MingMed Biotech Joins Queue of Revenue-less Drug Startups Seeking IPO Cash

It has seven drugs under development but none on the market yet. But one thing MingMed Biotech has plenty of is losses

Key Takeaways:

• With no drug revenues and growing R&D costs, MingMed Biotechnology plans to feed its cash-burning machine with a Hong Kong IPO
• Company has seven drugs in development, including six in the clinical stages

By Ellie Si

Despite nary a penny to their top line, a steady string of money-hemorrhaging Chinese innovative drug makers have lined up to list in Hong Kong since the city permitted the unprofitable group to do so in 2018. The latest on the list is MingMed Biotechnology Co. Ltd., which filed a listing application in mid-August, naming CICC and Credit Suisse as co-sponsors.

The company has seven drugs under development, six in the clinical stages. Since last year, MingMed has had three clinical trial applications approved by the U.S. Food and Drug Administration (FDA). It has submitted four such applications to China’s National Medical Products Administration (NMPA), three of which were approved.

But since the products are only in their very early stages of trials, with no guarantee of success, MingMed had no commercialized products when it filed its prelimary prospectus.

Moreover, the company’s mounting investment in R&D, coupled with fair value changes in its financial assets, have resulted in growing losses in recent years, including a 173 million yuan ($25.1 million) net loss in 2020 and a 769 million yuan loss last year. The company is on track to post an even bigger loss for 2022, after posting a 417 million yuan loss in the first four months of this year. That’s definitely not a good start to kick off 2022.

New drug development by nature requires massive cash-burning. To feed that appetite, MingMed has raised several rounds of financing before its IPO application, including two in March and last September totaling $110 million. Its latest capital-raising in July saw two funds invest 130 million yuan for a 3.15% stake, valuing the company at 4.13 billion yuan.

Those fundings helped to boost MingMed’s coffers from just under 39 million yuan at the end of 2020 to 509 million yuan at the end of last year. But the money incineration never stops. After burning through nearly 290 million yuan in R&D and administrative expenses in the last year alone, MingMed is now craving more funds.

Potential gold mines

Since the establishment of its first subsidiary in 2016, MingMed has independently developed a core product and has six other major products under development. Its products focus on treatments in four major areas: ophthalmic drugs, recombinant protein botulinum toxin, tumor immune drugs and pet immune drugs, most of which are breakthrough innovative drugs. The company’s strategy of spreading its efforts over several areas looks like a clever way to balance risks.

Its innovative drugs all target treatments for popular diseases, meaning each of the candidates could have strong commercial potential if they make it to market. For example, its core drug, QA102, began Phase 2 clinical trials in the U.S. in May for the treatment of the dry form of age-related macular degeneration (dry AMD).

According to the prospectus, QA102 has good chances for success, and is the only drug candidate under development for dry AMD from a Chinese company and approved by the FDA for clinical trials. It is also one of only five drug candidates worldwide that have entered Phase 2 clinical trials.

According to third-party data cited in the prospectus, the number of patients with dry AMD reached 188 million worldwide last year, with 34.8 million in China. The two figures are expected to increase to 210 million and 43.8 million, respectively, by 2030. The absence of an effective treatment for the disease, which can only be slowed, not reversed or cured, means a large unmet medical need exists for such treatments.

MingMed is also dipping its toe in the lucrative sector for cosmetic drugs. Its recombinant botulinum toxin type A product, YY001, is in Phase 1/2 clinical trials in China for prevention of frown lines. According to the company’s prospectus, as of Aug. 11 this year, YY001 was the only recombinant protein botulinum toxin under development approved by the NMPA for clinical trials.

Data from the prospectus shows the value of China’s botulinum toxin market grew from 1.9 billion yuan in 2017 to 4.6 billion yuan last year, equaling an annual growth rate of 25.6%, fueled by increasingly wealthy consumers with more disposable income to spend on such cosmetic products. The market is expected to more than double to 12.6 billion yuan in 2025, providing a potential goldmine for MingMed if YY001 is ultimately approved.

Betting on approvals

As with most drug startups, MingMed’s biggest risk is uncertainty about which of its products – if any – will ultimately get approved. Even if such approval comes, it could still be years away since none of the company’s seven drugs now being trialed has entered pivotal Phase 3 trials yet. At the same time, the company’s R&D spending continues to grow each year.

Costs are also growing as MingMed builds up capacity to manufacture its own drugs, in addition to the lower-cost but also lower-margin practice of relying on third-party contract manufacture organizations (CMOs) to produce the drugs as well.

MingMed’s prospectus shows the company has built a commercial manufacturing facility in the Southwestern Chinese megacity of Chongqing with a designed capacity to produce 2 million vials of lyophilized YY001 per year. The facility is expected to start production by the end of this year to support Phase 3 clinical trials and commercialization of YY001. Such a move could give MingMed a head-start if YY001 is ultimately approved, but could also become a boondoggle if the product never makes it to market.

As MingMed has no product sales and its mere 1.68 million yuan in revenue comes mainly from bank interest, it’s difficult to compare its valuation with other biotech companies using price-to-earnings (P/E) and price-to-sales (P/S) ratios. At the end of the day, it all comes down to whether you believe in the company’s drug candidates and its ability to get them through the approval process.

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