Recently, the State Council issued the "Several Opinions on Strengthening Supervision and Risk Prevention and Promoting the High-quality Development of the Capital Market", which consists of 9 parts, referred to as the new "National Nine Articles" of the capital market. Subsequently, the China Securities Regulatory Commission (CSRC) solicited public comments on six draft rules for issuance supervision, listed company supervision, securities company supervision, and transaction supervision. Among them, the adjustments in the "Guidelines for the Evaluation of Science and Technology Innovation Attributes (Trial)" focus on highlighting the "hard technology" characteristics of the Science and Technology Innovation Board.
Since the opening of the STAR Market in 2019, a total of 571 companies have been listed through the rules of the STAR Market. Companies in the pharmaceutical and biological industry are the main force in the Science and Technology Innovation Board, with 106 companies, accounting for nearly 20%.
In the context of the release of the new "National Nine Articles", what kind of baptism will the pharmaceutical and biological industry usher in?
Screening of "truly innovative" pharmaceutical companies for listing
In order to further implement the deployment requirements of the CPC Central Committee and the State Council on the construction of the Science and Technology Innovation Board, implement the positioning of science and technology innovation, and better support and encourage "hard technology" enterprises to be listed on the Science and Technology Innovation Board, the China Securities Regulatory Commission issued the Guidelines for the Evaluation of Science and Technology Innovation Attributes (Trial) in 2020.
Compared with the version released in 2020, this version mainly adjusts the index requirements for listing declaration in Article 1. For example, "the cumulative amount of R&D investment in the last three years is more than 60 million yuan" is changed to "the cumulative amount of R&D investment in the last three years is more than 80 million yuan"; More than 5 invention patents that form the main business income" is changed to "more than 7 invention patents applied to the company's main business"; "The compound growth rate of operating income in the last three years has reached 20%" has been changed to "The compound growth rate of operating income in the last three years has reached 25%"; and 1 new indicator is established, and the proportion of R&D personnel in the total number of employees in the current year is not less than 10%.
Regarding the above adjustments, Cai Jing, a partner of Beijing Jincheng Tongda & Neal (Shanghai) Law Firm, told the International Financial News that the revision of the scientific and technological innovation attribute index has a positive guiding role in increasing R&D investment for biomedical enterprises that plan to go public or are in the process of IPO. The biopharmaceutical industry is a knowledge-intensive and capital-intensive high-tech industry, and continuous R&D investment, patented inventions and high growth rates of operating income are inevitable requirements for the growth and development of high-quality enterprises.
Cai Jing also said that the introduction of the new "National Nine Articles" is conducive to encouraging biopharmaceutical companies to list in the United States or Hong Kong.
Cai Jing said that Article 8 of the new "National Nine Articles" mentions that it is necessary to broaden the financing channels for overseas listing of enterprises and improve the quality and efficiency of overseas listing filing management. The biopharmaceutical industry is a key support industry for many overseas capital markets, such as the Hong Kong Stock Exchange, where many domestic 18A biotechnology companies have been listed. Recently, the China Securities Regulatory Commission (CSRC) has also approved the filing of overseas listings of four VIE companies, two of which are listed in the United States.
Li Wenming, a partner of Hejun Capital, told the International Financial News that the "Guidelines for the Evaluation of Science and Technology Innovation Attributes (Trial)" raised the assessment standards mainly to screen real innovative drug companies. "Of course, in addition to R&D investment, you can also choose some other indicators to include in the assessment, such as whether the product has been included in the accelerated review of the US Food and Drug Administration (FDA) marketing application (NDA/BLA), or the accelerated marketing registration process of the National Medical Products Administration (NMPA)."
Judging from the current R&D investment of pharmaceutical and biological listed companies on the Science and Technology Innovation Board, as of April 23, a total of 54 pharmaceutical companies have disclosed their 2023 annual reports. Among them, Junshi Biosciences, BeiGene, Remegen, and Shenzhou Cell have invested more than 1 billion yuan in R&D in 2023, and 33 companies, including Mabwell, Bio-Thera, and InnoCare, have invested more than 100 million yuan in R&D in 2023.
Source: iFind Tabulation: Tang Jingyang
"Exemption from dividends" is good for the innovative drug sector
In addition to the adjustment of scientific and technological innovation attribute indicators, another part of the new "National Nine Articles" that has attracted much attention is the part related to dividends. The new "National Nine Articles" mentioned that the supervision of cash dividends of listed companies will be strengthened, and companies that have not paid dividends for many years or have a low proportion of dividends will be restricted from reducing their holdings and implementing risk warnings. This provision has been misinterpreted by many people as saying that listed companies will be delisted if they do not pay dividends.
In this regard, Guo Ruiming, director of the Department of Listed Company Supervision of the China Securities Regulatory Commission, said that other risk alerts (ST) are not delisting risk alerts (*ST), and companies can apply for the revocation of ST after meeting certain conditions. The conditions set by the rules fully take into account the characteristics of the large R&D investment of enterprises on the Science and Technology Innovation Board and the Growth Enterprise Market, and some enterprises are still in the early stage of industry development.
For enterprises with high R&D intensity (cumulative R&D investment in the last three fiscal years accounting for more than 15% of cumulative operating income) or large R&D investment (more than 300 million yuan in three years), even if the dividends do not meet the above conditions, ST will not be implemented. Based on the data from 2020 to 2022, the number of companies that may be implemented ST standards in Shanghai and Shenzhen is only more than 80.
Regarding this "exemption condition", Li Wenming explained to reporters, "The innovative drug industry has its own particularity, so the dividend exemption policy is necessary, which is conducive to guiding the transformation of traditional pharmaceutical enterprises to innovative drugs and the development of the innovative drug sector." ”
Cai Jing also believes that the revision of scientific and technological innovation attribute indicators will prompt biomedical companies to increase R&D investment, promote enterprise growth and industrial innovation with scientific and technological innovation, which is conducive to guiding the scientific and technological innovation of the entire biomedical industry, cultivating and expanding new quality productivity, and promoting the high-quality development of the biomedical industry.
In fact, in the past few years, many A-share pharmaceutical and biological listed companies have paid large dividends. According to the Flush iFind financial data terminal, Mindray Medical's cumulative total dividends in the past three years have exceeded 10 billion yuan, and Yunnan Baiyao, WuXi AppTec, and Daan Gene have exceeded 4 billion yuan.
Source: iFind Tabulation: Tang Jingyang
Ring the alarm bell in the capital market
The "Opinions on the Strict Implementation of the Delisting System" (hereinafter referred to as the "Delisting Opinions") issued by the China Securities Regulatory Commission clearly emphasized that in the next step, the China Securities Regulatory Commission will coordinate and promote the implementation of various measures as soon as possible, severely crack down on all kinds of delisting evasion behaviors, and make greater efforts to protect the rights and interests of investors, improve the quality of listed companies, and purify the capital market ecology. It is a wake-up call for many participants in the capital market.
The "Delisting Opinions" focus on improving the overall quality of existing listed companies, increasing the efforts to clear out "zombie shells" and "black sheep" through strict delisting standards, and reducing the value of "shell" resources; The specific supervision covers many aspects such as financial fraud, hollowing out assets, and "backdoor listing".
Among them, financial fraud has always been a violation of the strict crackdown by the regulatory authorities. Not long ago, Guangyuyuan, a time-honored pharmaceutical company in Shanxi, was fined a total of 21.1 million yuan by the securities regulatory department for financial fraud for 7 and a half consecutive years. Zhang Bin, the chairman of Guangyuyuan at the time, was not only fined 5 million yuan by the regulatory authorities, but also banned from the securities market for 10 years. Previously, many pharmaceutical companies such as Kangmei Pharmaceutical, Furen Pharmaceutical, and Qianshan Pharmaceutical Machinery had been heavily fined for financial fraud.
The Delisting Opinions further reduce the number of years, amount and proportion of delisting triggered by financial fraud, from the existing target of more than 500 million yuan and more than 50% of the amount of fraud for two consecutive years to more than 200 million yuan and more than 30% of fraud in one year, 300 million yuan and more than 20% in two years, and fraud for three consecutive years or more.
In addition, in terms of shareholder reduction, the Administrative Measures for the Reduction of Shareholdings by Shareholders of Listed Companies (Draft for Comments) provides that if a major shareholder of a listed company reduces its shareholding due to divorce, termination of a legal person or unincorporated organization, or division of the company, the transferor and transferee shall continue to jointly comply with the provisions of the Measures on the reduction of shareholdings by major shareholders after the transfer of shares. Cai Jing said that the introduction of supporting business rules such as the "Delisting Opinions" will help improve the quality of listed companies, optimize the structure of listed companies, and urge listed companies to improve their investment value.
Under the new regulations, many investors who hold "small-cap stocks" panicked, believing that the adjustment of delisting standards is mainly aimed at "small-cap stocks", and "small-cap stocks" in the pharmaceutical and biological industry such as Rendu Biotech, Fujilai, and Jingfeng Pharmaceutical have all fallen sharply recently.
Guo Ruiming clarified that the new regulations are not aimed at "small-cap stocks", and the adjustment of delisting indicators has made prudent arrangements in terms of standard settings and transition period arrangements, and will not have an impact on the market in the short term.
Regarding the recent fluctuations in "small-cap stocks", Cai Jing told the "International Financial News" reporter that the adjustment of the delisting rules is conducive to further clearing out the "shell zombie" companies and screening out high-quality small- and medium-sized listed companies with strong sustainable operation ability for shareholders, which is conducive to high-quality "small-cap stocks" to stand out and promote the positive circulation of the stock market.