Jiangxi Shimei Pharmaceutical Co., Ltd. (hereinafter referred to as "Shimei Pharmaceutical") IPO plans to be listed on the GEM, which is one of the focuses of attention from the outside world, and is the company in the list of the company's top five customers during the reporting period, and 60% of the new large customers.
During the reporting period, CMS Pharmaceutical, which ranked as the largest customer for two consecutive years, attracted attention as a new major customer. In 2021 and 2022, CMS was the company's largest customer, and after the equity penetration, CMS Ventures, whose ultimate equity holder is CMS Pharmaceutical, received more than 4% of the company's equity from Jiang Hong, the controlling shareholder and actual controller of Shimei Pharmaceutical, after its establishment in June 2021. The price of Kangzhechuang Investment Company is significantly lower than the repurchase price of the shares held by the majority of dissenting shareholders by Jiang Hong, the actual controller, when the company terminated its listing on the New Third Board a few years ago.
In fact, the price, background and reasons for CMS's investment in the company, as well as the number of large-scale contracts signed by CMS with the company after its shareholding in the company, also attracted the attention of the Shenzhen Stock Exchange and made key inquiries about the relevant situation.
The first largest customer is a related party
The core business of Shimei Pharmaceutical is mainly pharmaceutical R&D and customized production business and chemical preparation production and sales business. From 2020 to 2022, the company's performance continued to grow steadily, with revenue increasing from less than 81.4 million yuan to 184 million yuan, and net profit after deduction from more than 13 million yuan to more than 73.5 million yuan. In the first half of 2023, the company's revenue and non-net profit will continue to improve, reaching 192 million yuan and 97.4839 million yuan respectively.
It is worth mentioning that the pharmaceutical R&D and customized production business, including the transformation of independent R&D technological achievements, commissioned R&D (CRO), customized production and commissioned processing (CDMO), has rapidly grown into the main business of Shimei Pharmaceutical, which only contributed less than 19% of the main revenue in 2020, and the proportion of main revenue has always exceeded 50% since then. Judging from the list of the company's top five customers during the reporting period, from 2021, major customers from pharmaceutical R&D and customized production business have become the mainstream.
In 2021 and 2022, CMS Pharmaceutical, which ranked first among the company's largest customers, is the company's pharmaceutical R&D and customized production business customer, with sales of 33.193 million yuan and 35.392 million yuan respectively in the past two years.
The prospectus of Shimei Pharmaceutical disclosed the transformation of important independent research and development technology achievements, among which, a contract was signed with CMS Pharmaceutical on irbesartan amlodipine tablets (a new antihypertensive drug), which was signed in June 2021 with a contract amount of 50 million yuan.
In addition, the company's prospectus disclosed in the analysis of entrusted R&D service revenue that there are contracts with CMS for two drug projects, tacrolimus ointment and riprocaine cream, with a contract amount of 30 million yuan, and both signed the "Technology Development Entrustment Agreement" in June 2021, and the status of the two drugs as of the signing date of the prospectus is declared for registration.
CMS is a Hong Kong-listed company, and it can be seen from its 2021 and 2022 annual reports (the currency unit is RMB) that there have been prepayments to the company in the past two years. According to the prepayment for the purchase of intangible assets, the prepayment is for the purchase of the exclusive distribution or product rights of the relevant drugs for sale in a designated territory (subject to regulatory approval).
In 2021, CMS prepaid RMB 30 million and RMB 18 million to the Company and its wholly-owned subsidiary, Shandong Innovation, respectively, and RMB 15 million and RMB 18 million in 2022. In other words, CMS will prepay a total of 48 million yuan to the company in 2021, 33 million yuan in 2022, and a total of 81 million yuan in two years.
Combined with the total sales of more than 68.5 million yuan to CMS in 2021 and 2022 disclosed by Shimei Pharmaceutical, the company's three drug project contracts with CMS totaling 110 million yuan, there should be about 41.5 million yuan to be finally converted into revenue.
In addition, in addition to the three drugs of riprocaine cream, the company also enjoys the right to share sales, and CMS pays to the company according to the proportion of the net sales of the products in the natural year.
The new major customer, CMS Pharmaceutical, is also a related party of Shimei Pharmaceutical. According to the prospectus, in June 2021, when Shimei Pharmaceutical and CMS signed the contract for the above three drug projects, Jiang Hong, the controlling shareholder and actual controller of the company, transferred 5 million shares of the company (accounting for 4.76%) held by the company to CMS Venture Capital at a price of 15 yuan per share, and CMS Venture Capital was also established in June 2021.
In fact, after the equity penetration, the ultimate equity holder of CMS Ventures is CMS Pharmaceutical. Therefore, in accordance with the principle of scrutiny, the company's prospectus discloses CMS as a related party.
Pricing of shares and becoming a major customer are in the spotlight
As a new customer and related party of Shimei Pharmaceutical, a company to be listed, the regular related party transactions and equity transfers between the two parties are bound to be scrutinized.
The Shenzhen Stock Exchange has also focused on this situation. For example, in the inquiry letter, the Shenzhen Stock Exchange asked Shimei Pharmaceutical to explain the determination of the pricing method for the transfer of equity from Jiang Hong, the actual controller of the company, to CMS Venture Capital in June 2021; The comparison of the company's operating performance between June 2021 and March 2020 and 2018 shows the reasonableness of the equity transfer price compared with March 2020 and 2018, and whether the relevant pricing is fair.
In another example, the Shenzhen Stock Exchange required the company to explain the background reasons for CMS's investment in the company in June 2021, as well as the commercial reasonableness of CMS immediately signing a number of large-value contracts with the company after the shareholding, and the sustainability of the company's future transactions with CMS.
In its reply to the letter of inquiry, Shimei Pharmaceutical gave a detailed explanation of the relevant issues of the Shenzhen Stock Exchange, saying that the two parties have equity investment opportunities due to business cooperation, and that business cooperation and equity investment are in line with the strategic layout of the other party, and that "business cooperation + equity investment" is the business behavior of the other party, and said that the existing contract between the two parties is composed of CRO + CDMO, which itself has transaction continuity.
Another example is the company's claim, in 2016, the other party had entered into an exclusive license agreement with AstraZeneca to obtain an exclusive license for the commercialization of one of its CCB antihypertensive drugs in China and has sold well in recent years, due to business needs, it will continue to seek high-quality antihypertensive drugs to supplement the product echelon, so as to achieve business expansion and pipeline replenishment in the cardiovascular and cerebrovascular fields, and the other party found irbesartan amlodipine tablets containing CCB active ingredients and its R&D manufacturer Shimei Pharmaceutical through inquiries in 2021. Taking this opportunity, the two sides launched business negotiations in March 2021 and started cooperation from irbesartan amlodipine tablets. At the same time, based on its own development needs, the other party gradually understands the other product pipelines of Shimei Pharmaceutical, and then gradually discovers the value of the company's equity investment.
Shimei Pharmaceutical also said that the business cooperation with CMS adopts the principle of market-based pricing, which is no different from other pharmaceutical R&D projects, and the company recognizes the service income of each period according to the contract performance node and performance progress.
With regard to the acquisition of shares by CMS Venture Capital at a price of 15 yuan per share, the company stated that the pricing was based on the previous transaction price, taking into account the company's financial situation, future development prospects and profitability at that time, and after joint negotiation between the new and old shareholders, there was no obvious abnormality in the transaction price.
At the same time, Shimei Pharmaceutical introduced the equity transfer price, valuation, PE and other conditions during the period from 2018 to CMC's investment in shares, for example, in 2018, Jiang Hong's share price of the original NEEQ shareholders was 14.58 yuan/share, and the price of introducing new external shareholders in March 2020 was 14.53 yuan/share, and the PE of these two equity transfers was 96.49 times and 146.59 times respectively, and the PE of CMC was 81.56 times when it invested in shares (see Figure 1).
Figure 1: Screenshot of Shimei Pharmaceutical's reply to the letter of inquiry
The company also said that the pricing of the above-mentioned equity transfer in March 2020 mainly referred to the average transfer unit price of Jianghong's transfer to the dissenting shareholders of the original New Third Board in 2018.
According to the disclosure in the prospectus, when Shimei Pharmaceutical terminated its listing on the New Third Board in 2018, Jiang Hong, the actual controller, repurchased the company's shares held by 26 dissenting shareholders. The repurchase price is determined by referring to the original cost of the dissenting shareholders when they obtain the corresponding shares and then negotiated with Jiang Hong, except for the repurchase price of 575,200 shares held by Orient Securities at 12.81 yuan per share and the repurchase price of 351,000 shares held by Haitong Securities at 11.73 yuan per share, the repurchase price of the remaining dissenting shareholders is between 17 yuan and 23 yuan per share (see Figure 2).
Figure 2: Screenshot of Shimei Pharmaceutical's prospectus
For example, Xinyu Zhongding Chuangfu Investment Management Center (Limited Partnership) - Zhongding Chuangfu New Third Board No. 1 Private Equity Investment Fund held 163,000 shares of the company at that time, and Jiang Hong repurchased it at a price of 18.11 yuan per share.
For another example, Jiang Hong's repurchase price of 6,000 shares of the company held by natural person shareholder Chang Yuan was 19.28 yuan per share, and the repurchase price of 6,000 shares of the company held by natural person shareholder Wei Tao was 22.45 yuan per share.
In addition, when Shimei Pharmaceutical was listed on the New Third Board on April 26, 2016, the issue price was 24 yuan / share, and 6 securities companies that subscribed for the company's shares on May 18, 2016 after the company implemented 10 shares for every 10 shares, the actual cost of shares was reduced to 12 yuan / share, of which Haitong Securities subscribed for 200,000 shares when the company was listed, and became 400,000 shares after the increase. In contrast, when Haitong Securities transferred its 351,000 shares of the company to Jiang Hong, the actual controller, at 11.73 yuan per share in 2018, this part of the shares seemed to be transferred at a "loss".
It is worth mentioning that for the above-mentioned dissenting shareholders with a repurchase price between 17 yuan and 23 yuan per share, Shimei Pharmaceutical did not disclose the time and cost of their stake in the company. Because it should be noted that if these shareholders only held shares in the company after the company's conversion in May 2016, then the price at which they transferred the shares of the company held by Jiang Hong would be significantly higher than the entry price of 15 yuan/share of CMS Venture Capital in June 2021 and the entry price of about 14.50 yuan/share of external shareholders in March 2020.
Judging from the different repurchase prices of the company's actual controller Jiang Hong to the dissenting shareholders in 2018, the reasonableness and fairness of the company's alleged pricing of CMS Ventures' investment in the company in June 2021, as well as the pricing of Haitong Securities' transfer of shareholdings to Jiang Hong, may also be noteworthy.
Regarding the price of the company in June 2021 that was significantly lower than the price of 17 yuan to 23 yuan per share held by the actual controller in 2018, the time and cost of dissenting shareholders outside the brokerage company to buy shares in the company, and the actual controller's repurchase price of most of the shares held by Haitong Securities was lower than the cost of 12 yuan per share when the actual controller bought shares, the reporter of the Spiegel Finance Studio of "Public Securities Journal" previously sent an interview letter by email, but did not receive a reply as of press time.
In addition, according to the official website of the Shenzhen Stock Exchange, the Shenzhen Stock Exchange has sent a second round of inquiry letters to Shimei Pharmaceutical.
This newspaper will continue to pay attention to other noteworthy situations of Shimei Pharmaceutical. Reporter Chen Gang