Lacking Revenue, Lepu Biopharma Chases IPO to Revive War Chest

Key takeaways:

  • Lepu Biopharma has but to generate product-related income, and with solely $41 million in money is determined for a fast capital injection by way of an IPO
  • Most cancers therapy specialist has bought out worldwide portion of its share quota, however home portion has met with lukewarm reception

By Fai Pui

Their names could also be unfamiliar to most, however PD-1 inhibitors, “good missile” ADCs and oncolytic viruses (OV) may properly be dubbed a triumvirate of cutting-edge “weapons of mass destruction” within the battle towards most cancers.

Because the three remedy varieties lead the combat towards the lethal illness, they’ve offered a significant shot within the arm to associated shares in recent times. Lepu Biopharma Co. Ltd. (2157.HK) is hoping to joint that group, as a biotech firm deeply concerned within the improvement of all three varieties.

The Chinese language firm is getting ready to listing in Hong Kong, providing shares for subscription with a Tuesday midday deadline. However response to this point has been underwhelming. Whereas the worldwide portion of the subscription has been crammed, the home half was solely oversubscribed by a small quantity, suggesting some could have doubts concerning the firm.

That is Lepu’s second attempt at an IPO. The corporate made its first try final April, when PD-1 (programmed cell dying protein 1) class biotech shares had been producing loads of buzz. Regardless of failing at these hearings, it hardly retreated to lick its wounds. As a substitute, it powered by way of these preliminary frustrations and took a stab once more on Oct. 29, and at last handed the hearings earlier this month.

Quickly after that, it initiated the public offering course of on the Hong Kong Inventory Alternate. So, why is the corporate so desirous to get listed when biotech shares are being dumped in truckloads for the reason that begin of this 12 months? The reply lies within the firm’s financials.

Lepu touts itself as the one biotech firm in China engaged on all three very promising fronts, with PD-1 merchandise within the new drug utility (NDA) stage, a number of “good missile” antibody-drug conjugate (ADC) merchandise in scientific trials, and OV merchandise below improvement. However the firm has but to make cash from any of its merchandise, and is counting on authorities subsidies, monetary investments and even rental collections to remain afloat.

Within the first eight months of final 12 months, its income totaled simply 4.6 million yuan ($723,600). However its loss for that interval was a lot bigger at 662 million yuan, up 82.6% year-on-year, widening from losses of 520 million yuan and 454 million yuan for all of 2020 and 2019, respectively. Altogether, the corporate misplaced an eye-popping whole of 1.64 billion yuan in simply 32 months.

Like many younger drug corporations, a big chunk of its losses owes to heavy spending on R&D. Such bills totaled 229 million yuan in 2019, then rose to 354 million yuan in 2020 and reached a good greater 509 million yuan within the first eight months of 2021. On the similar time, its administrative bills greater than doubled to 108 million yuan year-on-year within the first eight months of final 12 months.

That left the corporate with solely 262 million yuan in money and money equivalents by the tip of August, barely sufficient to maintain it afloat for one more three months. Which explains why it’s so determined for a money infusion now by way of an IPO.

That mentioned, the corporate does seem to have robust market prospects. It’s a chief within the ADC class with 5 merchandise in scientific trials, method forward of business friends. Antibodies in ADCs can goal most cancers cells exactly and kill them off by “sneaking in” poisonous chemical compounds, as surgically environment friendly as a “good missile”.

In response to market information cited in its prospectus, the worldwide ADC market shall be price $20.7 billion by 2030. The Chinese language market is predicted to develop to 7.4 billion yuan by 2024, and additional to 29.2 billion yuan by 2030, representing a compound annual development charge of 25.8%. Lepu has two ADC merchandise in Part 2 scientific trials, MRG003 and MRG002. MRG003 is the primary Chinese language epidermal development issue receptor (EGFR) drug ever developed and MRG002 is an revolutionary ADC concentrating on breast most cancers, abdomen most cancers and higher tract urinary carcinoma.

Stumbling valuation

As one of the crucial promising most cancers therapy protocols in China, serving to to strengthen sufferers’ immune programs and beat most cancers, PD-1 inhibitors are one among Lepu’s main focuses in its R&D. HX008 is the primary drug it’s trying to launch below the class. Its utility to market the drug for therapy of melanoma and MSI-H/dMMR has been accepted by the Chinese language Nationwide Medical Merchandise Administration, making it a contender to contribute to the therapy of MSI-H/dMMR.

The corporate can also be working onerous within the discipline of OV. Its CG0070 product has proven robust efficacy and security amongst sufferers with high-malignancy non-muscle invasive bladder most cancers who’ve failed Bacillus Calmette-Guerin (BCG) therapy and have been authorized for scientific trials in China.

All that mentioned, some buyers could fear the corporate has but to get the inexperienced gentle to promote any of its merchandise, and has additionally conceded its efforts won’t pan out. However others have swooped in anyway, betting that Lepu may simply make it. The latter group contains Sunshine Life Insurance coverage, Ping An Capital, Vivo Capital and Shanghai Bio-medical Fund. They’ve participated in three rounds of fundraising for the corporate, forking over a complete of two.45 billion yuan, which pushed Lepu’s valuation to 10.26 billion yuan within the newest spherical.

However with an IPO share worth of HK$6.87 to HK$7.38, the corporate shall be valued at round 8.98 billion yuan to 9.64 billion yuan when it lists, decrease than the valuation it obtained through the C-series. Lepu’s pursuit of the IPO, even within the face of such a valuation downgrade, hints at how urgently it wants new funds.

The timing isn’t the perfect both, with biotech shares performing poorly in Hong Kong currently. Innovent Biologics(1801.HK), one other PD-1 product specialist, has misplaced near 30% of its worth for the reason that starting of the 12 months alone. Shanghai Junshi Biosciences (1877.HK) has misplaced practically 25% and RemeGen (9995.HK), a participant within the ADC class, is down round 30%. Buyers are pulling out partly over considerations about how impending rate of interest hikes within the U.S. may have an effect on the group. And, in fact, uncertainties over whether or not Lepu Biopharma’s merchandise will even be authorized aren’t serving to both.

“It’s troublesome to worth the corporate regardless of its good market potential because it has no revenue or product-generated income,” mentioned Kenny Wen, a commentator at Everbright Solar Hung Kai Co. Ltd., who follows biotech shares.

“The biotech section of the market in Hong Kong is underperforming currently. Many PD-1 or ADC-linked shares have stumbled. Provided that Lepu has not even began promoting its merchandise, why would you make investments on this firm out of the various decisions on the market even if you end up optimistic about this section of the market?” Wen added.

He mentioned he sees corporations like Lepu as an enormous gamble, with buyers betting on its R&D capabilities and the prospect of raking in big quantities of cash if its merchandise in the end make it massive. However rising rates of interest within the U.S. and rising capital prices that may observe are hurting these corporations that require a lot cash for R&D. So, he’s unconvinced the inventory is a smart alternative for funding proper now, and is advising buyers to not pile in.

This text was submitted by an exterior contributor and will not signify the views and opinions of Benzinga.

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