Gene was also a direct 83.33% subsidiary of Hejing Biotech. Since then, Shunjing Pharmaceutical has successively purchased 100% of Kaijing Gene's shares for a total of 8.69 million yuan. As a result, Kaijing Gene has become a second-tier subsidiary of Hejing Biotech that indirectly holds 55% of shares through Shunjing Pharmaceutical.

Immediately after mid-June 2023, Qingdao Tongcheng Shunjing Enterprise Management Consulting Partnership (Limited Partnership) (hereinafter referred to as “Tongcheng Shunjing”) planned to increase the capital and expand shares of Shunjing Pharmaceutical. After the transaction was completed, Hejing Biotech's shareholding in Shunjing Pharmaceutical dropped from 51.38% to 48%. Shunjing Pharmaceutical became a shareholding company of Hotjing Biotech and was no longer included in the scope of the consolidated statement. Precisely because of this, Kaijing Gene also followed Shunjing Pharmaceutical and was removed from Hotjing Biologic Reports.

As to why it is necessary to go around such a circle and buy back Kaijing Gene, it is closely related to the current business layout of Hejing Biotech.

Currently, Hejing Biotech's main business revolves around two major fields — in vitro diagnostic products and bioinnovative drugs. Among them, the field of bioinnovative drugs is mainly innovated and developed at the source through Shunjing Pharmaceutical. Currently, 10 monoclonal antibody drug projects are under development.

However, at this stage, in vitro diagnostic products are almost the entire source of revenue from Genseki Bioscience. Taking 2022 as an example, Hejing Biotech achieved revenue of 3,557 billion yuan, of which revenue from in vitro diagnostic products was 3,532 billion yuan, accounting for 99.31%.

In other words, bioinnovative drugs are currently not only not contributing to performance, but are also consuming R&D capital. According to reports, the total investment scale of the 10 monoclonal antibody projects is estimated to be 45 million yuan, but as of the first half of 2023, the total investment has reached 447.15,500 yuan, and the project is still in the very early stages of molecular discovery and molecular confirmation.

Combined with the characteristics of high investment in innovative drug research and development, it is almost certain that with the advancement of bioinnovative drug projects, R&D costs are bound to exceed the estimated amount in the second half of 2023 and continue to rise in the days to come.

“The investment in R&D to make innovative drugs is still quite large. Later, as it continues to advance, there will be more and more investment in R&D, which will also have a certain impact on listed companies' statements, so let's split it off first.” The words of the director of Hejing Biotech confirmed the above speculation. However, the other party also stated, “After the divestment, it will help Shunjing Pharmaceutical to be more flexible in market-based financing, and Hejing Biotech still holds more shares in it, so it can also reap benefits with subsequent development.”

▌Buy back IVD's upstream subsidiary

Why did they have to buy Kaijing Gene back after divesting Shunjing Pharmaceutical?

In response, the director of Hejing Biotech further told the “Science and Technology Innovation Board Daily” reporter, “Kaijing Gene is a key raw material for bioactivity, and it is upstream of the in vitro diagnosis business where Hejing Biotech is located. After the re-acquisition of Kaijing Gene, we have recompleted the layout of the complete industrial chain from upstream key bioactive materials to R&D, production, and sales of reagents and instruments in the in vitro diagnosis business.”

“In this way, we have streamlined both the innovative drug business and the IVD business, which is also conducive to improving efficiency and reducing costs in subsequent business development.” he said.

In fact, buying back Kaijing Gene not only helps Genetics in the industrial chain, but also directly improves its performance.

According to the data, in 2023, Kaijing Gene achieved revenue of 17.1143 million yuan, net profit of 2.234 million yuan, and net assets of 8.525 million yuan. In the same period, according to the 2023 performance report of Hejing Biotech, due to the decline in demand for COVID-19 testing reagents, Hejing Biotech's revenue for the year was 541 million yuan, down 84.78% year on year, and net profit to mother was 30.1612 million yuan, down 96.81% year on year.

If the 2023 results are used as a reference, once Kaijing Gene returns to the consolidated report, it will contribute an additional 7% of net profit to Enjing Biotech, and the effect of improving the performance is immediate.

“This is really beneficial to us, and we will generate more business for it in the future, and revenue and profits are expected to continue to grow.” The director of Hot Scene Biotech said.