The wave of IPO applications to HKEX may be coming.

Since May this year, 22 companies have submitted IPO applications to HKEX, while during the same period, the Shanghai and Shenzhen stock exchanges still have a status of "0 acceptance."

As a member of the grand IPO application army, Taide Medicine (Zhejiang) Co., Ltd. (hereinafter referred to as "Taide Medicine") is making a final effort towards HKEX.

The application materials show that Taide Medicine mainly provides peptide new chemical molecule entity discovery synthesis (CRO) and peptide chemistry production, manufacturing and control (CDMO) services to pharmaceutical companies.

During the reporting period, Taide medicine has achieved profits. The revenue from 2021 to 2023 was 282 million yuan, 351 million yuan and 337 million yuan, respectively. During the same period, the net profit was 80 million yuan, 54 million yuan and 49 million yuan, respectively.

It is worth mentioning that Zhongpeptide Biochemical Co., Ltd. (hereinafter referred to as "Zhongpeptide Biochemical"), the core subsidiary of Taide Medicine, was once an asset under Guizhou Xinbang Pharmaceutical Co., Ltd. (002390.SZ).

In 2015, Guizhou Xinbang Pharmaceutical bought the equity of Zhongpeptide Biochemical with a transaction price of 2 billion yuan, but 5 years later, in 2020, it transferred it to Taide Medicine for 718 million yuan.

This means that Taide Medicine launched a final effort towards HKEX only three full calendar years after winning Zhongpeptide Biochemical.

Although Guizhou Xinbang Pharmaceutical believed that the performance development of Zhongpeptide Biochemical had bottlenecks at that time, the revenue and net profit of Taide Medicine (Zhongpeptide Biochemical) increased by 63% and 48.15%, respectively, compared with 2019.

The market is still paying attention to whether Guizhou Xinbang Pharmaceutical made a mistake or there are other hidden reasons behind it.

3 years ago, it was sold off in a big way.

Peptides, which took off with the wind of "weight loss drugs," are now getting attention from the market.

By definition, peptides generally refer to compounds composed of less than 100 amino acids through peptide bond condensation. Its molecular weight is between small molecules and biological preparations, and it is a biologically active substance that involves various cell functions in the body.

The popular "weight loss drug" GLP-1 analogue on the market is precisely a kind of peptide.

The application materials show that Taide Medicine is an enterprise that mainly focuses on peptides in CRDMO (contract research, development and manufacturing organization). It can provide whole-cycle services from early discovery, preclinical research, clinical development to commercial production for pharmaceutical companies.

In 2023, Taide Medicine's revenue and net profit were 337 million yuan and 49 million yuan, respectively.

According to Frost Sullivan's statistics, Taide Medicine has become the third largest peptide CRDMO in the world based on its revenue scale in 2023.

It is worth mentioning that Taide Medicine was established in 2020 and has not yet been four years.

Being able to achieve such a position in a short period of time is closely related to the core subsidiary of Taide Medicine, Zhongpeptide Biochemical. The latter was founded in 2001 and was one of the first domestic companies engaged in peptide CRDMO.

The capital market may not be unfamiliar with Zhongpeptide Biochemical. It was previously valued at 2 billion yuan and purchased by A-share company Guizhou Xinbang Pharmaceutical, and eventually sold for 750 million yuan in a massive dumping.

In 2001, the actual controller of Ted Pharmaceuticals, Li Xiang, established China Peptides Biochemical through UCPharm Company Ltd. and American Peptide Company, holding 100% of its equity.

Until 2012, China Peptides Biochemical also introduced multiple shareholders, one of whom was then the general manager of the company, Xu Qi, who held 9.66% of the equity in China Peptides Biochemical through Senhai Pharmaceuticals.

However, just 3 years later, Li Xiang and others sold China Peptides Biochemical to Guizhou Xinbang Pharmaceutical.

Looking back at this transaction later, it was a huge blow to Guizhou Xinbang Pharmaceutical.

In 2015, Guizhou Xinbang Pharmaceutical acquired 100% equity of China Peptides Biochemical at a transaction valuation of 2 billion RMB.

The transaction was divided into three parts: First, Guizhou Xinbang Pharmaceutical issued shares to 7 shareholders, including UCPharm Company Ltd., to acquire 89.98% of the equity in China Peptides Biochemical. Second, Guizhou Xinbang Pharmaceutical used its own funds of 200 million RMB to acquire the 10.02% equity in China Peptides Biochemical held by Senhai Pharmaceuticals and other shareholders. Third, it raised 1.92 billion RMB through a fundraising campaign aimed at investment institutions.

At the same time, Li Xiang and Xu Qi also joined the board of directors of Guizhou Xinbang Pharmaceutical, serving as vice chairman and non-independent director, respectively.

It is worth mentioning that the transaction valuation of 2 billion RMB for China Peptides Biochemical was a 727.27% increase over its book value on the valuation reference day.

When Guizhou Xinbang Pharmaceutical acquired China Peptides Biochemical at such a high premium, it was "full of expectations".

"China Peptides Biochemical's business development path extends from overseas to domestic, expanding from innovative drugs to generic drug markets," said Guizhou Xinbang Pharmaceutical, "This development path has helped China Peptides Biochemical leverage its accumulated technical and market advantages in the international innovative drug market to serve the domestic market, forming a unique core competitiveness and market barrier."

However, by 2018, China Peptides Biochemical's performance declined due to changes in peptide customers' business, and Guizhou Xinbang Pharmaceutical accordingly wrote down the goodwill by 1.536 billion RMB, with a net loss attributable to the parent company of 1.297 billion RMB for that year.

In 2020, Guizhou Xinbang Pharmaceutical chose to divest China Peptides Biochemical and other companies, citing bottlenecks in the development of these subsidiaries and the need for huge funding to build factories overseas or to have a negative impact on the performance of listed companies.

It is precisely because of this that Li Xiang and Xu Qi jointly established Ted Pharmaceuticals as the main body to acquire the equity of China Peptides Biochemical and other companies.

"Dr. Xu and Ms. Li jointly decided to establish this company to acquire China Peptides Biochemical from Guizhou Xinbang Pharmaceutical, under its control, to lead its growth and expansion, and to continue to focus on and develop CRDMO with global business footprints." Ted Pharmaceuticals said.

The controversial aspect of this transaction is the transaction price - Guizhou Xinbang Pharmaceutical transferred the equity in China Peptides Biochemical to Ted Pharmaceuticals for 718 million RMB.

This means that the valuation of China Peptides Biochemical, which was valued at 2 billion RMB at the time of the sale, was discounted by more than 60%.

Ted Pharmaceuticals emphasized in its application materials that it was a normal commercial activity.

"The cost of the acquisition in 2020 has been settled in December 2020. The directors consider that the acquisition in 2020 is conducted in accordance with normal commercial terms and is beneficial to the group and its shareholders as a whole." Ted Pharmaceuticals said.

In fact, if we look at the consideration paid by Guizhou Xinbang Pharmaceutical to UCPharm Company Ltd. to issue shares for the acquisition of China Peptides Biochemical, it is almost the same as the price paid for the acquisition of China Peptides Biochemical by Ted Pharmaceuticals.

In 2015, Guizhou Xinbang Pharmaceutical issued 96.4609 million shares to UCPharm Company Ltd. at a price of 7.75 RMB per share, with a total value of 748 million RMB, in order to acquire China Peptides Biochemical.

However, the performance of Tede Medicine (Chinese Peptide Biotechnology) is quite coincidental in its trend.

During the performance commitment period from 2015 to 2017, Chinese Peptide Biotechnology had a good profit performance, achieving a non-net profit attributable to the mother of 332 million yuan in three years, completing 101.71% of the cumulative profit forecast;

However, in 2018, the net profit of Chinese Peptide Biotechnology dropped sharply to only 60 million yuan after the end of the performance commitment period;

More dramatically, with the efforts of Li Xiang and Xu Qi, the performance of Tede Medicine, which acquired Chinese Peptide Biotechnology less than two years ago, rebounded. In 2021, the income and net profit of Tede Medicine included in Chinese Peptide Biotechnology reached 282 million yuan and 80 million yuan, respectively, an increase of 63.01% and 66.67% over 2019.

Significant decrease in profit

Accompanied by the rapid growth of sales of GLP-1 peptide drugs represented by Simcere Glucagon-like Peptide-1 and Exenatide, upstream peptide raw material manufacturers have entered the public's view.

Under such circumstances, it is indeed a good time for Tede Medicine, which focuses on polypeptides, to choose to sprint the HKEx IPO at this moment.

For polypeptide drug companies, their dependence on CXO companies is more significant, according to Frost & Sullivan data.

In 2023, pharmaceutics and biotechnology companies that outsource clinical development and production to third-party service providers will account for 70% of the global polypeptide drug market, higher than the 30% to 40% of biologics.

Currently, the annual production capacity of polypeptide APIs (active pharmaceutical ingredients) of Tede Medicine's Hangzhou production base is 500 kilograms, and each batch of polypeptides can produce 20 kilograms, and can process multiple 100-kilogram-level polypeptide orders.

Compared with the polypeptide CXO leader Noitai Biology (688076.SH) in A-share, there is still a gap in such production capacity.

The production capacity of polypeptide raw materials of Noitai Biology has reached tons or more, and there are also two new polypeptide workshops under planning and construction. It is expected that the production capacity of polypeptide raw materials will reach several tons by the end of 2025.

The purpose of Tede Medicine's IPO this time is to use the raised funds to expand the polypeptide production capacity of the existing Qiantang Garden and Rocklin Garden in the United States.

However, the challenge facing Tede Medicine seems to be customer demand, not production capacity.

Although the performance has rebounded compared to 2019, Tede Medicine's performance during the reporting period showed a downward trend. In 2023, the revenue and net profit decreased by 19.50% and 38.75%, respectively, compared with 2021.

In comparison, as a peer, Noitai Biology has a significant growth rate, with revenue reaching 1.034 billion yuan in 2023, which is also the first time since listing to break through the 100 million yuan mark. At the same time, the net profit during the same period reached 165 million yuan, an increase of 51.38% compared to 2021.

In response, Tede Medicine also acknowledged that the demand from its main customers is decreasing.

"Three main customers significantly reduced their demand for our services due to changes in their own polypeptide drug development resources, plans, and cycles." Tede Medicine said.

However, the advantage of Tede Medicine still exists, and its main source of income is currently from the US and European markets. These two markets contributed a total of 177 million yuan in 2023, accounting for more than 50%. During the same period, overseas regions including the United States, Japan and Europe contributed a total revenue of 263 million yuan, accounting for 78%. The European market grew significantly, contributing 63 million yuan in revenue in 2023, an increase of 35.02% year-on-year.

However, due to the influence of geopolitics, large pharmaceutical companies seem to be more inclined to build their own production capacity, which may also be a potential risk facing polypeptide CDMO manufacturers.

In May of this year, Eli Lilly and Co announced an additional $5.3 billion to expand its production capacity at its manufacturing facility in Lebanon, Indiana, USA, for the production of the active pharmaceutical ingredient of tirzepatide.

Therefore, whether Ted Pharmaceuticals can find customers to pay for the expanded production capacity remains to be seen.