The company focuses on wound-healing PDGF drugs and its core product, Pro-101-2, isn’t expected to enter Phase 3 clinical trials for at least three more years

Key Takeaways:

  • B&K lost nearly 200 million yuan in the past two years, as its administrative expenses exceeded its R&D spending
  • The drug maker’s president, who is also the founder’s son, has previous experience mainly in the fields of intelligent and autonomous driving

 

By Molly Wen

A recent rally that’s seen Hong Kong stocks charge into rare bull territory is injecting new life into the exchange’s moribund IPO market. At least 16 companies have applied to list since April 19, engaged in everything from healthcare to finance, AI and consumer products.

Now, another money-losing drug maker whose products have yet to get regulatory approval has jumped on the bandwagon, following B&K Corp. Ltd.’s IPO submission last week. The 12-year-old company’s main focus is on multifunctional therapies for platelet-derived growth factor (PDGF) drugs, which are used to help wounds heal.

Its core products, Pro-101-1 and Pro-101-2, are recombinant human platelet-derived growth factor-BB (rhPDGF-BB) drugs. The former is currently in Phase 2b clinical trials, while the latter is in Phase 2. B&K started its joint pre-clinical research for Pro-101-2 with China’s Institute of Biological Engineering Military Medical Sciences as early as August 2013, but the drug didn’t enter clinical trials for the treatment of diabetic foot ulcers until 2021. And any rewards from its decade-long journey with the drug are at least three years away since a Phase 3 clinical trial for the drug isn’t expected until the third quarter of 2027.

PDGF is one of the growth factors secreted by platelets after injuries occur. It promotes the development of new blood vessels, helps to regulate inflammation and stimulate cell proliferation and migration, and can speed up the time needed for wounds to close and heal. It is often used to treat chronic wounds and diabetic ulcers.

Though PDGF drugs have demonstrated notable efficacy and have proven relatively safe in multiple clinical studies over the years, there are currently no such drugs approved for commercial use in China. And while other companies in China are working on PDGF drugs, none are comparable to B&K’s. One such company, Tasly Pharmaceutical (600535.SH), once had a PDGF-BB candidate that entered into Phase 3 clinical trials as early as 2014 but has yet to advance from there.

In the U.S., only one PDGF drug, Smith & Nephew’s (SNN.US) Regranex, received regulatory approval in 1997 to treat diabetic foot ulcers. But a newer-generation product to treat the condition, Fespixon, was approved in China at the end of last year.

In terms of industry size, the PDGF market isn’t that big. According to research cited in B&K’s preliminary prospectus, the market actually contracted between 2017 and 2020, but is expected to expand to 8.6 billion yuan ($1.18 billion) by 2026, driven by greater demand, a greater number of conditions that can be treated, and increased household purchasing power. The market is expected to grow, but only slowly, with an average growth rate of 5.3% from 2026 to 2032.

Seven of B&K’s 10 PDGF candidates in its pipeline cover a variety of indications, including for treatment of hemorrhoids and radiation ulcers, as well as burns and diabetic foot ulcers.

Small R&D team

With no revenue coming in, B&K recorded losses of 85.93 million yuan and 105 million yuan in 2022 and 2023, respectively. It’s worth noting those losses were caused as much by high administrative expenses, as by the high R&D costs you’d typically expect for drug startups. The company’s administrative expenses totaled 42.12 million yuan last year, while its R&D costs were lower at 39.92 million yuan.

Administrative expenses typically include salaries, bonuses and other employee benefits for administrative staff, as well as their travel costs, and service fees related to financing activities and recruitment consultancy services. In the case of B&K, the company’s R&D team is relatively small, with just 33 people, compared with 44 administrative workers, which may explain why its administrative costs are higher. Per capita expenses for R&D staff last year were also lower than those for administrative staff, at 319,000 yuan for the former and 323,000 yuan for the latter.

Credentials of some senior managers also suggest a lack of experience in medical and pharmaceutical research. The company’s founder and chairman, Jia Lijia, was previously a sales manager and deputy general manager in several pharmaceutical companies in Beijing. Wang Kelong, 33, is the company’s vice chairman and president, and is also Jia’s son. Before joining the company, Wang mainly cut his teeth in the fields of intelligent and autonomous driving.

The company’s general manager Zhai Junhui holds a PhD in preventive medicine and has served as an associate researcher in microbiology. Chief R&D officer Zhao Xinghui, who leads the company’s preclinical research and development efforts, holds a doctorate in genetics and has worked as an associate researcher at several research institutes and hospitals. These two key R&D chiefs have worked in China’s Academy of Military Sciences, which has been a joint development partner with B&K for Pro-101-1 and Pro-101-2.

Though founded in 2012, B&K did not get its first tranche of external financing until nine years later in 2021, valuing it at 800 million yuan after a Pre-A funding round. In October of the same year and May 2023, the company completed A and B financing rounds, valuing it as high as 3.3 billion yuan after the latest round, representing a fourfold increase in just two years.

The company’s outside investors include private equity company CDH Investments and Qingdao Hitech, a government property fund controlled by the finance bureau in the city of Qingdao’s Laoshan District. After receiving investment from the latter, B&K changed its registered address from Beijing to Qingdao in June 2023.

While B&K has yet to record any revenue or profit, there are many other similarly profit-challenged biomedical companies listed in Hong Kong with market values far below 3.3 billion yuan, B&K’s latest valuation. For example, CANbridge Pharmaceuticals (1228.HK), which focuses on treatment of rare diseases, has a market value of only about 150 million yuan. With B&K’s slow progress and relatively small spending on R&D, stock investors might find its latest pricey valuation difficult to swallow if the company ultimately completes its IPO.

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