Since the beginning of this year, due to the epidemic situation, more and more pharmaceutical companies have been queuing up for IPO. Recently, Hefei cubic Pharmaceutical Co., Ltd. (hereinafter referred to as cube pharmaceutical) has submitted a prospectus to the CSRC. It intends to land on the Shanghai Stock Exchange and issue 23.16 million shares, accounting for 25% of the companys total share capital after the issuance. It is planned to raise 655 million yuan, mainly invested in osmotic pump preparation workshop construction project, whole drug research and development center construction project, API production project phase I and supplementary working capital project.
This is not cubics first IPO. Five years ago, it withdrew its listing application because of its sponsor. After the replacement of the sponsor, we set foot on the IPO journey again.
Compared with five years ago, behind the seemingly good performance of cubic pharmaceutical, there are some risks that investors worry about. Can this comeback cubic pharmaceutical be successful in IPO?
Hidden risks behind superficial performance
Founded in 2002, cubic pharmaceutical is an innovative pharmaceutical enterprise integrating the R & D, production and sales of pharmaceutical preparations and raw materials, as well as the wholesale and retail of drugs and medical devices. It has formed a whole industry chain covering the pharmaceutical industry and pharmaceutical business. Its main products involve cardiovascular drugs, digestive system drugs, and topical drugs.
According to the financial report data of cubic pharmaceutical, from 2017 to 2019, the operating revenue was 1.167 billion yuan, 1.425 billion yuan and 1.65 billion yuan, respectively, with a year-on-year growth of 13.46%, 22.11% and 15.79%; the net profit attributable to the parent was 77 million yuan, 92 million yuan and 105 million yuan, respectively, with a year-on-year increase of 13.87%, 19.32% and 14.7%.
It seems that the growth rate of performance is fair, but it is unbalanced. Although the operating revenue of cubic pharmaceutical is more than 1 billion yuan, the net profit of its parent company is only around 100 million yuan. The reason is closely related to the sharp increase of sales expenses.
The data shows that from 2017 to 2019, the companys sales expenses were 119 million yuan, 259 million yuan and 328 million yuan, accounting for 10.20%, 18.17% and 19.88% of the revenue respectively, and the sales expenses in 2017 and 2018 increased by 67% and 176% year-on-year.
According to the prospectus of cubic pharmaceutical, its sales expenses consist of marketing promotion fee, employee salary, rental fee, business entertainment fee, etc. Among them, the fastest-growing is the cost of market promotion. From 2017 to 2019, the cost is 65.8195 million yuan, 202 million yuan and 263 million yuan respectively.
In this regard, cubic pharmaceutical said that in order to actively adapt to the relevant policies of the two vote system and actively adjust the sales mode, the company strengthened the academic promotion of pharmaceutical industrial products through cooperation with professional academic promoters in various regions. Therefore, the cost of market promotion increased rapidly.
In addition, the accounts receivable of cubic pharmaceutical are also increasing year by year. The accounts receivable from 2017 to 2019 were 150 million yuan, 206 million yuan and 231 million yuan respectively, accounting for 13.47%, 14.96% and 14.49% of the main business income in the same period. In case of bad debt risk, what preventive measures does the company have? To this end, investor net contacted cubic pharmaceutical, but did not receive any response.
By the end of 2019, except for accounts receivable of more than 2 years, the balance of accounts receivable in other periods is on the rise. The turnover rate of accounts receivable also continued to decline, and the turnover rates of accounts receivable from 2016 to 2019 were 12.1, 9.62, 7.74 and 7.33, respectively. This means that its payback period is constantly lengthening, which will also lay a risk risk for the companys liquidity.
In recent years, innovative medicine has been paid more and more attention by the industry. The core competitiveness of pharmaceutical companies is R & D capability, which has become one of the key factors for a pharmaceutical enterprise to invest. So, what is the R & D capability of cubic pharmaceutical?
According to the data, from 2017 to 2019, the R & D expenses of cubic pharmaceutical were 18.3882 million yuan, 23.7894 million yuan and 37.4444 million yuan respectively, accounting for 1.58%, 1.67% and 2.27% of the operating revenue of each period.
In the past three years, the total R & D cost of cubic pharmaceutical was 79.622 million yuan. This figure is only one sixth of the companys total marketing expenses in the same period, and only accounts for 1.8% of the total operating revenue of 4.242 billion yuan in the same period. In contrast, its R & D costs are really pitiful.
However, most of these projects are in the initial stage, and cubic pharmaceutical is a generic drug manufacturer, so the possibility of drug substitution is stronger. If you want to build a firm foothold in the industry and expand their competitive advantage, it is difficult to achieve without a strong investment in R & D.
In addition, new products in the pharmaceutical industry need to go through the stages of preclinical research, clinical trials and drug approval from R & D to production, which has the characteristics of long R & D cycle, large investment and high risk. Generally, it takes 3-5 years for new products to enter the market from production to industrialization, and whether the new products can successfully open the market is still uncertain.
Moreover, from the current product structure of cubic pharmaceutical, we can see that the company has a high dependence on felodipine sustained-release tablets (II). The sales volume of the product from 2017 to 2019 were 132 million yuan, 216 million yuan and 250 million yuan respectively, accounting for more than 50% of the income of the pharmaceutical industry in each period, while the rest of the product income accounted for less than 5%.
It is noteworthy that the felodipine sustained-release tablets (II) of cubic pharmaceutical have not entered the national generic drug consistency evaluation system, nor have they been included in the list of bulk purchase. In this regard, cubic pharmaceutical said in the prospectus that the product is expected to complete the consistency evaluation before the end of 2021, and the possibility of entering the procurement catalog with quantity in the short term is low.
There is no doubt that what cubic pharmaceutical lacks is a black horse new product that can support the performance. However, judging from the companys investment in research and development in recent years, the future performance may be difficult to be clear, which not only adds uncertain factors to the listing fate of the comeback cubic pharmaceutical, but also brings hidden worries for the companys future growth.
Source: investor.com editor in charge: Yang Qian_ NF4425