After nearly a year of planning, there have been new developments in the restructuring of New Novartis. Xinnuowei recently announced that the company has received a notice from the Shenzhen Stock Exchange regarding the acceptance of the application documents for the issuance of shares to purchase assets and raise supporting funds by Shiyao Innovation Pharmaceutical Co., Ltd. The Shenzhen Stock Exchange has verified the application documents submitted by the company for the issuance of shares to purchase assets and raise supporting funds, and considers them complete. Therefore, the company has decided to accept them.

However, behind this restructuring plan, both New Novartis and its target company, Shiyao Group Baike (Shandong) Biopharmaceutical Co., Ltd. (hereinafter referred to as "Shiyao Baike"), are facing significant performance challenges that cannot be ignored. In the first three quarters of 2024, New Norwe experienced a double decline in revenue and net profit, with a year-on-year decrease of over 70% in non recurring net profit. At the same time, Shiyao Baike also showed a downward trend in performance in the first half of this year, especially with its flagship product Jinyuli facing the impact of inter provincial alliance procurement policies, the company's revenue and non deductible net profit have both declined. In this context, the restructuring of New Novartis is not only a deepening of strategic layout, but also an important test of the company's future performance stability and growth potential.

Intending to acquire 100% equity of Shiyao Baike

In fact, Xinnuowei began planning for restructuring as early as early 2024, and held the 10th, 11th, 16th, and 19th meetings of the 6th Board of Directors on January 23, February 5, July 24, and October 14, respectively, to review and approve multiple proposals related to this transaction.

According to the disclosure, this transaction includes two parts: issuing shares and paying cash to purchase assets, and issuing shares to no more than 35 eligible specific objects to raise matching funds. The effectiveness and implementation of this fundraising of matching funds are conditional on the effectiveness of this issuance of shares and payment of cash to purchase assets.

Specifically, Xinnuowei plans to purchase 100% equity of Shiyao Baike held by Shiyao Group Weisheng Pharmaceutical (Shijiazhuang) Co., Ltd. (hereinafter referred to as "Weisheng Pharmaceutical"), Shiyao (Shanghai) Co., Ltd. (hereinafter referred to as "Shiyao Shanghai"), and Shiyao Group Enbipu Pharmaceutical Co., Ltd. (hereinafter referred to as "Enbipu Pharmaceutical") through issuing shares and paying cash. The proportion of the transaction consideration paid by issuing shares and cash is 90% and 10% respectively, with a share payment consideration of 6.84 billion yuan and a cash payment consideration of 760 million yuan. After the transaction is completed, Xin Nuowei will hold 100% equity of Shiyao Baike.

At the same time, Xinnuowei plans to issue shares to no more than 35 specific eligible individuals to raise matching funds. The total amount of matching funds raised this time will not exceed 1.78 billion yuan, of which 760 million yuan will be used to pay the cash consideration for this transaction, 310 million yuan will be used to invest in the construction of new drug research and development bases, 330 million yuan will be used to invest in the industrialization of biological new drugs, and 380 million yuan will be used to supplement working capital.

It is worth mentioning that the counterparties for the issuance of shares and the payment of cash to purchase assets in this transaction are Weisheng Pharmaceutical, Shiyao Shanghai, and Enbipu Pharmaceutical (hereinafter referred to as "counterparties"), among which Enbipu Pharmaceutical is the controlling shareholder of New Novartis, Shiyao Shanghai is a wholly-owned subsidiary of New Novartis' controlling shareholder, and Weisheng Pharmaceutical is an enterprise controlled by the actual controller of New Novartis. According to the relevant provisions of the Listing Rules, Weisheng Pharmaceutical, Shiyao Shanghai, and Enbipu Pharmaceutical are all related parties of New Novartis, and this transaction constitutes a related party transaction.

In terms of valuation, according to the Asset Appraisal Report issued by China Enterprise, as of the benchmark date of June 30, 2024, under the assumption of continuous operation, the assessed value of 100% equity of Shiyao Baike using the income method is 7.622 billion yuan, an increase of 3.346 billion yuan from the book value of 4.276 billion yuan, with an appreciation rate of 78.25%. The parties to the transaction have negotiated and determined the price of 100% equity of Shiyao Baike to be 7.6 billion yuan based on the final evaluation results.

In addition, Xin Nuowei has also agreed with the counterparty on performance commitments and corresponding compensation arrangements. According to the performance commitment, the net profit of the target company in 2024, 2025, and 2026 shall not be less than 435 million yuan, 393 million yuan, and 436 million yuan respectively; If the delivery date is postponed to after December 31, 2024, the net profits achieved by the target company in 2025, 2026, and 2027 shall not be less than RMB 393 million, RMB 436 million, and RMB 502 million, respectively. It should be noted that the net profit of the target company referred to above refers to the net profit attributable to the owners of the parent company before and after deducting non recurring gains and losses, whichever is lower.

The target company's non recurring net profit declined in the first half of the year

Why does Xinnuowei favor stone medicine Baike so much? According to disclosure, Shiyao Baike was established on January 21, 1994. It is an innovative biopharmaceutical enterprise driven by independent research and development capabilities, dedicated to the research and commercialization of innovative biopharmaceuticals such as long-acting protein drugs. It has comprehensive capabilities in early drug discovery, clinical research, high-quality gauge modeling drug production, and commercialization. It has established the Shandong Province Long acting Protein Drug Engineering Laboratory and the Shandong Province Engineering Research Center for Long acting Protein Drugs. In terms of products, Shi Yao Bai Ke's main product is the long-acting white blood boosting agent Jin You Li. Chemotherapy, radiotherapy, and other anti-tumor treatments targeting rapidly dividing cells often cause bone marrow suppression, leading to anemia, leukopenia, and other conditions.

The pipeline under research for BYK to enter the clinical stage mainly includes TG103 injection (innovative long-acting recombinant human glucagon like peptide-1 (GLP-1) Fc fusion protein) and Smeaglutide injection (long-acting glucagon like peptide-1 (GLP-1 analog). The approved clinical indications of TG103 injection include type 2 diabetes, overweight/obesity, nonalcoholic steatohepatitis and Alzheimer's disease, and the indications for overweight/obesity and type 2 diabetes have entered phase III clinical; The approved clinical indications of Smeglutide injection include type 2 diabetes, overweight/obesity, which have entered phase III clinical; The above-mentioned clinical investigational products/indications are expected to be launched gradually from 2026 onwards.

In addition, the product layout of Shiyao Baike in the preclinical stage includes long-acting injection of semaglutide (fluid crystal form), oral tablets of semaglutide, and GLP-1 dual target and triple target products, among other GLP-1 series products.

Although the production line layout of Shiyao Baike is relatively rich, its current operating income mainly comes from the sales of Jinyuli. Except for Jinyuli, most of the company's other main products are in the preclinical research or clinical trial stage, and have not been successfully developed or approved for market. The business model of relying on Jinyuli sales as the main source of revenue is difficult to change in the short term. Therefore, New Novartis also reminds in relevant announcements that if the launch and promotion of other therapies and products lead to intensified market competition, or if the target company's marketing strategy is inappropriate and affects the product's market performance, it will have an adverse impact on the target company's business revenue, profitability, and future development prospects.

In addition to the risk of relying on a single product, Shiyao Baike also faces the risk of declining performance. According to the disclosure, from 2022 to 2023 and the first half of 2024, the operating revenue of Shiyao Baike was 2.235 billion yuan, 2.316 billion yuan, and 922 million yuan respectively, and the net profit after deducting non recurring expenses was 693 million yuan, 725 million yuan, and 244 million yuan respectively. The operating revenue and net profit after deducting non recurring expenses from January to June 2024 have declined, mainly due to the impact of Jinyuli's implementation of inter provincial alliance procurement bidding prices in multiple provinces.

In this regard, Xinnuowei also reminds that the asset evaluation and performance commitment of the winning bidder in this transaction have fully considered the impact of the price reduction of Jinyouli. Although the target company's Jinyuli has a strong competitive advantage, with the continuous promotion of the inter provincial alliance procurement policy, if Jinyuli's sales performance after inter provincial alliance procurement falls short of expectations, it will lead to a risk of decline in the target company's performance.

Accelerate the layout of innovative drug track

Looking back at New Norwe itself, it also faces significant performance challenges that cannot be ignored. Xinnuowei was founded in April 2006 and listed on the Shenzhen Stock Exchange's Growth Enterprise Market in March 2019. Its main business is the research and development, production, and sales of functional raw materials, health foods, and specialty medical foods. The reporter from Economic Reference Daily noticed that from its listing in 2019 to 2022, New Norwe has achieved sustained growth in both revenue and net profit. But there have been changes since last year. According to the 2023 annual report, New Norwe achieved a revenue of 2.502 billion yuan for the whole year, a year-on-year decrease of 4.75%, marking the first decline since its listing; The net profit attributable to shareholders of the listed company was 756 million yuan, an increase of 4.03% year-on-year, but the growth rate has significantly slowed down compared to before.

In the first three quarters of this year, New Norwe faced a double decline in revenue and net profit. From January to September 2024, New Norwe achieved a revenue of 1.479 billion yuan, a year-on-year decrease of 23.66%; Realize a net profit attributable to shareholders of the listed company of 139 million yuan, a year-on-year decrease of 63.50%; Achieved a non deductible net profit of 137 million yuan, a year-on-year decrease of 76.26%. Regarding the reasons for the decline in revenue in the first three quarters, Novartis explained that although the company's caffeine prices remained relatively stable in the second and third quarters of 2024, the average price of caffeine from January to September 2024 still showed a significant decrease compared to the same period last year. At the same time, the health food business has been affected by the market, resulting in a decline in revenue. Therefore, the company's operating income decreased by about 23.66% compared to the same period last year.

Under the pressure of performance, New Norwe urgently needs to transform. In November 2023, New Novartis will change its full name from "New Novartis Pharmaceutical Co., Ltd. of Shiyao Group" to "Shiyao Innovative Pharmaceutical Co., Ltd.", indicating its intention to innovate and transform.

In September 2023, New Novartis approved a plan to increase its capital and hold a controlling stake in Giant Stone Biopharmaceutical Co., Ltd. (hereinafter referred to as "Giant Stone Biopharmaceutical"). The relevant equity transfer will be completed in January 2024, and New Novartis will hold 51% of the equity of Giant Stone Biopharmaceutical after the capital increase is completed. By increasing its capital to hold a controlling stake in Jushi Biotechnology, Xinnuowei has extended its business chain to the field of innovative biopharmaceuticals and established a biopharmaceutical innovation industry platform. Currently, its research pipelines include ADC (antibody conjugated drugs), mRNA vaccines (messenger ribonucleic acid vaccines), and antibody drugs.

Regarding the acquisition of Shi Yao Bai Ke, Xin Nuowei stated that the listed company will further extend its biopharmaceutical layout to cutting-edge fields such as long-acting proteins, which is conducive to deepening the company's technology and product layout, achieving product structure and innovative biopharmaceutical pipeline layout upgrades