The innovative pharmaceutical company Zaiding Pharmaceutical (09688, ZLAB), which has been continuously losing money, has once again reached out to the market for money.
On November 15th, Zaiding Pharmaceutical announced its plan to issue 7.84 million American Depositary Shares, representing 78.43 million related shares, at a price of $25.5 per share. This offering is expected to be delivered on November 18, 2024. Assuming all options are exercised, it will increase the company's common stock by approximately 9.06%. If the option cannot be exercised, the relevant shares will account for approximately 8.30% of the existing issued ordinary shares.
The announcement states that the expected proceeds from this sale are between $200 million and $230 million, with a net amount expected to be between $188 million and $216 million. The company plans to use the net funds for general corporate purposes to enhance liquidity and support business development. In addition, the offering price is discounted by approximately 4.39% and 10.64% compared to the closing prices of Nasdaq and the Hong Kong Stock Exchange, respectively.
Prior to this, Zaiding Pharmaceutical had already had multiple rounds of financing. Completed Series A financing of $30 million in August 2014, Series B financing of $100 million in January 2016, Series C financing of $30 million in July 2017, Nasdaq listing financing of $172 million in September 2017, and Hong Kong Stock Exchange listing financing of HKD 5.94 billion in 2020.
According to incomplete statistics from Caizhongshe, including the issuance of American depositary shares, the cumulative financing amount of Zaiding Pharmaceutical reached 1.33 billion US dollars, which is equivalent to 9.58 billion yuan in Chinese yuan. However, the company has not yet made a profit, with a cumulative loss of $2.366 billion since 2015, equivalent to RMB 17.14 billion.
Under the influence of continuous losses and the bursting of the innovative drug foam, investors were bloodwashed. According to data, after reaching a historic high of HKD 151.2 in January 2021, the H-shares of Zaiding Pharmaceutical have been declining significantly below their issue price, and reached a historic low of HKD 10.56 in April 2024, with a maximum decline of 93% and a market value evaporation of HKD 140 billion. Its US stock price has also experienced a huge decline, with the largest drop since its historical high in January 2021 being 93%.
The reason for sustained losses is that revenue struggles to keep up with cost expenditures. Founded in 2013, Zaiding Pharmaceutical has gradually shifted from an initial license in to an endogenous innovation driven approach. As of the end of 2023, five products have been launched and sold, driving revenue growth from zero to $267 million by 2023. However, the company's expenses increased even more rapidly, with research and management expenses rising from $0.14 in 2015 to $548 million in 2023, resulting in annual losses. In the first three quarters of 2024, this situation has not changed.
Zaiding Pharmaceutical has been established for 11 years and has not yet achieved profitability, so it can only rely on external financing for blood transfusion. And this model will eventually be difficult to sustain, and when to make profits will become the core issue of market concern.
Regarding this, Zaiding Pharmaceutical has previously stated that it aims to achieve profitability by the end of 2025 and is confident in achieving an annual revenue growth of approximately 50% in the coming years, with a revenue target of $2 billion by 2028. Based on past data, the company's losses have indeed narrowed, with net profits of -700 million US dollars, -440 million US dollars, and -340 million US dollars for 2021-2023, respectively. In the first three quarters of 2024, the company's revenue increased by 44.3% year-on-year to $290 million, with a net profit loss of $175 million, continuing to narrow by 26.7%.
However, the optimistic guidance given by the management may not necessarily be reliable. Firstly, it is not uncommon for the management of listed companies to "set up satellites and draw big cakes", and the underlying motivation cannot be ruled out to cooperate with refinancing. Secondly, the narrowing of losses for innovative pharmaceutical companies does not necessarily mean that they will enter a profitable cycle. For example, during the period of 2018-2020, Xinda Biology's loss amount significantly narrowed from 5.87 billion yuan to 1 billion yuan, but in 2021, the loss amount sharply expanded again to 3.14 billion yuan, and it has still not achieved profitability.
The founder of Zaiding Pharmaceutical is Du Ying, who holds a Bachelor's degree in Biomedical Engineering and a Master's degree in Molecular Biology from Jilin University, and a PhD in Biochemistry from the University of Cincinnati. In 1994, Du Ying joined Pfizer in the United States and began her career in the field of biomedicine. In 2002, Du Ying founded Hutchison Pharmaceutical (Shanghai) Co., Ltd., joined Sequoia Capital China Fund in 2012, and founded Zaiding Pharmaceutical in 2014. At present, Zaiding Medicine is mainly committed to providing patients with innovative therapies for tumors, autoimmune diseases, infectious diseases and central nervous system diseases.