Jiangxi Shimei Pharmaceutical Co., Ltd. (hereinafter referred to as "Shimei Pharmaceutical"), which is seeking to be listed on the GEM, is currently focusing on the transformation of independent research and development of generic drugs, improved innovative drugs, and transformation of innovative drugs, CRO, CDMO, etc., but the production and sales of chemical pharmaceutical preparations used to be the company's main business, and the main revenue accounted for nearly 50% in the latest full year. The IPO plans to use 608 million yuan to raise funds, and the three projects planned to be invested in are all related to new production capacity of preparations.
The reporter of "Public Securities Journal" noted that the complete annual annual production capacity of Shimei Pharmaceutical's main products during the reporting period was 400 million tablets, and the planned use of 245 million yuan of chiral antihypertensive drug R&D and industrialization construction projects is to improve the company's existing production capacity, and will add an annual output of 590 million tablets. The fund-raising project has not yet reached production, and the company wants to expand production on this basis, with an annual output of only 200 million tablets, and a total of 850 million capsules/bags/sticks of annual output, and the company's prospectus disclosed in late December 2023 did not mention the expansion project that had been approved by the EIA in June of that year.
In addition, for the Shandong innovative drug R&D and preparation production base construction project with a total investment of 246 million yuan and a proposed fundraising of 230 million yuan (hereinafter referred to as the "Shandong Innovation Fundraising Project"), the company's prospectus did not disclose the new production capacity, while the EIA report showed that its new annual output reached 410 million tablets/grains/branches, and the EIA report showed that the total investment was only 160 million yuan, and it is expected to be put into operation in October 2020.
On the basis of the Fuzhou fund-raising project, it wants to expand production
In the prospectus, Shimei Pharmaceutical states that it focuses on the R&D, production and sales of generic drugs, improved innovative drugs and innovative drugs, and provides customers with one-stop comprehensive services such as transformation of independent R&D technological achievements, entrusted R&D (CRO), customized production and commissioned processing (CDMO), etc., and its core business mainly includes pharmaceutical R&D and customized production business and chemical preparation production and sales business.
In 2020, the production and sales business of chemical pharmaceutical preparations was the company's core business, accounting for more than 80% of the main revenue, although the proportion of this business decreased significantly after that, it still contributed about 47% of the company's main revenue in 2022 and the first half of 2023.
Judging from the production capacity, output and capacity utilization rate of the main products disclosed by Shimei Pharmaceutical, it is mainly the production capacity and related situation of the company's core product levamlodipine besylate tablets from 2020 to the first half of 2023, with a production capacity of 400 million tablets in the whole year, and the capacity utilization rate is only more than 50% in 2022, and the highest output in 2022 will reach 407,972,500 tablets (capacity utilization rate slightly exceeds 100%).
The company's IPO plans to use 608 million yuan of fund-raising projects, all of which are related to the production and sales of chemical pharmaceutical preparations. The company's three fund-raising projects are the construction project of chiral antihypertensive drug R&D and industrialization, the construction project of Shandong innovative drug R&D and preparation production base, and the construction project of Shandong Kexin API production base, all of which basically use fund-raising and involve new production capacity, and plan to use 245 million yuan, 230 million yuan and 132 million yuan respectively.
The company's prospectus discloses that the main body of the Chiral Antihypertensive Drug R&D and industrialization construction project is Shimei Pharmaceutical, which is located in Fuzhou, Jiangxi, mainly for the expansion of the existing chiral antihypertensive drug production capacity, and can form an annual production scale of 590 million chiral antihypertensive drug preparations after reaching production, and the project has obtained the approval of the EIA, and the construction period is 24 months.
According to the "Announcement of the Proposed Approval of the Environmental Impact Report Form of Jiangxi Shimei Pharmaceutical Chiral Antihypertensive Drug R&D and Industrialization Construction Project" published on the relevant website of the Fuzhou Government in November 2021, the company's above-mentioned fund-raising project is an expansion project, which is expanded in the original factory area, with an annual output of 590 million chiral antihypertensive drug tablets, specifically 500 million tablets of levamlodipine besylate tablets, 200 million tablets of olmesartan cilexetil hydrochlorothiazide tablets, 30 million tablets of azilsartan amlodipine tablets, and 200 million tablets of olmesartan cilexetil oral disintegration tablets, telmisartan amlodipine tablets 020 million tablets.
It is worth noting that, judging from the construction projects and fixed assets disclosed by the company, the chiral antihypertensive drug R&D and industrialization construction projects have not yet reached production, and the company is ready to expand production on this basis.
On June 30, 2023, the relevant website of the Fuzhou government issued an EIA approval for the construction project of Shimei Pharmaceutical's chiral antihypertensive drug R&D industrialization and high-tech industrialization (the EIA acceptance announcement was issued on June 13 of that year), and the approval document shows (see Figure 1), "This project belongs to expansion, no new land, no new plant, and new production facilities and drug preparation types are added on the basis of the original project (Jiangxi Shimei Pharmaceutical's chiral antihypertensive drug R&D and industrialization construction project). The total investment of the project is 15 million yuan, of which the environmental protection investment is about 145,000 yuan, accounting for 0.97% of the total investment."
Figure 1: Screenshot of the EIA approval of the expansion of Shimei Pharmaceutical's Fuzhou fundraising and investment project
The approval document also specifically describes the scale of expansion, including 50 million latex agents, 400 million capsules, 50 million bags of granules (including dry syrup), 50 million bags of dry suspension, 50 million bags of powder, 50 million ointments, 50 million gels, 50 million external solutions, 50 million liniments, 50 million bags of oral solutions, and 200 million tablets (see Figure 2).
Figure 2: Screenshot of the new output approved by the EIA for the expansion of Shimei Pharmaceutical's Fuzhou fundraising and investment project
This means that the company with an annual production capacity of 400 million tablets in 2022 wants to increase the annual output of 400 million capsules, 200 million tablets and 450 million pieces/bag of drugs on the basis of the new annual output of 590 million tablets in the R&D and industrialization construction project of chiral antihypertensive drugs.
Judging from the EIA report, the main raw materials of the 200 million tablets are perindopril tert-butylamine and indapamide, combined with the company's prospectus, which stated that "the company will start to add new commercial varieties in 2023 to produce a small amount of perindopril tert-butylamine tablets and indopril indapamide tablets", which means that 200 million tablets may be antihypertensive drugs perindopril tert-butylamine tablets and perindopril indapamide tablets. The main raw material of 400 million capsules is fluoxetine hydrochloride, and according to the company's prospectus, the drug should belong to the field of psychiatric and neurological drugs, fluoxetine hydrochloride capsules.
It is worth mentioning that the company's latest prospectus was disclosed in December 2023, and it did not mention the company's intention to expand production and re-expansion on the basis of the chiral antihypertensive drug R&D and industrialization construction project of the fund-raising project.
The total investment of Shandong innovation fundraising and investment projects
It is very different from the EIA report
Another major fundraising project of Shimei Pharmaceutical, Shandong Innovation Fundraising Project, is also noteworthy.
The total investment of Shandong Innovation Fundraising Project is 246.4879 million yuan, and the proposed use of 230.3901 million yuan has been approved by the Jinan Environmental Protection Bureau Jihuan Report Form [2018] G141. In the total investment of the project, the construction investment is 227.9507 million yuan, the working capital is 18.5372 million yuan, and the construction period is 24 months.
According to the approval announcement of the Jinan Environmental Protection Bureau High-tech Zone Bureau issued on December 21, 2018 on the relevant website of the Jinan government, "on October 24, 2018, our bureau made a decision on the environmental impact assessment document of the construction project of Shandong Innovative Drug R&D and Preparation Production Base of Shandong Innovative Drug R&D Co., Ltd. (approval number: Jihuan Report Form [2018] G141)" (see Figure 3).
Figure 3: Screenshot of the EIA approval of Shimei Pharmaceutical's Shandong Innovation Fundraising Project
The EIA report shows that the company's total investment in the project is 160 million yuan, and the estimated commissioning time is October 2020 (see Figure 4), and the construction period should be 24 months based on the preparation time of the EIA report in October 2018.
Figure 4: Screenshot of the EIA report of Shimei Pharmaceutical's Shandong Innovation Fundraising Project
It can be seen from the comparison that regarding the total investment of Shimei Pharmaceutical's Shandong Innovation Fundraising Project, the company's prospectus says that it needs 246 million yuan, but the EIA report says that it only needs 160 million yuan.
In the prospectus, Shimei Pharmaceutical said that the project "will build an advanced pharmaceutical research service base in China, as well as a GMP workshop and supporting facilities for process verification and scale-up and preparation production." After the completion of the project, the company will introduce a series of precision R&D instruments and equipment to enhance the company's comprehensive capabilities in the field of pharmaceutical research services and the transformation of R&D results. ”
The company also said that the project is "conducive to expanding the company's R&D capacity", "will fill the company's production capacity of achiral drugs" and "can be used for CDMO entrusted production", but did not specifically disclose the new production capacity of Shandong Innovation Fundraising Project.
The answer is given in the EIA report of the Shandong Innovation Fundraising Project, with an annual output of 300 million tablets, 100 million capsules, and 10 million injections (see Figure 5).
Figure 5: Screenshot of the design output of the EIA report of Shimei Pharmaceutical's Shandong Innovation Fundraising Project
In addition, it can be seen from the prospectus of Shimei Pharmaceutical that the Shandong Innovation Fundraising Project, which was approved by the EIA in 2018 and is expected to be put into operation in October 2020, has not been completed and put into operation by the end of the first half of 2023.
Shimei Pharmaceutical's prospectus disclosed the company's important projects under construction, among which, at the end of each period from 2020 to the first half of 2023, the balance of projects under construction of Shandong Innovation Fundraising Project was 2.3144 million yuan, 36.4846 million yuan, 82.2118 million yuan, and 21.0512 million yuan respectively.
According to the company, on June 30, 2023, the "closing balance of the construction in progress of the Shandong Innovation Fundraising Project decreased compared with the end of 2022, mainly due to the fact that the housing buildings of the project have reached the intended usable state and were transferred to fixed assets in June 2023." ”
In addition, in the composition of the company's assets shown in the prospectus, at the end of each period from 2020 to the first half of 2023, "non-current assets were 129.5612 million yuan, 184.0967 million yuan, 319.4207 million yuan and 344.8658 million yuan respectively, showing a rapid upward trend, mainly due to the company's long-term development considerations, in 2021, the civil installation of Shandong innovative drug research and development, preparation production base construction project and Shandong Kexin API production base construction project will be gradually carried out. From January to June 2023, with the investment and consolidation of the above-mentioned projects, the company's fixed assets increased significantly on June 30, 2023 compared with the end of 2022. ”
As a result, around the two main fundraising projects of Shimei Pharmaceutical, a series of questions arise spontaneously:
1. What is the reason why the company is preparing to expand production on the basis of the research and development and industrialization construction project of chiral antihypertensive drugs in the fundraising and investment project?
2. Why did the company not mention the expansion of production on the basis of the R&D and industrialization construction project of chiral antihypertensive drugs in the prospectus? Does the company think disclosure is necessary, and does the company think there are omissions or concealments in its disclosure?
3. For the total investment of Shandong innovation fundraising project, why is the amount disclosed in the prospectus much higher than the EIA report? Is the reason for the huge difference between the two real and reasonable? Is the company expanding its fundraising by inflating its funding needs?
4. Why is the Shandong Innovation Fundraising Project, which was approved by the EIA in 2018 and expected to be put into operation in October 2020, still be used as the IPO fundraising project in June 2023? After the EIA of the project is approved, does the company slow down the construction of the project in order to avoid the requirement that the completed project cannot be used to raise funds?
Regarding the above related questions, the reporter of "Public Securities Journal" sent an interview letter to Shimei Pharmaceutical by email, but did not receive a reply from the company as of press time. This newspaper will continue to pay attention to other noteworthy situations of the company.
Reporter Chen Gang