New Stock Outlook | Jiu Yuan Genetics: Entering the "Weight Loss Drug" market for potential growth, cash reserves are insufficient and urgently need to be replenished.

On July 23, Hangzhou Jiuyuan Genetic Engineering Co., Ltd. (hereinafter referred to as Jiuyuan Genetics) once again submitted its listing application to the main board of the Hong Kong Stock Exchange, with Huatai International as its exclusive sponsor. It is understood that the company had previously submitted a listing application to the Hong Kong Stock Exchange on January 22. At that time, Jiuyuan Genetics' self-developed Semaglutide biosimilar drug JY29-2 (Jikeqin) had been approved for clinical trials in January, entering the hot concept of "weight loss drugs", but ultimately failed at the IPO doorstep. Riding on the wave of the GLP-1 "weight loss miracle drug", Jiuyuan Genetics did not knock on the door of the Hong Kong Stock Exchange. With a second submission, can the company succeed this time? Performance trapped in growth anxiety Financial worries loom large The prospectus shows that Jiuyuan Genetics was founded in 1993 and is a SINO BIOPHARM company headquartered in Zhejiang Province, with over 30 years of experience in the research, development, production, and commercialization of biopharmaceuticals and medical devices. The company focuses on four rapidly growing therapeutic areas: orthopedics, metabolic diseases, oncology, and hematology. As of July 15, 2024, Jiuyuan Genetics had eight marketed products (including China's first recombinant human bone morphogenetic protein-2 (rhBMP-2) bone repair material, BoneOptima), as well as over 10 products in development (including China's first Semaglutide biosimilar drug JY29-2 approved for IND and filed for NDA). It is worth noting that metabolism is not Jiuyuan Genetics' strongest business area. On the contrary, according to the prospectus, the company places great importance on its Semaglutide biosimilar drug products, which are still in clinical development, with a certain degree of uncertainty before actual sales. Jiuyuan Genetics' flagship product is BoneOptima, which has been the company's top revenue contributor in recent years. In terms of performance, the company is stuck in growth anxiety. For the four months ending April 30, 2021 to 2024 (hereinafter referred to as the reporting period), Jiuyuan Genetics' revenues were approximately 1.307 billion yuan, 1.125 billion yuan, 1.287 billion yuan, and 473 million yuan, with a compound annual growth rate of -0.76%; while net profits for the same period were approximately 119 million yuan, 59.867 million yuan, 120 million yuan, and 70.685 million yuan, with a compound annual growth rate of 0.15%. In terms of margins, the company's gross margins were approximately 72.70%, 75.91%, 76.95%, and 74.90% respectively, showing relative stability; while net margins were approximately 9.13%, 5.32%, 9.30%, and 14.93%, exhibiting fluctuation. Compared to the high gross margins, the company's net margin levels are significantly lower. In terms of sales by different medical fields, orthopedic products (BoneOptima) were the revenue backbone of Jiuyuan Genetics, with revenues of 355 million yuan, 444 million yuan, 709 million yuan, and 269 million yuan, accounting for approximately 24.2%, 39.5%, 55.1%, and 56.8% of total revenue respectively; while revenues from oncology products for the same period were approximately 489 million yuan, 328 million yuan, 248 million yuan, and 89.179 million yuan, accounting for approximately 37.4%, 29.2%, 19.3%, and 18.8% of total revenue respectively; revenues from hematology products were approximately 302 million yuan, 283 million yuan, 221 million yuan, and 47.670 million yuan, accounting for approximately 23.1%, 25.2%, 17.2%, and 10.1% of total revenue respectively; and revenues from other areas were approximately 123 million yuan, 49.586 million yuan, 40.421 million yuan, and 24.251 million yuan, accounting for approximately 9.4%, 4.4%, 3.1%, and 5.1% of total revenue respectively. It can be seen that, apart from the significant revenue growth in orthopedic products (BoneOptima), Jiuyuan Genetics' products in other areas have all shown a declining trend, highlighting the company's product competitiveness. Relying on just one product is the reason why its performance growth is lacking. It is understood that the decline in the performance of oncology and hematology products, which used to compete equally in the orthopedic field, is largely due to centralized procurement. For example, the oncology product GioD has seen a decline in revenue from 2.46 billion yuan in 2021 to 68 million yuan in 2022 after being included in the fifth and seventh batches of national procurement, and it has now fallen to the level of tens of millions. The plight of GioD is due to being included in the national centralized volume-based procurement. In the context of everything being available for centralized procurement, the question is whether the outstanding BoneOptima will follow the same path, posing the biggest crisis for Jiuyuan Genetics. In addition, Jiuyuan Genetics' other financial indicators are not promising. The company's accounts receivable increased sharply, rising from 343 million yuan in 2021 to 545 million yuan in the four months ending April 30, 2024, with the turnover days of trade receivables increasing from 90 days to 131 days during the same period, making it increasingly difficult to collect payments. It is worth noting that for the first four months of 2024, the company's revenue was only 4.73 billion yuan, while 545 million yuan in accounts receivable indicates worrisome cash content in its performance. Furthermore, as of the end of April 2024, the company's cash and cash equivalents were approximately 69.22 million yuan, with operating cash flow of -17.73 million yuan. The company's research and development costs amount to 130-160 million yuan per year, indicating its urgent need for IPO funds to survive. Entering the "weight loss drug" arena for growth exploration As mentioned earlier, Jiuyuan Genetics, relying on a single product like BoneOptima, the sustainability of its performance is unpredictable. Looking to the future, the company's growth imagination space is supported by its in-development "weight loss drug" product - JY29-2. The prospectus shows that JY29-2 is a Semaglutide biosimilar drug, sold under the brand names Jiyoutai for the treatment of type 2 diabetes and Jikeqin for the treatment of obesity and overweight. The prospectus specifically mentions that JY29-2 is China's first Semaglutide biosimilar drug to have obtained IND approval, completed Phase III clinical trials, and submitted an NDA. As is well known, Semaglutide was developed by Novo Nordisk and has become one of the most anticipated drugs globally in 2023 due to its "miraculous weight loss effect", earning it a place in Time magazine's list of best inventions.By 2023, the global sales of simvastatin will reach 20.6 billion US dollars, making it one of the top three best-selling drugs in the world in 2023.If viewed in this way, the commercial prospects of JY29-2 may be very optimistic, relying on the brand premium of the Simeglutide original research drug, the low cost of generics, and the advantage of being the first to market compared to other similar biological drugs. However, the uncertainty remains high until the product is actually approved. Firstly, Ninegene faces intense potential competition. In terms of treating type 2 diabetes indications, there are already 10 Simeglutide biosimilar drugs in phase III clinical trials domestically, including LIVZON PHARMA, Debon Pharma, CSPC PHARMA, etc., with Ninegene's Jiyoutai having a very weak lead. Moreover, in January of this year, Novo Nordisk's Simeglutide tablet (brand name "Novo Exlin") was approved for marketing by the National Medical Products Administration (NMPA) for the treatment of type 2 diabetes. It is the first domestically approved oral GLP-1 (Glucagon-like peptide-1) receptor agonist. When it comes to treating obesity and overweight conditions, the situation for Ninegene is also not optimistic, as 8 Simeglutide biosimilar drugs for treating obesity and overweight have obtained IND approval. In terms of domestically produced drugs, Zhuhai UNITED LAB has been approved for IND, with both making similar progress in research and development. Most importantly, the original manufacturer Novo Nordisk's Simeglutide product has already applied for NDA for the treatment of obesity and overweight in China. In conclusion, even though Ninegene's progress is leading, it is not the fastest. In the future, in the race for Simeglutide biosimilars, who can take the lead may be the key to competition. In summary, the company is supported by its sole growing product, Boniopti, and its growth concerns are evident. In addition, can the financially constrained Ninegene quench its thirst with the "weight loss drug" JY29-2?