On October 7, Jiahe Bio announced that it would acquire Yitong Pharmaceuticals by merger. The name of the merged company will be changed to Yitong Jiahe Pharmaceutical Group Co., Ltd. (hereinafter referred to as "Yitong Jiahe").

The transaction is carried out in the form of a share swap. The price of the proposed merger will be fully settled by issuing consideration shares. After the merger is completed, the shareholders of both parties will jointly hold the equity of Yitong Jiahe, and Jiahe Bio will not have any cash expenditure. According to the listing rules, the transaction constitutes a reverse acquisition of Jiahe Bio. In the merged Yitong Jiahe, the original Yitong Pharmaceutical shareholders accounted for 77.43%, and the original Jiahe Bio shareholders accounted for 22.57%. The actual controller of Yitong Pharmaceutical will become the controlling shareholder of Yitong Jiahe.

Based on the rules of Chapter 18A of the Hong Kong Stock Exchange's "Main Board Listing Rules" that allow biotech companies without income and profit to be listed and financed in Hong Kong stocks through IPO, Jiahe Bio was listed on the Hong Kong Stock Exchange four years ago. This transaction is the first reverse takeover case of a 18A listed company in history, and Yitong Pharmaceutical will also indirectly achieve its listing goal for many years. Previously, Yitong Pharmaceutical submitted its application four times in September 2020, March 2021, June 2021, and December 2021, and passed the hearing of the Hong Kong Stock Exchange in June 2021, but ultimately failed to be listed for sale.

According to Yitong Pharmaceutical's prospectus, the three core products that account for about 90% of its total revenue - vancomycin hydrochloride (Wen Kexin), cefaclor (Xi Kelao), and fluticasone propionate (Yi Ruiping) were all acquired from outside, Wen Kexin and Xi Kelao from Eli Lilly, and Yi Ruiping from GSK. The patents of the three original research products have all expired. At that time, Yitong Pharmaceutical stated in its prospectus that once other companies produce similar products and sell them on the market, it will have a significant adverse impact on Yitong Pharmaceutical's production and sales.

However, Etong Pharmaceuticals has maintained an annual revenue of more than 2 billion yuan in the past three years (2.073 billion yuan, 2.074 billion yuan, and 2.304 billion yuan), and its net profit attributable to the parent company in the same period was 157 million yuan, 306 million yuan, and 308 million yuan, respectively. Etong Pharmaceuticals' three innovative products - icosapentaenoic acid ethyl ester (Visepa), Lutrombopag (Wenkoda) and Edicetin (EDP 125) also come from "buy, buy, buy", and are authorized by Amarin, Shionogi, and Eli Lilly respectively. It is reported that Etong Pharmaceuticals has spent a total of more than 1.5 billion yuan on licensing related products. After the product is commercialized, Etong Pharmaceuticals will also need to pay a license fee of 10% of net sales for a period of 10 years.

For Etong Pharmaceuticals, this reverse merger transaction can bypass some cumbersome procedures and indirectly go public to obtain more financing opportunities. Compared with Etong Pharmaceuticals, whose revenue and net profit have continued to grow, Jiahe Bio faces greater financial pressure - since its listing in 2020, it has been in a loss-making state, and its stock price has fallen by more than 90% compared with the IPO. So far, Jiahe Bio has no main business income, and its net profit attributable to the parent company in the first half of 2024 was a loss of 126 million yuan.

Before this reverse acquisition, Jiahe Bio had already taken "self-rescue" actions. In early August this year, Jiahe Bio announced that it had entered into a license agreement and an equity agreement with TRC 2004 (a company co-founded by Two River Fund and Third Rock Ventures Fund), granting TRC 2004 the global exclusive license of Jiahe Bio's CD3/CD20 bispecific antibody GB261 (excluding mainland China, Hong Kong, Macao and Taiwan). In addition to tens of millions of dollars in down payments, milestone payments of up to $443 million, and tiered royalties accounting for single-digit to double-digit percentages of net sales, Jiahe Bio will also obtain a considerable amount of equity in TRC 2004.

This cooperation model is also called NewCo (NewCompany), which is to authorize the overseas rights of core products to new companies established overseas, while introducing overseas funds, building an international management team, and exiting through overseas listings or mergers and acquisitions. At that time, some industry insiders commented that for Jiahe Bio, whose market value was less than HK$1 billion, using pipelines to "invest" in establishing a new company would not only not occupy too much of its own cash flow, but also increase R&D funds and retain some of the pipeline's income rights, "killing two birds with one stone".

In early September, a newly established biotechnology company, Candid Therapeutics, announced that it had completed a financing of US$370 million and acquired two biotechnology companies, including TRC 2004. The overseas expansion of GB261 will to some extent "recover" Jiahe Bio, and after the merger with Edding Pharmaceuticals, it will also upgrade to biopharma.

According to the transaction announcement, Jiahe Bio also signed an outsourcing management agreement with Edding Pharmaceuticals around Jiahe's core product CDK4/6i. Edding Pharmaceuticals' Jingzhuda (HDAC inhibitor, used to treat HR+/HER2- breast cancer) is expected to have a strong synergistic effect with CDK4/6i in terms of commercialization and treatment of HR+/HER2- advanced breast cancer. As of the first half of this year, Eddingpharm has more than 900 sales representatives in 30 provinces across the country, covering more than 12,000 hospitals, including about 2,000 tertiary hospitals, 2,000 secondary hospitals, and more than 12,000 pharmacies. The board of directors of Jiahe Bio believes that after the merger with Eddingpharm, it can leverage its commercialization platform, marketing network and global supply chain management system to promote the complementary advantages of the two.

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