“Science and Technology Innovation Board Daily”, April 17 (Reporter Zheng Bingxun) Warner Pharmaceuticals (688799.SH)'s application to issue no more than 700 million yuan of convertible bonds to unspecified targets was registered and effective as early as April 17, 2023. However, after it became effective, Warner Pharmaceuticals was slow to start distribution. After a year, the approval finally automatically expired on April 17, 2024, due to expiration, and the issuance of Warner Pharmaceuticals convertible bonds went nowhere.

Warner Pharmaceuticals stated that the reason it was unable to implement this release within the validity period of the approval was due to changes in various factors such as the timing of release.

According to the debt issuance plan, Warner Pharmaceuticals plans to use the 700 million yuan raised for the construction of a “high-end pharmaceutical production and research base construction project” to build a new solid preparation, sterile formulation, cephalosporin preparation workshop, R&D pilot plant and supporting ancillary projects. After completion, it will produce 3 billion tablets/bags/granules/branch of chemical preparations every year.

Now, the debt issuance and financing plan has come to an end, and construction of the construction project began in September 2023. The total planned investment of the entire project is 1,00.3 billion yuan. Warner Pharmaceuticals said it will continue to advance the construction of the project with self-financing or other financing methods. According to the original plan, the construction period of the project is 3 years, and it will be completed, tested and put into use in the first half of 2025.

According to the 2023 performance report, Warner Pharmaceuticals achieved revenue of 1,429 billion yuan, a year-on-year increase of 10.57%, and net profit to mother of 211 million yuan, an increase of 15.63% over the previous year. As of the end of September of the same year, the balance of cash and cash equivalents on Warner Pharmaceuticals accounts was only 152 million yuan. Judging from this, continuing project construction will undoubtedly put additional financial pressure on Warner Pharmaceuticals.

The “Science and Technology Innovation Board Daily” reporter wrote to Warner Pharmaceuticals to ask how much of the plan is investing in self-financing, what are the other financing methods, and how to assess the pressure on cash flow? The company replied, “The company's current operating performance has maintained a steady growth trend, and the cash flow is sufficient. It will select its own capital or suitable financing methods according to project requirements to guarantee the long-term development of the company's various businesses.”

It is worth mentioning that many products in Warner Pharmaceuticals' debt raising project are still in the development stage, including vonoracin fumarate tablets, benidipine hydrochloride tablets, arolol hydrochloride tablets, diquafinol eye drops, and bromavudine tablets, etc., which have yet to obtain drug registration approval.

Meanwhile, the Shanghai Stock Exchange has also inquired about the market space and competitive pattern of pharmaceutical products related to fund-raising projects. According to Warner Pharmaceuticals's response, more than half of the nearly 20 products included in the fund-raising project faced competition from 3 or more manufacturers. Furthermore, the number of competing manufacturers, such as colloidal bismuth pectin capsules and bismuth potassium citrate capsules, was as high as 46 and 22, and competition has reached a heated level.

However, in addition to the competitive pressure faced by the company itself, Warner Pharmaceuticals missed out on debt issuance opportunities after getting approval, which also points to the continuous tightening of the pace of refinancing.

According to Wind data, in March 2024, not only did no IPO companies pass the review, but the scale of IPO financing and refinancing in the first quarter fell 64% and 70% year-on-year, respectively.

Meanwhile, as of April 17, the number of companies that have terminated (withdrawn or failed to pass the review) refinancing in the three markets of Shanghai, Shenzhen, and since 2024, has reached 38. Of these, 25 have terminated additional issuance and 13 have terminated convertible bonds. In contrast, only 18 companies terminated their refinancing in the first 4 months of 2023, and the number of terminations for the whole year was 71.

“Companies don't just use the market fundraising method; they prefer market fundraising. The bigger reason is that they look at medium- to long-term capital and not having to pay back money; even if dividends have costs, they don't affect profits. Interest rates on debt financing and bank loans are very low; it just requires the company to pay back the money.” Wang Jiyue, a veteran investment banker, told the “Science and Technology Innovation Board Daily” reporter.

Wang Jiyue further stated, “Excellent companies will not be greatly pressured by changes in certain financing channels. Only companies that expect market financing are problematic companies.”

According to Zhao Heng, founder of medical strategy consulting firm Latitude Health, “Now that the pace of refinancing is tightening, the market is already shifting to mergers and acquisitions. In this context, there will be more and more cases similar to Mindray Healthcare's merger and acquisition of Huitai Healthcare.” Zhao Heng explained that compared to refinancing, through mergers and acquisitions, acquirers will no longer need to develop a project on their own as before, but will directly buy a more mature or more promising project.

Warner Pharmaceuticals actually has a precedent in this regard. As early as September 2022, Warner Pharmaceuticals acquired 18% of the shares of Frontier Pharmaceuticals with 4 million cash. Prostate Pharmaceuticals is mainly engaged in the industrialization of “prostaglandins” products.

Warner Pharmaceuticals said that investment in leading pharmaceuticals can further expand and enrich ophthalmic drugs such as dry eye diseases, including a series of R&D pipelines integrating prostaglandin pharmaceutical ingredients and formulations. It is an industrial investment centered around the upstream and downstream of the industrial chain for the purpose of obtaining technology.