Jiuyuan Gene seeks IPO cash for bet on weight-loss drugs

The developer of treatments for cancer and bone fractures is branching out into the weight-loss market, but faces strong competition there

Key Takeaways:

• At present, Jiuyuan Gene relies heavily on a bone repair product, Guyoudao, for around half its revenue
• The company is developing a generic version of the weight-loss drug Semaglutide, which is undergoing clinical trials in China

By Fai Pui

Weight-loss drugs are shaping up as the latest investment craze, offering a chance for outsized profits. And Chinese companies are keen to seek their fortunes alongside global players in the slimming business.

One such company, Hangzhou Jiuyuan Gene Engineering Co. Ltd., has been working on a generic equivalent of a top-selling obesity treatment and is now looking to raise fresh capital through a Hong Kong IPO.

The biopharma firm will be hoping to emulate the multinationals that have raked in huge profits from weight-loss drugs and seen their share prices shoot up as a result.

The trailblazer was Novo Nordisk (NVO.US), which took the market by storm with its drug Semaglutide. Developed to treat diabetes, the product was hailed as a “wonder drug” for enabling rapid and substantial weight loss. Other big names such Eli Lilly (LLY.US) and Viking Therapeutics (VKTX.US) have also unveiled anti-obesity drugs and enjoyed share price rallies this year.

Riding on their coattails, Jiuyuan Gene submitted a listing application to the Hong Kong Stock Exchange earlier this year but failed to gain approval. Undeterred, the company made a second attempt at the end of last month, saying it intended to use the proceeds to develop its weight-loss treatment and other drugs.

The company was founded in 1993 with a focus on four therapeutic areas: orthopedics, metabolic diseases, oncology and hematology. It has eight products on the market, including Guyoudao, which treats bone defects and factures, as well as five cancer drugs and two heparin drugs for use against thrombosis.

Then why did the company pivot to producing a generic version of the famed Semaglutide? The firm’s financial accounts hold the answer.

Last year, the company’s revenue rose 14.4% to 1.29 billion yuan ($180 million), generating profit of about 120 million yuan, nearly double the amount in the previous year. In the first four months of 2024, revenue jumped 14.6% to 470 million yuan and profit surged 49.8% to about 70.69 million yuan. The picture looks bright but looking back over the company’s earnings history, some issues come to light. Jiuyuan Gene’s 2023 revenue was lower than the turnover of 1.3 billion yuan in 2021. And in 2022 revenue fell 13.9% and profit slipped 49.8% from the previous year.

The company blamed the 2022 performance on lower sales of its cancer drug Jiouting and active ingredients in the anti-coagulant enoxaparin. Revenue from Jiouting fell around 72% from 245 million yuan in 2021 to 67.80 million yuan in 2022, after the drug was included in China’s health insurance scheme, which caps prices. The drug’s average price fell from 25,900 yuan in 2021 to 11,900 yuan in 2022 and tumbled to 3,400 yuan last year.

Reliance risk

Meanwhile, the company relies heavily on three products for its operating revenue – the bone repair material Guyoudao, an anti-thrombosis injection Yinuojia, and Jilifen, used to boost white blood cells in patients undergoing chemotherapy. Guyoudao’s revenue share shot up from around 27% in 2021 to 55% last year and nearly 57% in the first four months of this year.

Investors are concerned that the company’s star product could end up in a similar state-induced price spiral to the cancer drug Jiouting. Last year China’s government invited makers of bone morphogenetic protein and other bone repair materials to participate in a procurement process on a voluntary basis. Guyoudao has not been included yet, but Jiouting‘s price slide serves as a worrying precedent.

Jiuyuan Gene has more than 10 products under development. The candidate of most interest to the market is JY29-2 (Jiyoutai), a Semaglutide biosimilar, for the treatment of type 2 diabetes and obesity. Jiuyuan Gene’s drug is the first generic version of Semaglutide to have obtained Chinese approval as an investigational new drug, clearing the way for clinical trials. The drug has since completed Phase Two trials, and the company has applied to market it as a diabetes treatment. In January this year, China’s drug regulators also granted the drug investigational status as a treatment for obesity and excess weight.

The weight-loss business in China could be a gold mine, but plenty of companies are piling into the market and drug developers will face government scrutiny. According to the company’s listing documents, the market for weight-loss drugs is expected to grow from 2.1 billion yuan in 2023 to 45.3 billion yuan in 2032, with a compound annual growth rate of nearly 41%. The fastest growth is expected to come from drugs that cut sugar and calorie intake by activating GLP-1 receptors, with that market potentially growing from 100 million yuan in 2023 to 42.8 billion yuan in 2032.

But the competition will be fierce. According to the company, there are as many as 80 ongoing clinical trials in China targeting GLP-1 receptors to promote weight loss, 15 of which are at the Phase Three stage. Using past experience as a guide, intense competition will likely fuel price wars.

Moreover, Novo Nordisk’s patent for Semaglutide will not expire until March 2026, and is still being contested in legal proceedings. Unless the court hands out an invalidity ruling, Jiuyuan Gene will have to wait until after the patent expires to bring JY29-2 to market. By then the company is likely to have lost its first-mover advantage.

Aside from capitalizing on the weight-loss demand, the company may also be looking for financial relief with its IPO bid. Its cash and cash equivalents went from 93.18 million yuan at the end of 2023 to 69.22 million yuan in late April, while R&D expenses reached 128 million yuan last year and net cash outflows in the first four months of the year totaled 17.73 million yuan. Thus, the IPO would offer a source of expedited capital to support R&D and marketing for existing products.

When it comes to investment crazes, biotech companies offer a cautionary tale. Once sought after on the Hong Kong market, they entered a slump that has slashed the price of many stocks by more than half. It may not be easy for Jiuyuan Gene to whet the appetite of investors when the broader market is struggling.

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