The actual controller of Ruiyi Technology replied to the third round of inquiries in the IPO of Ruiyi Technology

Original title: Ruiyi Technology's IPO reply to the third round of inquiries

Economic Information Daily reporter Li Huang reported from Beijing

Since the submission of the prospectus of Shanghai Ruiyi Pharmaceutical Technology Co., Ltd. (hereinafter referred to as "Ruiyi Technology"), a supplier of innovative drug molecular building blocks, its listing process has attracted considerable attention from the outside world. According to the official website of the Beijing Stock Exchange, Ruiyi Technology replied to the third round of IPO inquiries, focusing on issues such as the stability of production and operation, production mode and transaction fairness. The reporter of "Economic Information Daily" noticed that in the past four years from April 2017 to December 2020, the actual controller of Ruiyi Technology has changed 4 times. In addition, the risk of Ruiyi Technology's contracted business model on the production side and the high customer concentration on the sales side have also aroused great concern from the regulators about the stability of its production and operation.

On the eve of the IPO, the industry classification was suddenly changed

Founded in May 2006, Ruiyi Technology is mainly engaged in the customized R&D and production of molecular building blocks required in the development and commercialization of small molecule innovative drugs.

In this sprint to the Beijing Stock Exchange, Ruiyi Technology plans to raise 495 million yuan, which will be used for the project of high-end silicone derivatives and new drug intermediates with an annual output of 245 tons, the construction project of the biomedical R&D center and the replenishment of working capital.

According to the prospectus, from 2020 to 2022 (that is, the IPO reporting period, the same below), the operating income of Ruiyi Technology was 122 million yuan, 170 million yuan, and 361 million yuan respectively, and the net profit attributable to the owners of the parent company was 32 million yuan, 41 million yuan, and 108 million yuan respectively, and the gross profit margin was 46.16%, 46.36%, and 44.42% respectively.

From the perspective of specific business, Ruiyi Technology's revenue mainly comes from innovative drug CDMO services and general-purpose molecular building block manufacturing. During the reporting period, the proportion of general-purpose molecular building block manufacturing revenue to the company's main business income was 29.73%, 28.53% and 13.61%, respectively, and the proportion of CDMO service revenue of innovative drugs was 70.27%, 71.47% and 86.39% respectively. From the perspective of business content, the CDMO service of innovative drugs is still responsible for the production and sales of molecular building blocks in the drug discovery stage, clinical stage and commercialization stage.

The reporter of the "Economic Information Daily" noticed that in the case that the output products are all molecular building blocks, Ruiyi Technology suddenly changed the company's industry classification on the eve of the IPO.

In February 2023, Ruiyi Technology disclosed the "Announcement on the Change of the Industry to which the Company Belongs", announcing that the company's industry classification would be changed from "manufacturing of other special chemical products (C2669)" to "medical research and experimental development (M7340)". In June 2023, Ruiyi Technology's application for the IPO of the Beijing Stock Exchange was accepted.

However, the above-mentioned operations of Ruiyi Technology have been the focus of regulatory attention. In the first and second rounds of IPO inquiries, the Beijing Stock Exchange asked Ruiyi Technology to explain the reasonableness of its industry classification. Under the continuous attention of regulators, Ruiyi Technology intends to restore its industry to "C26 chemical raw materials and chemical products manufacturing", and maintain the original industry classification method of "other special chemical products manufacturing (C2669)".

Although Ruiyi Technology intends to restore the industry classification to its original state, in the third round of inquiry, the Beijing Stock Exchange continued to pay attention to its industry classification and required "to explain whether the relevant description of the business in the prospectus is consistent with the industry classification, and adjust or delete the relevant description accordingly." ”

In this regard, Ruiyi Technology said that considering the classification of comparable companies and the convenience of investors to understand and judge the essence of the company's business, the company now intends to restore the definition of its industry as "C26 chemical raw materials and chemical products manufacturing", and maintain the original "other special chemical products manufacturing (C2669)" industry classification. Since the company's molecular building blocks are mainly customized R&D and production for customers in the field of innovative drugs, and have the attributes of CDMO business model, the company's positioning of "providing chemical synthesis CDMO services for innovative drug companies as its core business" is not contrary to the industry classification of "manufacturing of other special chemical products (C2669)", and the essence of the business is to deliver customized molecular building block products to customers through the CDMO model.

At the same time, in order to facilitate investors' understanding and judgment of the essence of the company's business and further improve the quality of information disclosure, Ruiyi Technology has also revised the relevant content in the prospectus.

The company's actual controller frequently "changes hands"

In addition to several changes in the industry classification, the actual controller of Ruiyi Technology has also changed frequently, and from April 2017 to December 2020, the company has undergone a total of 4 changes in the actual controller.

According to the prospectus, as of April 12, 2023, the controlling shareholder and actual controller of Ruiyi Technology is Xue Song, who directly holds 41.15% of the company's shares, and indirectly controls 2.31% of the company's shares through Shanghai Ruiyi Huitong Investment Partnership (Limited Partnership), and Xue Song controls a total of 43.46% of the company's shares.

As early as April 2017, Ningbo Yinzhou Yurui Equity Investment Partnership (Limited Partnership), a controlled enterprise of Jinzi Ham Co., Ltd. (hereinafter referred to as "Jinzi Ham"), and its concerted actors acquired a total of 16,273,300 shares of Ruiyi Technology held by 10 shareholders including Xue Song, with a total of 73.97% of the shares, and the actual controller of Ruiyi Technology was changed from Xue Song to Shi Yanjun, the actual controller of Jinzi Ham at that time.

In December 2018, Loudi Zhongyu Asset Management Co., Ltd., Yu Bo, Ma Xianming, Jin Tao, Wang Boyu, Wang Hui and others repurchased 51% of the equity of Zhongyu Capital Management (Beijing) Co., Ltd. held by Jinzi Ham according to the performance commitment, and the actual controller of Ruiyi Technology was changed from Shi Yanjun to Yu Bo.

In addition to the above two changes, Ruiyi Technology also had two changes in the actual controller during the reporting period. Among them, on August 6, 2020, Ningbo Yinzhou Yurui Equity Investment Partnership (Limited Partnership), a shareholder of Ruiyi Technology, and Ningbo Yinzhou Yuxiang Equity Investment Partnership (Limited Partnership), a person acting in concert, transferred 81.40% of the company's total shares to a number of partnerships, and the actual controller was changed from Yu Bo to no actual controller.

On November 10, 2020, 6 partnerships and 7 shareholders of Ruiyi Technology, including Xue Changhuang, a natural person, and Xue Song, a natural person shareholder, signed the Share Transfer Agreement on Shanghai Ruiyi Pharmaceutical Technology Co., Ltd., and on December 7 of the same year, the above parties jointly signed the Supplementary Agreement on the Share Transfer Agreement of Shanghai Ruiyi Pharmaceutical Technology Co., Ltd. After the completion of the equity transfer, Xue Song was able to control the voting rights of 14.52 million shares of Ruiyi Technology, accounting for 30% of the voting rights of the company's total shares, and became the actual controller of the company.

In the third round of inquiries, the Beijing Stock Exchange required Ruiyi Technology to "explain whether the company's equity structure is clear, whether there is a special interest arrangement, and whether there is a risk of potential disputes in combination with the timing of the company's change of actual controller, the changes in the company's performance, the changes in secondary market transactions before and after the transfer, and the above circumstances." ”

In this regard, Ruiyi Technology said that from 2017 to 2019, the company's overall operation has developed steadily, but the profit scale is relatively small, and since 2020, with the continuous development of the domestic CDMO industry and the continuous increase of customer orders, the company's business scale has also increased steadily. At the same time, the company's sponsor verified through a variety of ways that the transfer of part of the shares of the six partnerships and Xue Changhuang to Xue Song was the true intention of both parties, and the company's equity ownership was clear, there was no nominee holding and other interest arrangements, there were no disputes and potential disputes, and there was no transfer of interests.

The sales of the largest customer accounted for more than 60%.

In addition, the stability of production and operation of Ruiyi Technology has also attracted much attention.

According to the prospectus, Ruiyi Technology originally organized the large-scale production of molecular building blocks mainly through the factory of Haimen Ruiyi Pharmaceutical Technology Co., Ltd. (a wholly-owned subsidiary of Ruiyi Technology, referred to as "Haimen Ruiyi"), and later because the park was included in the chemical park of Jiangsu Province to be shut down, Ruiyi Technology voluntarily closed down the Haimen Ruiyi factory, and the base was transformed from a production function to a R&D center.

In October 2021, Ruiyi Technology signed the "Contracting and Operation Agreement" with Shenzhen Ningfan Energy Co., Ltd. and Yueyang Kangli Pharmaceutical and Chemical Co., Ltd. (hereinafter referred to as "Yueyang Kangli"), with a contract period of 5 years, under which Yueyang Kangli undertakes the function of large-scale production of Ruiyi Technology's products, and Ruiyi Technology purchases products and services from Yueyang Kangli through direct procurement and Haimen Ruiyi through commissioned processing.

Not only does the production side face the risk of contracting business model, but the sales side of Ruiyi Technology also faces the risk of high customer concentration. According to the prospectus, during the reporting period, the sales amount of Ruiyi Technology to the largest customer WuXi AppTec (referring to Wuxi AppTec New Drug Development Co., Ltd. and its subsidiaries) were 83 million yuan, 109 million yuan and 293 million yuan respectively, accounting for 68.07%, 64.23% and 81.06% of the company's current revenue.

In the third round of inquiries, the Beijing Stock Exchange asked Ruiyi Technology to "explain whether Yueyang Kangli's capabilities in terms of production equipment, production environment, warehousing, testing and other aspects can continue to meet WuXi AppTec's audit, whether the company has the ability to conduct business independently and enter WuXi AppTec's supply system, and disclose the relevant risks." ”

In this regard, Ruiyi Technology replied that in November 2021, WuXi AppTec conducted an on-site audit of Yueyang Kangli's quality system, mainly reviewing production equipment, production environment, warehousing, testing and other capabilities, as well as reviewing quality management system documents. During the contracted operation period, Yueyang Conley has formulated the necessary systems for production and operation, and Yueyang Conley is able to strictly implement WuXi AppTec's audit requirements in terms of production equipment, production environment, warehousing, and testing in accordance with the requirements of the above-mentioned systems.

At the same time, Ruiyi Technology also said that the company has the ability to independently carry out business and enter WuXi AppTec's supply system, before Yueyang Kangli contracted, the company organized the mass production of molecular building blocks through Haimen Ruiyi production base, and has a complete production management system, production management team and production equipment planning and formation capabilities, so as to become a qualified supplier of WuXi AppTec; The requirements of production environment, warehousing, testing, etc., the risk of not entering WuXi AppTec's supply system is low.

Source: Economic Information Daily