Economic Observer reporter Qu Yixian Henlius, the first company to achieve profitability among the 18A innovative pharmaceutical companies in Hong Kong, is about to become history.
On June 24, after a month of suspension, Henlius (02696. HK) and its controlling shareholder Fosun Pharma (600196.SH/02196.HK) jointly issued an announcement: Fosun New Medicine, a holding subsidiary of Fosun Pharma, intends to privatize Henlius by way of absorption merger, with a transaction price of no more than HK $5.407 billion.
Prior to the merger transaction, Fosun Pharma held a total of 59.56% equity interest in Henlius through Fosun New Pharmaceutical, Fosun Pharma Industry and Fosun Industrial. Upon completion of the transaction, Henlius will be merged into Fosun New Pharma, and Fosun Pharma will hold 100% of the equity interest in Henlius.
On the 25th, Henlius rose 19.4%, and Fosun Pharma's A-shares and H-shares fluctuated little.
A person close to the board of directors of Henlius told the Economic Observer that from the perspective of stock price, Henlius is an undervalued asset, and Fosun Pharma can integrate innovation on a larger platform after privatization; For Henlius, the A-share listing after privatization will not be subject to the very low valuation of the Hong Kong stock market capitalization, and there will be greater freedom in valuation.
Regarding the merger and privatization, the person close to the board of directors of Henlius said that the board of directors of Henlius has no particular opposition, "I don't think the adjustment has a particularly big impact on the operation of (Henlius), and the communication between (Henlius) and the group (referring to Fosun Pharma) is very close, the budget also needs to be approved by the group, and the investment must be coordinated with the group."
However, a business leader of Henlius expressed concern to the Economic Observer, saying that there is a difference between the style of Henlius and Fosun Pharma, and that Henlius is a standard biotech (biotechnology) style, which is efficient and direct, and does not know whether the operation status quo can be maintained after the merger.
Compared with other innovative drug companies, the story of Henlius is different. With the help of biosimilars instead of innovative drugs, it has become the first innovative pharmaceutical company to achieve profitability through product sales, which has also attracted the attention of the industry.
Transaction: 30% premium acquisition
The acquisition has been in the works for a long time, and the above-mentioned person close to Henlius' board of directors said that "it has been a while."
On May 23, Henlius announced that it had suspended trading from 9 a.m. on the same day, pending the publication of an announcement constituting inside information under the Hong Kong Code on Takeovers and Mergers.
At that time, there were rumors in the market that Fosun Pharma was going to privatize Henlius or introduce a third party. According to the latest joint announcement, the role of the "third party" is Fosun New Medicine.
Fosun's only asset is Henlius and has no other business. In this acquisition, Fosun New Pharma purchased the listed shares of Henlius at a price of HK$24.6 per share, a premium of more than 30% over the price of HK$18.84 per share before the suspension of trading of Henlius' H shares.
Henlius was listed on the Hong Kong Stock Exchange in September 2019 at an issue price of HK$49.6 per share. There is a view in the market that the interests of investors who intervene in Henlius shares at HK$24.60 per share to HK$49.6 per share will be damaged.
In the view of a pharmaceutical analyst, at a time when it is normal for the market value of Hong Kong-listed innovative pharmaceutical companies to be cut in half, it is no longer realistic to compare it with the issue stock price at the time of listing.
"The offeror provides shareholders with an attractive opportunity to capitalize their investment at a premium above the current market price." The joint announcement said.
According to the announcement, Fosun and Henlius have agreed to merge, and Fosun will absorb and merge Henlius. After the completion of the merger, Fosun New Pharma, as the surviving entity after the merger, will inherit and undertake all the assets, liabilities, equity, business, personnel, contracts and all rights and obligations of Henlius, and the legal entity of Henlius will be deregistered.
The name of Henlius will disappear in the history of China's innovative drugs and be replaced by Fosun New Medicine.
Sellers: High valuations that can't wait
With full profitability in 2023, Henlius has surpassed a large number of sluggish 18A innovative pharmaceutical companies, but its market value has not matched its profitability.
Founded in February 2010 and listed on the Hong Kong Stock Exchange in September 2019, Henlius has products covering oncology, autoimmune diseases, ophthalmic diseases and other fields in the field of diseases. In 2021, following the success of Junshi Biosciences (688180.SH/01877.HK), Innovent Biosciences (01801. HK) and BeiGene (688235.SH/06160.HK/BGNE.US), Henlius became the fourth company to pick "B" in Hong Kong stock 18A.
Compared with other innovative drug companies, Henlius' development path is a little different: it spends a lot of energy on biosimilars. Therefore, in the early years, when the industry was making innovative drugs and telling innovative drug stories, Henlius' biosimilars did not seem attractive enough. However, with more and more commercialized products, Henlius' sales performance in the past two years has made the industry reflect that biosimilars are a very pragmatic choice.
Henlius currently has a total of 5 marketed products, including Han Qu You (trastuzumab), Hansizhuang (serplulimab), Han Beitai (bevacizumab), Han Likang (rituximab) and Han Dayuan (adalimumab), the first 3 of which are solid tumor products.
The turning point of profitability occurred in mid-2023, when Henlius released its performance forecast for the first half of 2023: because of the continuous growth in sales revenue of its core products Hanqu You and Hansizhuang, as well as the cost control under its refined management, it is expected to achieve a profit of about 200 million yuan in the first half of the year, and its intraday increase of more than 30% on the day after the news was released. The industry has finally ushered in an innovative pharmaceutical company that can achieve profitability by selling its own products.
According to Henlius' 2023 financial report, its revenue in 2023 will be about 5.395 billion yuan, a year-on-year increase of 67.8%; The net profit was 546 million yuan, the first full-year profit after achieving the first semi-annual profit in the first half of 2023. The profit was mainly due to the expansion of sales volume after the commercial sales of its core products, and the product sales revenue in 2023 was approximately RMB4.553 billion, representing a year-on-year increase of 70.2%.
Profits do not happen suddenly, and Henlius' revenue in previous years has also increased significantly: about 588 million yuan in 2020, about 1.683 billion yuan in 2021, and about 3.215 billion yuan in 2022.
As of the close of trading on June 28, Henlius' market capitalization was HK$12.4 billion, which was lower than the privatization valuation given by Fosun Pharma. The management of Henlius has publicly stated on many occasions that the valuation of the capital market does not match its own strength.
In mid-2023, while announcing its semi-annual profit, Henlius announced the termination of its listing on the Science and Technology Innovation Board. Zhang Wenjie, chairman and executive director of Henlius, told the Economic Observer at the time that the suspension of listing on the STAR Market was the result of comprehensive consideration of the company's situation and capital market planning. In addition, the financing environment was not optimistic at that time, but the introduction of new financing plans in the future is not ruled out.
"Since the listing of H Shares on the Stock Exchange in 2019, the Company has not raised any funds through equity financing. The Company's ability to raise funds from the equity market is greatly limited due to the relatively low price range and sluggish trading volume of H Shares most of the time. Following the merger, the H Shares will be delisted from the Stock Exchange and the Company expects to significantly reduce the administrative resources arising from maintaining its listing. Henlius said in a joint announcement.
In addition, Henlius also said that its stock price performance has not met expectations for a long time due to comprehensive factors such as global macroeconomic challenges, changes in the medical industry, and the overall trend of Hong Kong stocks. The Offeror believes that the depressed share price does not fully reflect Henlius' core values as a global biopharmaceutical company with a diversified and high-quality product pipeline, which may damage its business focus and employee morale. The merger will help focus on key issues related to the core business and operations, without the disruption of share price fluctuations.
In addition to the key people involved in the transaction, the news of the acquisition and privatization was sudden for the rest of Henlius' employees. The person in charge of a business of Henlius said that he only knew the content of the announcement, and he was not clear about the changes after the acquisition, and he also had some concerns about the future.
Buyers: Cash is tight, but also buys
Fosun Pharma said in the announcement that after the completion of the transaction, it will help strengthen the synergy between Fosun Pharma and Henlius, and can help Henlius continue to grow and achieve its overall strategic goals through the support of business resources provided by Fosun Pharma.
As the buyer in this transaction, Fosun Pharma is facing the pressure of performance growth brought about by the epidemic. According to its 2023 financial report, Fosun Pharma's revenue last year was 41.4 billion yuan, a year-on-year decrease of 5.8%; net profit was 2.39 billion yuan, down 36% year-on-year; deducted non-net profit of 2.11 billion yuan, a year-on-year decrease of 48.1%.
In the statement of the annual report, the direct impact of new crown-related products on profits is as follows: the disposal of new crown-related products and assets with signs of impairment and the provision for impairment totaled about 680 million yuan, the corresponding decrease in profits due to the sharp decline in revenue of new crown-related products, and the new crown-related business will still have team, medical, marketing and other expenses in 2023.
Fosun Pharma's COVID-related products include mRNA vaccine, BioNTech, Azvudine tablets, COVID-19 antigen and nucleic acid detection reagents, etc. In 2022, the annual revenue of BioNTech and Azvudine tablets will both exceed 1 billion yuan. As the new crown epidemic no longer constitutes a "public health emergency of international concern", the revenue of new crown-related products has dropped significantly.
Wu Yifang, chairman of Fosun Pharma, responded to the decline in net profit in the 2023 annual report, saying that the sharp decline in revenue from new crown-related products had the most direct impact on net profit.
In addition to Comirnaty and Azvudine tablets, Fosun Pharma also has three single products with sales revenue of more than 1 billion yuan in 2022: Han Qu You (trastuzumab for injection), Han Likang (rituximab injection) and heparin series preparations. In 2023, there will be a total of 4 single products exceeding 1 billion yuan, and the new single product is Hansizhuang (serplulimab injection).
Hanquyou, Hanlikang and Hansizhuang are all products of Henlius, and Hanquyou's sales in 2023 will be 2.74 billion yuan, a year-on-year increase of 58.1%; Hans's sales were 1.12 billion yuan, a year-on-year increase of 230.2%.
"Pharmaceutical's innovative products have made up for the loss of a COVID-related product and have also driven the company's growth, so in general, the impact of COVID-related products in the future has been gradually digested." Wu Yifang said that in 2024, she will continue to digest the pressure of previous new crown-related business expansion.
On June 19, Fosun Pharma announced that its holding subsidiary, Fosun Pharma Singapore, sold its 6.01% stake in Gland Pharma (hereinafter referred to as "Gland") at an average price through a block transaction, with a total consideration of US$211 million. After the completion of the transaction, Fosun Pharma's shareholding in Gland decreased from 57.84% to 51.83%, and it still retains a controlling stake.
GLAND is a holding subsidiary of Fosun Pharma and one of Fosun Pharma's major overseas assets, and its main business is the production and manufacturing of injectable drugs. Fosun Pharma said that the proceeds from the sale of Gland's equity are mainly used to supplement the group's working capital and repay interest-bearing debts. The market view is that Fosun Pharma may be preparing cash for the acquisition of Henlius by selling its Gland stake while maintaining its controlling stake.
According to Fosun Pharma's report for the first quarter of 2024, its cash and cash equivalents were RMB9.351 billion, and its short-term borrowings amounted to RMB15.533 billion, representing a year-on-year increase of 10.85%. If it were to acquire Henlius, its cash reserves would not be abundant.
According to the announcement, Fosun plans to pay the cash consideration involved in the merger with an acquisition loan (expected to be no more than HK$3.7 billion equivalent) and its own funds. Fosun Pharma applied for an acquisition loan of no more than HK$3.7 billion from the bank for the guarantee of Fosun New Medicine, and Fosun New Drug pledged its 48.49% stake in Henlius, and Fosun Pharma provided joint and several liability guarantee.