In recent years, the pharmaceutical-biological sector of Hong Kong stocks has fallen into a long-term sluggish environment, and it wasn't until recently that it improved as the expected bull market heats up. At this point, an exciting piece of news once again attracted everyone's attention.

Jiahe Biotech (06998.HK) announced a merger with Yiteng Pharmaceutical, starting the first reverse takeover of Hong Kong Stock Company 18A. This is clearly an ingenious operation of the capital market, but the information revealed behind it is far more than that.

It can be said that Yiteng Pharmaceutical's initiative not only set a sample and benchmark for the industry, but also demonstrated its new competitiveness in the field of innovative drug development and commercialization.

Judging from the market performance on the day of the resumption of trading after Jiahe Biotech announced the news, it is not difficult to see that the market quickly cast a vote of confidence. Early trading was nearly 88% high, and at one point it almost doubled on the same day. Although affected by recent market adjustments and other factors, the stock price has declined somewhat and has now stabilized.

(Source: Futu Market)

Looking at the present moment, it is undeniable that after experiencing this huge turning point, there is now a good reason to make a new assessment of the long-term value of this merged listed entity.

1. Set industry benchmarks and achieve value transitions through strong partnerships

Judging from the situation after this merger, the former shareholders of Yiteng Pharmaceutical will account for 77.43% of the new company, while the former shareholders of Jiahe Biotech will account for about 22.57%. At the same time, Ni Xin, the actual controller of Yiteng Pharmaceutical, will become the controlling shareholder of the new company.

This merger can be described as being of great significance to the original two companies. It also focuses on the entire industry level. As the first reverse acquisition case since the Hong Kong Stock Exchange established Rule 18A, it is also quite a benchmark.

Looking at the overall environment in recent years, under the cold winter of biomedical capital, many innovative pharmaceutical companies have fallen into the dilemma of struggling to survive, shrinking R&D pipelines, cutting salaries, reducing costs, and selling assets to revitalize capital. A series of measures are only to withstand the “cold winter” of the industry. In this context, the merger path of Yiteng Pharmaceutical and Jiahe Biotech provides a reference for the industry, and also has a demonstration effect in the capital market.

From the perspective of Jiahe Biotech, the company is mainly engaged in the development and commercialization of oncology and autoimmune drugs. It is still a Biotech company in a high investment period, and is in urgent need of commercialization and blood supplementation to maintain sustainable operation. However, as we all know, the overall financing environment in the pharmaceutical industry has been poor in recent years, putting greater operating pressure on such companies.

At this point, the advent of Yiteng Pharmaceutical, like the “White Knight,” brought a chance to break the game for Jiahe Biotech, which was in a slightly difficult situation.

When Yiteng Pharmaceutical chose Jiahe Biotech, they also saw its strong R&D capabilities and upcoming commercialization potential.

As far as Yiteng Pharmaceutical is concerned, as a comprehensive pharmaceutical company that started as a CSO, the company already has a mature commercial platform and a solid financial foundation. After applying for listing several times before, it was disrupted due to various reasons, but now it is considered a “curve saving the country” through a backdoor. This move not only enabled Yiteng Pharmaceutical to gain recognition from overseas capital markets and broader financing channels, but also provided more possibilities for the company's future development and expansion.

What is particularly critical is that Jiahe Biotech's R&D strength and market base in the biopharmaceutical field also have high synergy effects and complementarity with Yiteng Pharmaceutical's business.

On the one hand, with its commercialization capabilities in the fields of anti-infection, cardiovascular and respiratory systems, Yiteng Pharmaceutical has built a strong operating foundation and strong cash flow.

Judging from the financial data shown in the company's previous prospectus, from 2020 to 2022, Yiteng's revenue achieved steady growth for three consecutive years, reaching 1.768 billion yuan, 2.073 billion yuan, and 2,074 billion yuan respectively. The company's annual profit also achieved leaps and bounds, growing from 0.087 billion yuan in 2020 to 0.306 billion yuan in 2022, an increase of 252%.

(Source: Yiteng Pharmaceutical's prospectus)

On the other hand, Jiahe Biotech has demonstrated its potential for long-term sustainable development with its research and development capabilities in the biopharmaceutical field, especially in the development of innovative drugs such as CD3/CD20 bispecific antibodies.

It is worth mentioning that just before that, in August, Jiahe Biotech also granted TRC 2004 its innovative CD3/CD20 dual-antibody GB261 global equity interest outside of Greater China, and received impressive shares paid by TRC 2004, tens of millions of dollars in down payments, milestone payments of up to 0.443 billion US dollars, and single to double digit sales shares. This is enough to show its strength in drug development and its huge potential for commercialization.

(Source: Jiahe Biotech's Interim Financial Report)

It can be said that this merger is not only a simple union or complementarity between the two companies, but also the first merger of BioTech and Pharma in the pharmaceutical industry, marking the transformation of Yiteng Pharmaceutical from a traditional pharmaceutical company to a Biopharma company with both R&D and commercialization capabilities.

This strategic initiative of Yiteng Pharmaceutical is not only a deep insight into current pharmaceutical market trends, but also a clear guide to the future direction of development.

In this merger, the outside world can also clearly see that the new companies after the merger include pharmaceutical capital giants such as Gao Yu, Temasek, Orbimed, and Sequoia. The participation of these capital not only provided a solid foundation for the merger of Yiteng Pharmaceutical and Jiahe Biotech, but also provided a strong impetus and broad space for the future development of the new company.

(Source: Futu Market)

Overall, this merger will undoubtedly be an important milestone in the development of China's pharmaceutical industry, and its impact and significance will continue to show in the future.

2. Chinese pharmaceutical marketmergers and acquisitionsPioneer, Yiteng Pharmaceutical's gorgeous “transformation” to Biopharma

As far as Yiteng Pharmaceutical is concerned, this merger with Jiahe Biotech is actually only a microcosm of its continuous transformation in value as a pioneer in mergers and acquisitions in the Chinese pharmaceutical market.

Established in 2001, Yiteng Pharmaceutical achieved great success in the Chinese market by representing products from many multinational pharmaceutical companies, and once became one of the leading CSO companies in China.

In the long-term development process, Yiteng Pharmaceutical has continued to transform and upgrade through a series of mergers and acquisitions. The success of this merger and acquisition will enable it to take another leap forward and transform into a Biopharma with both innovative and commercialization capabilities, with unlimited potential for future development.

As early as 2015, Yiteng Pharmaceutical introduced Amarin and officially began the transformation from CSO to Specialty Pharma. Through this transformation strategy, we have not only enriched the company's product line, but also brought new growth points to it. The introduction of Weispe, combined with Yiteng Pharmaceutical's professional ability in sales and marketing, has enabled the company to gain significant market share in the field of cardiovascular treatment.

By 2019, Yiteng Pharmaceutical was further transformed into Pharma through mergers and acquisitions of Lilai assets and GSK assets. These mergers and acquisitions not only brought more products and market resources to Yiteng Pharmaceutical, but also strengthened its market position in the fields of anti-infection, cardiovascular disease and respiratory treatment. Through these mergers and acquisitions, Yiteng Pharmaceutical not only has more original pharmaceutical products, but also obtained advanced manufacturing technology, global supply chain management capabilities, and key processes for complex formulations from multinational pharmaceutical companies, effectively enhancing the core competitiveness of the enterprise.

Now, with this merger with Jiahe Biotech, Yiteng Pharmaceutical has taken an important step in the transformation path to Biopharma, and it also indicates that the company is expected to align with industry giants such as Cinda, Hengrui, and Baekje.

Under this new strategic initiative, Yiteng Pharmaceutical is also expected to usher in a huge value transition and open a new era of development.

On the one hand, from a fundamental perspective, the merged Yiteng Pharmaceutical will integrate Jiahe Biotech's R&D strength and its own commercialization platform to form a complete industrial chain from R&D to the market.

Jiahe Biotech's research and development capabilities in the field of oncology and autoimmune drugs, combined with Yiteng Pharmaceutical's professional ability in sales and marketing, will bring strong market competitiveness and profitability to the new company. This integration can not only increase the company's market share, but also reduce costs and improve efficiency through resource sharing and complementary advantages, thereby enhancing the company's profitability.

In particular, the two sides have their respective advantages overseas, such as Jiahe Biotech's tremendous achievements in overseas BD, combined with Yiteng Pharma's assets and GSK's assets through mergers and acquisitions and the resources of multinational pharmaceutical companies that have been deeply cultivated over a long period of time. Both sides will also make full use of their advantages at home and abroad to open up more room for growth.

(Source: Jiahe Biotech Press)

On the other hand, from a valuation perspective, in the biomedical industry, companies with strong R&D capabilities and mature commercialization platforms can often obtain higher market valuations. With this integration, the new company's dual advantages in R&D and commercialization will make it more in line with the current market valuation trend of Biopharma, so there is potential for value restructuring.

In particular, the recognition and support of a series of top capital mentioned earlier will also further enhance the market's confidence in new listed players and enhance the company's market valuation and investment attractiveness.

3. Conclusion

In classic works such as “Tao Te Ching” and “Sun Tzu's Art of War,” there are classical philosophical and strategic ideas such as taking positions, wisdom, practice, and unification.

Let's take a look at Yiteng Pharmaceutical's “backdoor listing” strategic initiative, which shows the wisdom of taking advantage of momentum and unity.

On the one hand, at a time when the biomedical industry is changing, Yiteng Pharmaceutical has achieved the goal of rapid listing through the merger with Jiahe Biotech, making use of capital market rules and market environment. This strategy, which follows the trend, not only accelerated the company's capitalization process, but also gained valuable time and space for the company's future development.

On the other hand, by integrating the resources and advantages of the two companies, the new company not only formed a strong synergy in R&D and commercialization, but also received more support and recognition in the capital market. This not only enabled it to take an advantageous position in the highly competitive pharmaceutical industry, but also laid a solid foundation for the company's future development.

It is easy to anticipate that with the continuous integration of new companies, they are expected to ride the waves in the pharmaceutical industry and achieve greater value growth.