IPO Observation | Huayuan Biotech Responds to Second Round of Questionnaire, Key Product Under Investigation Still Unresolved, Losses Continuously Expanded
Recently, Wuhan Huayuan Biotech Co., Ltd. (hereinafter referred to as "Huayuan Biotech") responded to the second round of questionnaire from the Shanghai Stock Exchange, covering topics such as core product development progress, market space, regulatory updates, and litigation developments.
On December 29, 2022, Huayuan Biotech submitted its IPO application to the Shanghai Stock Exchange and planned to raise funds of RMB 35.02 billion.
Key product still under investigation
According to the prospectus, Huayuan Biotech is a biopharmaceutical company that owns a leading plant-based biological reaction platform technology, has established a self-owned intellectual property system for rice embryo cell biological reaction systems, and possesses well-developed plant molecular medicine (Molecular Pharming) industrialization capabilities, covering products such as pharmaceuticals, pharmaceutical intermediates, and research reagents.
The company's main product HY1001 is a plant-based recombinant human serum albumin injection liquid, which is a dual-reporting product in China and the United States. It has completed phase II clinical trials for the treatment of liver cirrhosis with low albumin levels, achieved its primary clinical trial endpoint, and has completed communication with CDE to proceed with phase III clinical trials; HY1002 is a recombinant human lactoferrin oral liquid used for the treatment of viral gastroenteritis in children, which is currently in phase II clinical trials in China; HY1003 is a plant-based recombinant human α-1 antitrypsin, which has obtained orphan drug designation from the US FDA and is currently conducting phase I clinical trials in the United States. In addition, the company has four products under preclinical research.
It is worth noting that Huayuan Biotech's flagship product is still embroiled in an "infringement dispute" that remains unresolved.
Data shows that Huayuan Biotech's actual controller Yang Daichang once worked at Ventria Bioscience in the United States and then returned to China, founded Huayi Limited in November 2006, and is currently serving as chairman and CEO of Huayuan Biotech. Ventria Bioscience also filed a complaint with ITC (the US International Trade Commission) against Huayuan Biotech for allegedly infringing its two patents in the United States, resulting in a 337 investigation and subsequent litigation.
On September 2022, ITC issued a final ruling: a limited exclusion order was issued against Huayuan Biotech's unauthorized products (products that contain recombined human serum albumin with an aggregate content of less than 2%) for violating US patent No. 10,618,951; the company confirmed that its product contains an aggregate content of less than 2% and is not infringing.
After the final ruling was issued, Huayuan Biotech optimized its technical standards to confirm that its products contain an aggregate content of not less than 2%. As a result, the company's overseas sales have experienced a certain degree of decline. Public data shows that Huayuan Biotech's current revenue mainly comes from the sale of recombinant human serum albumin and lactoferrin for pharmaceutical intermediates and research reagents, with recombinant human serum albumin accounting for 85.83% year-over-year growth to RMB 1711.49 million in 2021, but declining sharply to RMB 377.30 million in the first half of 2022. The company explained that the reason is that some foreign customers reduced their purchases due to the influence of the 337 investigation.
Data shows that Huayuan Biotech's overseas sales accounted for 65.51%, 62.23%, and 50.76% of its revenue in 2020, 2021, and 2022, respectively, with foreign top five customers accounting for 60.48%, 57.40%, and 48.77%, respectively, experiencing a significant decline.
Recombinant human serum albumin has not been commercialized
In 2020, China's human serum albumin pharmaceutical market scale reached RMB 258 billion, with a predicted growth rate of 10.5% per year from 2025 to 2030 and a market scale of RMB 570 billion in 2030; as of November 30, 2022, there were no recombinant human serum albumin products on the market, only blood-derived human serum albumin products.
The current clinical application of human serum albumin mainly comes from blood plasma extraction, with its production affected by plasma supply. The development of recombinant human serum albumin pharmaceuticals is a new direction for research and development. In 2007, Japanese company Mitsubishi Chemical Corporation developed a recombinant human serum albumin injection liquid using yeast expression systems, which was approved for marketing; however, due to concerns over clinical trial data manipulation, the product was withdrawn from the market in 2009. As of the date of this prospectus, there are no recombinant human serum albumin products on the market, and the development technology route has not been commercialized.
Therefore, during the first two rounds of Shanghai Stock Exchange questionnaire responses, the company focused primarily on the research progress and market space of key product HY1001. Huayuan Biotech stated that it is currently conducting relevant pharmacokinetic studies in accordance with its written reply to the Shanghai Stock Exchange's pre-listing pharmaceutical research plan, with the expectation of obtaining all pre-listing pharmaceutical research results by the second quarter of 2024 and further communicating with CDE. If future research results support changes to the product's comparability, no additional non-clinical or bridging clinical trials will be required, and NDA can be submitted.
Huayuan Biotech stated that it expects to complete HY1001's pharmacokinetic studies by the second quarter of 2024, with related research projects progressing in accordance with company expectations, without major obstacles or delays, and without significant delay risks. The company predicts that HY1001 will be approved for marketing in 2025, HY1002 in 2026, and HY1003 in 2027.
In its response to the Shanghai Stock Exchange's questionnaire, Huayuan Biotech predicted that HY1001 sales revenue would reach RMB 4.4 billion in 2026 and RMB 15.67 billion in 2030. The company expects a large market space for HY1001. In addition, the market space estimate only considers the market for liver cirrhosis with low albumin levels; the company plans to actively expand research into other indications after HY1001 is approved for marketing, focusing on major directions such as severe burn-induced circulatory failure, severe septic shock, and cancer cachexia.
Financial data shows that Huayuan Biotech's revenue in 2019, 2020, 2021, and the first half of 2022 was RMB 1025 million, RMB 2156.59 million, RMB 2551.81 million, and RMB 604.96 million, respectively; corresponding net profits were -RMB 4993.57 million, -RMB 5335.16 million, -RMB 1.34 billion, and -RMB 5829.87 million, respectively.
In addition to the increasing losses, Huayuan Biotech's R&D expenses in 2019, 2020, 2021, and the first half of 2022 were RMB 3480.16 million, RMB 4505.19 million, RMB 7521.02 million, and RMB 4796.20 million, respectively.
For Huayuan Biotech, research and development expenses continue to accumulate; if the results of HY1001's phase III clinical trials do not meet expectations or cannot obtain recognition from relevant regulatory authorities, it will hinder its ability to submit an IPO application and obtain approval for marketing, which would have a significant impact on its development.