Kangchen Pharmaceutical: Single product Circle money fierce

Kangchen Pharmaceutical, which has been listed for less than two years, can't wait to launch a fixed increase plan and circle money fiercely.

Reporter Du Peng/Wen

Recently, Kangchen Pharmaceutical (603590.sh) announced a fixed increase of 1.056 billion yuan, which is a listed company with an IPO of less than two years, with sufficient cash on the book, and there is no need to implement the fixed increase.

Two issuers, including the actual controller, took over all the shares of the fixed increase at a 20% discount in the market price, and have made nearly 700 million yuan in a short period of time. This increase is suspected of conveying benefits to related parties, harming the interests of minority shareholders.

Almost all of Kangchen Pharmaceutical's revenue and profits come from the injectable viper hemothrombin, a single product, which has been criticized by the market. In order to find new growth points, the company spent huge sums of money to acquire orthopedic assets that were disliked by others, and the target asset operation and products were facing greater challenges, and it is worth observing whether the huge acquisition can achieve the expected benefits.

Crazy circle money

On the evening of July 13, Kangchen Pharmaceutical announced that the proposed additional capital will not exceed 1.056 billion yuan, which will be used for the KC1036 innovative drug research and development project and the acquisition of the commercial operation right of teriparatide, and the proposed fundraising funds will be 877 million yuan and 179 million yuan, respectively.

Kangchen Pharmaceutical is a pharmaceutical company that has been listed for less than two years. On August 27, 2018, Kangchen Pharmaceutical issued 40 million shares at an issue price of 24.34 yuan per share, raising 974 million yuan.

If the fixed increase can be carried out, the equity financing amount of Kangchen Pharmaceutical will reach a total of 2.03 billion yuan, accounting for 69.66% of the latest net assets, and the financing is fierce.

Kangchen Pharmaceutical can't wait to launch a fixed increase plan less than two years after the IPO, is there a shortage of money again? In fact, Kangchen Pharmaceutical is not short of money at all.

At the end of the first half of 2020, Kangchen Pharmaceutical had 2.014 billion yuan of monetary funds on its books, without any interest-bearing liabilities, and the asset-liability ratio was only 12.25%. At the same time, the company's main business has a strong ability to create cash, with net operating cash flow of 270 million yuan, 263 million yuan, 262 million yuan and 82.93 million yuan in 2017-2019 and the first half of 2020, respectively.

Therefore, Kangchen Pharmaceutical has no need to increase at all, and can fully use its own funds to meet the needs of the project. So, why is Kangchen Pharmaceutical still insisting on throwing out a fixed increase plan?

The target of the additional offering is Wang Xijuan, a natural person, and CBC Investment, a strategic investor, who intend to subscribe for 11.1 million shares and 21.81 million shares respectively, and the amount to be subscribed is 356 million yuan and 700 million yuan respectively. Liu Jianhua and Wang Xijuan are the actual controllers of the listed company, and CBC Investment is a wholly-owned grandson company of the Kangqiao Iv phase IV US dollar fund controlled by Kangqiao Capital. Cambridge Capital is a private equity fund management institution focusing on investment in the healthcare sector, with more than US$2 billion in funds under management.

The issue price of the non-public offering of shares is 32.09 yuan per share, which is not less than 80% of the average trading price of the company's shares of 40.11 yuan per share in the 20 trading days before the pricing benchmark date. This also means that Wang Xijuan and CBC Investment have taken all the shares of this fixed increase at a price of 20% off the market. On August 5, Kangchen Pharmaceutical closed at 52.74 yuan / share, an increase of 64.35% compared with the fixed price increase, and the fixed increase in funds in a short period of time made 673 million yuan.

Kangchen Pharmaceutical itself is not short of money at all, and this fixed increase is essentially an arbitrage opportunity for the listed company to provide a 20% difference in price difference to Wang Xijuan and strategic investor CBC Investment.

In February 2020, the CSRC issued new rules on refinancing of listed companies. According to the new regulations, if the board of directors of a listed company resolves to determine all the issuers in advance and is a strategic investor, etc., the issue price will be changed from 10% to 20%, and the lock-up period will be shortened to 18 months. The new policy gives preferential policies to strategic investors, which makes many lock-in fixed increases in the rapid inflow of war investment capital, and in the context of the sharp rise in the stock prices of listed companies that have issued fixed increases, there is a huge arbitrage space between the fixed increase issue price and the market price.

In the context of the increase in the number of fixed increases, it is inevitable that some market participants will use the name of war investment to speculate and arbitrage, so it is crucial for the identification of strategic investors. In March 2020, the CSRC specifically put forward more specific requirements for strategic investors, including "long-term holding", "a large proportion of shares", "appointing directors to participate in governance", "bringing core technical resources" and so on.

Under the influence of relevant documents, dozens of companies that have previously announced the fixed increase plan have announced adjustments, and the signal of regulatory tightening of fixed increase financing is obvious, and the regulatory requirements for war investment are to live up to the name, rather than speculating and arbitrage by cloaking "strategic investors", which is obviously not in line with the original intention of the introduction of the new refinancing rules.

Pure cash acquisition

On April 22, Kangchen Pharmaceutical issued an announcement that the company's subsidiary Kangchen Biological paid 900 million yuan in cash to Tailing International shareholder bvi Company to purchase 100% of the shares of Tailing International held by it, thereby realizing the acquisition of Migai interest assets; after the completion of the acquisition, Tailing Asia, a subsidiary of Tailing Pharmaceutical (01011.hk), increased the capital of Kangchen Biologics, with an estimated capital increase of 360 million yuan, and after the completion of the capital increase, the company will hold 40% of the equity of Kangchen Biologics.

bvi Company is the sole shareholder of Tailing International, and Tailing Pharmaceutical is the indirect controlling shareholder of Tailing International.

The target company operates a single product, including Migaishi injection, Migaishi nasal spray, before the completion of this acquisition, the target company authorized Tailing Hong Kong, a subsidiary of Tailing Pharmaceutical, to engage in the procurement, sales, promotion and other businesses of Miguayi.

The common name of miguel is "calcitonin", which belongs to the relics of sex hormones. In 1991, the U.S. FDA approved Novartis' salmon calcitonin injection (trade name "miacalcin") for the treatment of osteoporosis. In 1994, Novartis' original research drug, Migai salmon calcitonin injection products, landed in the Chinese market. In May 2016, Tailing International purchased Novartis' Migai injection and Migaishi injection assets and their licenses for US$145 million. Four years later, the asset was sold to Kangchen Pharmaceutical.

Why would Novartis sell its Migai assets that have been in operation for more than 20 years? Why did Tailing Pharmaceutical sell it to Kangchen Pharmaceutical after a few years of operation?

From the perspective of operating conditions, the revenue and net profit of the Migai interest business in 2018 were 191 million yuan and 78.58 million yuan, respectively, and in 2019, it was 154 million yuan and 53.72 million yuan, respectively, and both revenue and net profit declined significantly. According to the acquisition announcement, when Tailing International acquired Migai interest assets from Novartis, it formed intangible assets worth 1.248 billion yuan, and a huge impairment provision was made at the end of 2019.

At present, there are more and more manufacturers who can produce calcitonin, and the competition is becoming increasingly fierce. According to the information of the Food and Drug Administration, the manufacturers of domestic pharmaceutical companies that have been approved to produce calcitonin include Shanghai Shangyao First Biochemical Pharmaceutical Co., Ltd., Qingdao Guoda Biopharmaceutical Co., Ltd., Shandong Luye Pharmaceutical Co., Ltd., Guilin Nanpharm Co., Ltd., Beijing Shuanglu Pharmaceutical Co., Ltd., Yinggu Pharmaceutical Co., Ltd., Shenzhen Dafo Pharmaceutical Co., Ltd., Guangdong Xinghao Pharmaceutical Co., Ltd., Jinzhou Aohong Pharmaceutical Co., Ltd., Shenzhen Hanyu Pharmaceutical Co., Ltd., and CSPC Ouyi Pharmaceutical Co., Ltd. With the acceleration of pharmaceutical collection, the life of generic drugs is getting worse and worse.

Obviously, the Migai interest assets purchased by Kangchen Pharmaceutical at a high price are assets that Novartis and Tailing International do not want. The performance pledge party promises that the net profit of the migai-related business in 2021-2023 will not be less than 0.8 billion yuan, 100 million yuan and 120 million yuan respectively, and whether the commitment can meet the standard is worthy of attention.

Single product

In the first half of 2020, Kangchen Pharmaceutical achieved operating income of 348 million yuan, a year-on-year decrease of 35.98%; net profit of 103 million yuan, a year-on-year decrease of 31.02%; deduction of non-net profit of 88.76 million yuan, a year-on-year decrease of 34.97%.

Kangchen Pharmaceutical mainly focuses on the fields of oncology and blood, and the main product "Su Ling" is a high-purity, one-component hemocoaguloid clinical hemostatic drug, which is used by the clinical department of the hospital to reduce bleeding during surgery, as well as to control bleeding caused by postoperative, trauma and disease.

For the decline in performance, Kangchen Pharmaceutical's 2020 interim report explained that due to the impact of the epidemic, inpatients and surgical patients have decreased significantly, "Su Ling" as a surgical hemostasis drug, sales volume has been affected to a certain extent, the company's operating income and net profit have declined.

In the first half of 2020, Kangchen Pharmaceutical compressed its expenses, and its sales expenses fell by 36.91% year-on-year to 202 million yuan, of which the publicity and promotion expenses fell from 308 million yuan to 189 million yuan. In addition, the company's research and development expenses fell from 51.09 million yuan to 33.32 million yuan. Without these fee compressions, the performance of Kangchen Pharmaceutical will be even more miserable.

In the long run, the external epidemic impact is not worrying, the most worrying thing is that Kangchen Pharmaceutical relies too much on a single product. In 2019, the company's operating income was 1.066 billion yuan, of which the injection of harpon viper blood thrombin contributed 1.053 billion yuan, and the company's revenue almost all came from "Su Ling".

Kangchen Pharmaceutical's 2020 interim report claims that the company's product "Su Ling", as the only national first-class new drug in the domestic hemothromphagy preparation market, has significant advantages in terms of effectiveness, safety, quality controllability and pharmacoeconomics compared with competitive products, while the protection period of the amino acid full sequence core patent of "Su Ling" is until 2029, and the core technical barriers consolidate the sustainable competitive advantage of the company's product "Su Ling".

However, since 2018, "Su Ling" has been showing fatigue. In 2018, the revenue and net profit of listed companies were 1.022 billion yuan and 264 million yuan respectively, and in 2019, they were 1.066 billion yuan and 266 million yuan, which was almost no growth compared with 2018. Moreover, from the perspective of management mergers and acquisitions to seek new growth points, the growth of "Su Ling" seems to have encountered a bottleneck.

The main competitors of Kangchen Pharmaceutical are "Baqu Ting" of Nuokang Pharmaceutical, "Su Le Juan" of Zhaoke Pharmaceutical and "Bang Ting" of Aohong Pharmaceutical, the above three varieties are the imitation drugs of "Standing Hemostasis" of Swiss Sugao Pharmaceutical Factory, which have a long market time and have formed a relatively stable market competition pattern before the listing of "Su Ling".

Although "Su Ling" occupies a large market share, the other three also show no weakness.

The reporter of "Securities Market Weekly" sent an interview letter to Kangchen Pharmaceutical, but as of press time, he had not received a reply from the listed company.