The good news at the industry level and the company level does not seem to be able to bring Rongchang Biotech (09995, 688331. SH)。
At the industry level, a few days ago, the "Implementation Plan for Supporting the Development of Innovative Drugs in the Whole Chain" was promulgated, proposing to strengthen policy guarantees in the whole chain, make overall plans to make good use of policies such as price management, medical insurance payment, commercial insurance, drug allocation and use, investment and financing, optimize the review and approval and assessment mechanism of medical institutions, and work together to promote the breakthrough development of innovative drugs; It is necessary to mobilize scientific and technological innovation resources in all aspects, strengthen basic research on new drug creation, and consolidate the foundation for the development of innovative drugs in the mainland.
Up to now, Beijing, Guangzhou, Zhuhai and other places have successively issued relevant policies to support the high-quality development of the biomedical industry or innovative drugs and devices, create a full-process service system, accelerate the process from R&D to application, and optimize the pricing and payment settlement mode of innovative drugs and devices.
At the individual stock level, on the evening of July 8, Remegen Biotech announced that the actual controller intends to increase its holdings of the company's shares on the Shanghai Stock Exchange through Remegen Holding Group within six months from now on, with an amount of not less than 10 million yuan and no more than 20 million yuan.
In just three trading days, Remegen's AH shares plummeted by more than 35%, and the total market value of the two cities evaporated more than 10 billion yuan.
In the face of the sharp drop in stock prices, the company's response appeared a little weak, the relevant person in charge of the securities department said that the company's operating conditions are good, and the stock price fluctuations are mainly market reactions, and the specific reasons are still being understood.
However, the abnormal fluctuation of the stock price not only reflects the market's skepticism about Remegen's shareholding plan, but also exposes the pressure on the company's performance and capital chain, which is also the point that investors are most concerned about.
Cash flow is tight, and it is still expanding against the trend
According to Zhitong Financial APP, since the listing of Remegen Biotechnology in 2020, the two cities have raised more than 6 billion yuan (the same below), and the stock price plummeted, and the company only increased its holdings by 10 million yuan to 20 million yuan, which was slightly insufficient.
The lack of increase in holdings stems from the fact that the company does have a lot of pressure in terms of funds. According to Zhitong Financial APP, since 2020, Remegen has been in a state of loss in the rest of the years, except for the profitability in 2021, and the scale of the loss has been expanding.
According to the data, in the first quarter of 2024, Remegen Biotech achieved operating income of 330 million yuan, a year-on-year increase of 96.41%; net profit loss after deducting non-attributable to the parent company was 346 million yuan, a year-on-year decrease of 4.15%; Net cash flow was -$426 million. The increase in revenue without increasing profits, and the long-term negative net cash flow, have increased investors' doubts about its operating ability.
Not only that, the amount of financing of Remegen in the two cities of AH has also bottomed out, and a large amount of capital investment is still needed in the future. According to the announcement, as of the end of 2023, Remegen Biotech has raised a total of 3.784 billion yuan through the public offering of H shares, and 3.741 billion yuan of raised funds have been used; The net proceeds from the initial public offering of A-shares were RMB2.506 billion, of which RMB2.368 billion had been used. That is to say, 98.86% of the funds raised by Remegen Biotech Hong Kong shares have been used, leaving only 43.22 million yuan, while 94.5% of A shares have been used, leaving only 138 million yuan. However, Remegen has a total of eight molecules in the clinical development stage, with an estimated total investment of 5.9 billion yuan, a cumulative investment of 3.1 billion yuan, and still needs to invest 2.8 billion yuan.
It is worth mentioning that in the case of tight funds, Remegen did not follow the cost reduction and efficiency increase. According to the data, from 2019 to Q1 of 2024, Remegen's R&D investment was 352 million yuan, 466 million yuan, 711 million yuan, 982 million yuan, 1.306 billion yuan and 331 million yuan respectively, totaling 4.148 billion yuan.
In addition, from 2019 to 2024Q1, Remegen's sales expenses were 0.01 billion yuan, 24 million yuan, 263 million yuan, 441 million yuan, 775 million yuan and 187 million yuan respectively, totaling 1.692 billion yuan.
During the same period, the company's administrative expenses were 66 million yuan, 223 million yuan, 216 million yuan, 266 million yuan, 304 million yuan and 74 million yuan respectively, totaling 1.139 billion yuan.
The above three expenses totaled 6.979 billion yuan, and this is how the financing money of Remegen Biotech disappeared.
In addition to financial pressure, Remegen may also have improper points in business decisions. Before 2020, it was very easy to raise financing for innovative drugs, and the valuation of companies with a little "storytelling" was high, but since 2020, policies in the pharmaceutical industry have been frequent, and innovative drugs have not been as popular as before. In the long winter, whoever can survive will be able to achieve the ultimate victory.
In this cold winter, many biotechs are shrinking to save their lives, but Remegen is still expanding. In 2023, Remegen will have 3,615 employees, an increase of 283 over 2022, and R&D expenses will be 1.306 billion yuan, a year-on-year increase of 33%; The total number of comparable Junshi Biosciences employees at the end of 2023 was 2,568, a decrease of 393 from the end of 2022; Innovent R&D expenditure decreased by 22% year-on-year, and Akeso's R&D expenditure decreased by 5% year-on-year.
At a time when peers are shrinking their positions, Remegen is expanding against the trend, and the company explains that a number of innovative drugs are in the key trial research stage, coupled with the blooming of overseas markets, resulting in a significant increase in R&D expenses. With the significant increase in the number of hospitals and pharmacies covered by tetacept and vedicitumab, the expansion of front-line sales personnel in the commercialization team and the increase in commercialization promotion have led to a corresponding increase in sales expenses.
Although Remegen's explanation for its "money burning" behavior is very reasonable, the market has no empathy and has also voted on its money burning behavior.
If you want to develop in the long term, you still can't rely on financing, since the financing money is almost burned, what about Rongchang Bio's own hematopoietic ability?
Holding two star products, but the self-hematopoietic ability is still not good
According to Zhitong Financial APP, the predecessor company of Remegen Biologics was established in 2008, the company is committed to the discovery, development, production and commercialization of first-in-class, best-in-class biological drugs, for autoimmunity, oncology, ophthalmology and other major diseases to create a number of new biological drugs with significant clinical value, has launched the first domestic ADC vedicitumab, the first domestic treatment of lupus erythematosus biologics tetanercept.
In addition, the company has reached a development and commercialization cooperation with Seagen, a well-known overseas company, on the indication of vedicitumab urothelial carcinoma, and has a good foundation for commercial expansion, and is currently advancing a number of clinical studies on vedicitumab and tetanercept.
At present, the company has 8 products in the clinical trial stage, of which vedicitumab and tetanercept were approved for marketing in 2021 and entered the commercialization stage, and the remaining 6 products are in the clinical trial stage. In other words, the hematopoietic ability of Remegen Biotech depends on vedicitumab and tetatercept, and other varieties are still burning money.
Let's take a look at vedicitumab, which is the first original ADC in China developed by Remegen, and the first ADC drug in mainland China to receive breakthrough therapy designation from the US FDA and the China Food and Drug Administration. Its indications for gastric cancer and urothelial carcinoma were approved for marketing by the China Food and Drug Administration in June 2021 and December 2021, respectively, and entered the National Medical Insurance Catalogue in January 2022 and January 2023, respectively. In August 2021, the company entered into an exclusive global license agreement (excluding Asia-Pacific) for vedicitumab with Seagen, an international famous company, with an upfront payment and milestone payment of up to US$2.6 billion, and a gradient sales commission ranging from a high single digit to more than 15%.
Gastric cancer is the world's largest type of cancer, and according to Frost & Sullivan, it is expected that the total number of new gastric cancer patients in the world will reach 1.256 million in 2025 (including about 546,000 cases in China) and 1.435 million (including about 622,000 cases in China) by 2030, with a large patient base.
HER2 ADCs approved for the treatment of gastric cancer worldwide include vedicitumab, DS8201, and vedicitumab approved for the treatment of HER2+3L+ gastric cancer through the C008 study (NCT03556345), in which efficacy was achieved while showing safety advantages (the incidence of adverse reactions above grade 3 and the incidence of serious adverse reactions were low, and DS8201 was at HER2+3L+Gastric cancer registry clinical study DESTINY-Gastric01 experimental group in the level). In terms of efficacy data, vedicitumab ORR=43%, PFS=6.2m, and OS=16.8m, showing the therapeutic potential of vedicitumab in gastric cancer patients with low HER2 expression.
Although vedicitumab is the preferred choice for the third-line treatment of HER2 overexpressing GC/GEJC, and the guideline recommendation level is Class I., under the squeeze of Daiichi Sankyo's ADC miracle drug DS-8201, there is little room for expanding front-line treatment and new indications. In addition, there are many competitors around the Claudine18.2 target in gastric cancer, so the follow-up competition is more brutal.
Look at Taitercept again. Tetanercept is the world's first first-in-class recombinant B lymphocyte-stimulating factor (BLyS)/proliferation-inducing ligand (APRIL) dual-target novel fusion protein product, with a total of 8 indications in the field of autoimmune diseases in the commercial or late-stage clinical trial stage. Among them, the indication of systemic lupus erythematosus was approved for marketing in China in March 2021 and entered the national medical insurance drug list at the end of the same year.
At present, the only biologics approved for the indication of SLE are GlaxoSmithKlebulumab, Remegen's tetanercept and AstraZeneca's Anifrolumab (anirulumab, only available in the United States). Belimumab was approved for marketing in 2011 and had global sales of £1.146 billion in 2022. Anirumab's sales in 2023 are $280 million.
According to Frost & Sullivan's forecast, the global SLE therapeutic drug market size will be US$1.6 billion, US$6.5 billion and US$16.9 billion in 2020, 2025 and 2030, respectively. Among them, the market size of SLE biologics was US$900 million, US$5.2 billion and US$14.3 billion; China's SLE therapeutics market size is expected to be US$300 million, US$1.6 billion and US$4.3 billion in 2020, US$1.6 billion and 2030, respectively. Among them, the SLE biologics market size is US$0.0 billion, US$1.1 billion and US$3.2 billion.
The market space is not small, and the current global market competition pattern for the treatment of SLE drugs is good, but none of the three drugs that have been marketed have exploded. Two academic studies have shown that 80% of patients with SLEDAI-2K score decreased to 0 after treatment, and autoantibodies achieved serological negativity and achieved durable remission for up to 44 months (nearly 4 years). However, it will take 3 to 5 years for CAR-T to be commercialized for the treatment of SLE, and the subsequent commercialization of CAR-T still depends on the cost of treatment.
It is not difficult to see that Remegen has two star products that have been commercialized, but its revenue and profit show that the cash flow generated by these two drugs is difficult to maintain the company's livelihood. According to the data, in 2023, the revenue of Rongchang biological products will be 1.049 billion yuan, a year-on-year increase of 42%; In 2024Q1, Remegen's revenue was 330 million yuan, an increase of only 5% month-on-month, which means that tetanercept and vedicitumab are still far from the threshold of 1 billion. Remegen Biotech has a self-exempt commercial sales team of about 750 people and a tumor commercial sales team of about 600 people, and the product revenue cannot cover the operating cost + sales expenses + management expenses.
Under the current competitive situation, the revenue generation performance of Remegen's two star products is average, and I dare not imagine what kind of impact the subsequent listing of other competing products will have on the company.
Now coincides with the interim performance window, the tight cash flow of Remegen has been abandoned by the market, if the performance of the mid-report performance is not good, I am afraid that more investors will choose to sell, and the pressure of Remegen Bio is also increasing.