After two submissions, Shenghe Bio Holdings Limited (hereinafter referred to as Shenghe Biotech) passed the listing hearing on the main board of the Hong Kong Stock Exchange on April 15, with CICC as its sole sponsor.
According to the Zhitong Financial APP, Shenghe Biotech was able to sprint to Hong Kong stocks, thanks to the investment of 210 million yuan (unit: RMB, the same below) of Yifeng Capital in August last year, which not only solved the company's urgent needs, but also made its valuation just "press the line" to meet the 18A listing rules (valuation of about 1.41 billion yuan). It is worth noting that the post-investment valuation of 1.4 billion yuan is expected to refresh the lowest record of 18A companies.
Can anti-HER2 antibodies make a rich story?
There are only a few people who stand out on the road of biotechnology, and Hong Kong stock 18A provides a relatively public viewing platform, allowing the market to witness the death and death of some innovative biomedicine. At present, the team of companies that can realize the business prospects on paper in Class B shares is gradually expanding, can Shenghe Bio become one of them?
For Biotech, value is naturally determined by its pipeline. In this regard, since its establishment, there has been no major change in Shenghe's biological pipeline.
Founded in 2018, Shenghe Biopharma is a clinical-stage biopharmaceutical company focused on discovering, developing, and commercializing biologics for the treatment of cancer and autoimmune diseases, according to the prospectus. It has three core products, namely IAH0968, IAP0971 and IAE0972, all of which are developed in-house. As of the Latest Practicable Date, there were nine pipeline products, three of which were in the clinical stage in addition to the core products, which were also focused on cancer treatment.
Specifically, IAH0968 is an antibody-dependent cell-mediated cytotoxicity (ADCC)-enhanced monoclonal antibody (mAb), and the company has initiated Phase II clinical trials for biliary tract cancer (BTC) and colorectal cancer (CRC). Both IAP0971 and IAE0972 are antibody cytokines, and Phase I clinical trials have been completed for advanced solid tumors, including non-small cell lung cancer (NSCLC) and CRC).
According to Zhitong Financial APP, Shenghe Bio's IAH0968 is the first clinical-stage anti-HER2 antibody with 100% fucose removal independently developed. Studies have shown that HER2 is overexpressed in about 25% to 30% of breast cancers, as well as numerous other types of cancer, including biliary tract cancer (BTC) and colorectal cancer (CRC). The Company's IAH0968 is for the treatment of 1L HER2+ advanced BTC and 1L HER2+ advanced CRC, and plans to further explore its potential in these indications.
For Shenghe Biotech, the anti-HER2 antibody brings it a certain imagination.
According to Frost & Sullivan, since the FDA approved Herceptin or trastuzumab, the first anti-HER2 antibody developed by Roche in 1998, a total of four anti-HER2 mAbs have been approved for cancer treatment in the United States and China. Margetuximab, magituximab, pajet, and Herceptin have been approved by the FDA. Enituzumab (or Septin), Pajet and Herceptin have been approved by the NMPA.
Notably, magtuximab and enituzumab have enhanced Fc effector function through mutations in the Fc region. These two antibodies are specifically designed for HER2-positive breast cancer that has not responded to previous treatment regimens. The IAH0968 developed by Shenghe Biotech has performed excellently, becoming the only ADCC enhanced anti-HER2mAb modified by fucose removal in China and the world, which is currently in phase II/III clinical stage.
In terms of market size, the global anti-HER2 monoclonal antibody market will reach $13.6 billion in 2026 and $14.8 billion in 2030. In China, the anti-HER2 monoclonal antibody market has shown significant growth, from RMB 3.2 billion to RMB 11.8 billion from 2018 to 2022, with a CAGR of 38.4%. The market is expected to continue to grow and reach RMB17.9 billion and RMB21 billion in 2026 and 2030, with a CAGR of 10.9% and 4.1% from 2022 to 2026 and 2026 to 2030, respectively.
However, the core products of Shenghe Biotech are still IAH0968 still a long way from being listed.
More importantly, IAH0968 is used for BTC and CRC, and there are many biopharmaceutical companies that currently market and sell drugs for the same indications. For example, as of the latest practicable date, 11 antibody-based drugs were approved for the treatment of CRC globally. In China, four antibody-based drugs have been approved for the treatment of CRC. Globally, 2 antibody-based drugs are approved for the treatment of BTC. In China, 2 antibody-based drugs were approved for the treatment of BTC.
The market competition is fierce, and there is still uncertainty about the market growth that Shenghe Biopharma's IAH0968 can obtain in the BTC and CRC drug market as a latecomer.
In addition, the other two core products are not IAH0968 in terms of IAP0971 and IAE0972 progress. Moreover, as antibody cytokines, they are mainly targeted at cancer patients who have failed prior therapy for second-line or late-line treatment, essentially limiting their target patient population. In addition, the potential target patient population of the above core products may be limited or may not be able to receive treatment with these core products. As a result, the Company's market opportunities may also be limited by the low incidence of the indications targeted by the above products.
The cumulative loss of 185 million yuan in two years is difficult to continue borrowing
For biotech companies in the Hong Kong stock market, whether they can achieve profitability is of great significance, because from the research and development of drugs to the commercialization of drugs, a large amount of capital is required, and cash flow is the "lifeline" of enterprises in a sense.
Financial data show that Shenghe Biotech currently has no commercial products, and from 2022 to 2023 (hereinafter referred to as the reporting period), it will lose 52 million yuan and 133 million yuan respectively. During the reporting period, the company's R&D expenditure was 53.171 million yuan and 430.41 billion yuan respectively.
Despite the R&D expenditure, the R&D expenditure on core products is still on the rise. During the Reporting Period, the R&D expenditure on core products was MOP 10.678 million and MOP 17.383 million respectively, accounting for 20.1% and 40.4% of the total R&D expenditure respectively. It can be seen that in order to ensure the progress of the pipeline, the company chooses to focus on core products. It is worth noting that the R&D revenue of IAH0968 has decreased.
Without a source of income, Shenghe Biotech can only choose to borrow to survive. During the reporting period, the company generated net current liabilities of 51.5 million yuan and 161 million yuan respectively. In addition, the Company's operations have consumed a large amount of cash, with net cash used in operating activities of $34.6 million and $40.7 million during the reporting period, and the Company expects that it may continue to generate net cash outflows from operating activities in the foreseeable future.
It is gratifying that after the listing of Shenghe Biotech, it can accelerate the commercialization of core product IAH0968. However, there is still uncertainty about whether the hematopoietic ability can be verified.