The story behind the first stock listed overseas under the new policy: Reference to the listing experience of innovative pharmaceutical companies

After the prosperity of the Shanghai and Shenzhen IPO market declined, more and more companies are choosing to go to the US market.

In February 17, 2023, the China Securities Regulatory Commission issued a series of supporting policies such as the "Trial Measures for the Overseas Issuance of Securities and Listing by Domestic Enterprises" (hereinafter referred to as the "Filing New Regulations"), which is a hurdle that domestic companies must pass for overseas listings.

In October 2023, Beijing Contini Pharmaceutical Co., Ltd. (hereinafter referred to as "Contini") successfully listed on the NASDAQ Stock Exchange in the United States through a merger with CATALYST BIOSCIENCES, INC. (hereinafter referred to as "CBIO"), becoming the first company to indirectly list on the NASDAQ Stock Exchange through a backdoor listing since the implementation of the new overseas listing filing regulations by the China Securities Regulatory Commission. The merged company is named Gyre Therapeutics, Inc. (GYRE).

As the first mover to "eat the crab", Contini took 5 months to pass the filing of the China Securities Regulatory Commission and successfully landed on the NASDAQ.

Contini's core product is the innovative drug Pirfenidone used to treat idiopathic pulmonary fibrosis (IPF), with a market share of over 5% domestically, and has already achieved profitability - with revenues and net profits in 2023 reaching 799 million yuan and 143 million yuan respectively.

Contini is also advancing the development of the F351 pipeline for the treatment of liver fibrosis caused by hepatitis B, which is currently in Phase 3 clinical trials.

Behind the "first stock for overseas backdoor listing" in the innovative pharmaceutical industry, how Contini successfully passed the China Securities Regulatory Commission's filing during the counter-cyclical process of going public in the US, and what experiences it has given to other companies preparing to go public through backdoor listings, have attracted attention from the outside world.

After landing on the US stock market, Contini will also face common issues for innovative pharmaceutical companies such as the listing of generic drugs, commercialization of new pipelines, and international expansion.

With these questions in mind, the Wall Street News · TradeWind01 team attempted to find answers in a conversation with Contini's Chairman Luo Ying.

The Birth of Trading

On February 17, 2023, with the landing of the new filing regulations, the path for domestic companies to go public overseas changed from administrative approval to filing management, which also means that companies whose filing procedures have not been approved may face obstacles in going public overseas.

The path for overseas listings is generally divided into direct IPOs and backdoor listings. In July 2023, Majestic Ideal Holdings Limited (hereinafter referred to as "Majestic Cashmere") successfully passed the filing of the China Securities Regulatory Commission, becoming the first domestic company to go public in the US through the filing of the China Securities Regulatory Commission.

However, after that, there has been no further progress in Majestic Cashmere's listing.

Unlike Majestic Cashmere, Contini chose the path of backdoor listing, and successfully landed on the NASDAQ market through a merger with CBIO, becoming the first company to pass the filing of the China Securities Regulatory Commission through a backdoor listing since the implementation of the new overseas listing filing regulations.

Contini's listing journey was not smooth sailing. Since 2022, the pharmaceutical industry's financing has gradually entered a cold winter, but Contini chose to go public through a backdoor listing without conducting accompanying financing, which is rare. In the future, as the financing environment warms up, whether Contini will seek more financing opportunities remains to be seen Xin Feng: Why did you choose to go public overseas through a reverse merger?

Luo Ying: One reason is that we attach great importance to the international market. In terms of the market size of the entire health industry, the United States is the largest market in the world, followed by the European Union and Japan, with China being the fastest growing.

As an innovative pharmaceutical company, we ultimately have to step onto the international stage, and overseas listing is a necessary step.

However, in the past two years, the performance of the biopharmaceutical sector in Wall Street, Hong Kong stocks, and A-shares has been poor overall, with a considerable number of companies quickly falling below their IPO prices after listing. Therefore, the traditional IPO approach abroad was not very favorable for us.

Therefore, by using the relatively quick method of reverse merger, we resolved the issue of listing, allowing us to focus on developing our blockbuster new drugs. So far, we are very satisfied with the results of the entire reverse merger.

Xin Feng: During the listing process, the company did not raise funds, what was the main reason? Was it related to the market environment?

Luo Ying: It's not entirely for this reason. We have always emphasized self-profitability and sustainable development. Over the past decade, the company's sales and profits have been growing, so the need for financing is not so urgent, although the possibility of financing in the future cannot be ruled out.

Objectively speaking, it was indeed difficult to raise funds last year. One of the important reasons why our reverse merger was successful is that we did not need financing.

Xin Feng: How did you find the merger partner CBIO?

Luo Ying: At that time, we had many opportunities and also hired a large American law firm to help us choose a merger partner, and it was determined by a very accidental opportunity.

During the COVID-19 pandemic, I planned to go abroad. It was really quite difficult to go abroad at that time. I drove from Shanghai to Hangzhou, then flew to Japan, and then to the United States.

In a corner of the Hangzhou airport (not really a corner, as there were hardly any people at the airport at that time), the American law firm told us about this company CBIO, we had a phone meeting, and decided to visit this company. Within 24 hours, I landed in the United States, and after getting off the plane, I went straight to this company, and within two hours, we reached an agreement.

Because this was something that needed a quick decision. I am someone who likes to make decisions quickly. Life is limited, there is no need to dwell on things.

Xin Feng: What impressed you about CBIO?

Luo Ying: First, both parties had a clear intention. There should be no dragging of feet, if you need a lot of time to consider some issues, then the deal might fall through;

Second is valuation, both parties need to have a reasonable valuation. In a reverse merger, the valuation needs to be very clear, and everyone must agree;

Third is that there should be no legal disputes, because some companies will have many legal disputes during the stock price decline, so this is also a major point;

Fourth is financing, once a round of financing is needed to support the merger, many reverse mergers fail. Especially in last year's market, there was no support for any form of financing. Although the market conditions have improved this year, financing is still very difficult Xin Feng: Starting from the end of March 2023, domestic companies listing overseas will need to file with the China Securities Regulatory Commission. The company is also the first to file for overseas listing through a reverse merger. What do you think are the difficulties in the entire filing process?

Luo Ying: At that time, no one had experience, especially after we submitted the application, new regulations came into effect on March 31. At that time, even the law firm was not sure how to proceed, so the filing process took quite a long time, about 5 months.

We submitted the first draft in late May, and we didn't receive the filing until October 28.

Difficulty 1 is the analysis of risks. Because we are conducting reverse merger business in China, we need to analyze the risks to meet the requirements of both the Chinese and U.S. securities regulators. However, the risks for each company are different, so it is necessary to analyze one's own risks according to the specific situation.

Difficulty 2 is the lack of understanding of U.S. listing regulations. We were learning as we went along. We not only had to deal with U.S. lawyers, but also had to spend time learning various courses ourselves. Simple things like the timing and location of board meetings and executive compensation need to follow U.S. rules. There are also issues such as cybersecurity, labor laws, IR, etc., which cannot simply be transplanted from Chinese laws or customs. Listing is not a simple matter of signing on both sides; it also requires a lot of disclosure work, and the requirements of the U.S. SEC are different from those in China.

Xin Feng: Can you provide some advice to companies preparing to list overseas through a reverse merger?

Luo Ying: The willingness of both parties to merge must be clear. If the willingness is not clear, or if financing needs to be prepared while preparing for the merger, it is very easy to fail. Especially in the current capital winter in the biotechnology field, it may not be easy to raise funds.

So for companies that need financing, they must first resolve the financing issue. Because the target of the reverse merger will not wait for you indefinitely, and the filing in China may also take 3 months, while the U.S. SEC may take another 2 months. If financing is delayed for another 2 months, even though it can proceed simultaneously, it will take a total of 7 months.

If the time is dragged out too long, there is a high possibility of changes in the market situation, personnel changes may occur, and things will basically go downhill.

Xin Feng: Did you consider listing in other markets at that time?

Luo Ying: First, we tried in Hong Kong, but the market environment in Hong Kong over the past few years has been very poor, with many companies falling below the issue price. We also went through the hearing, but it was really difficult to raise funds at a reasonable valuation.

As for the A-share market, the overall pace is relatively slow.

Xin Feng: If the A-share review speed increases in the future and the valuation environment in the Hong Kong stock market improves, will the company consider listing in multiple locations?

Luo Ying: If there is a recovery, we will always consider all opportunities, but at this point in time, we are not considering anything. I think we must not misunderstand the purpose of listing. Listing is to provide the company with greater development space and to bring greater returns to shareholders, rather than just thinking about various exits If the company can do well on its own, I think everywhere will let you go public.

Pipeline "To Be Used"

Currently, Contini's core drug is Pirfenidone, mainly used to treat IPF.

It is understood that as a subtype of idiopathic pulmonary fibrosis, which is pulmonary fibrosis with unknown causes, IPF is a rare disease in China and many other countries, with a lower prevalence rate compared to major diseases. Public data shows that from 2015 to 2022, the number of IPF patients in China increased from 217,000 to 264,000, with a compound annual growth rate of 2.8%.

Currently, globally, there are only two types of drugs, Pirfenidone and Nintedanib, available for the treatment of IPF. Contini has already acquired Nintedanib through acquisition, thereby achieving comprehensive coverage in the field of pulmonary fibrosis.

However, challenges still exist. Generic versions of Pirfenidone and Nintedanib have been approved for marketing by the domestic regulatory authority, which may also pose a certain challenge to Contini.

In terms of the research pipeline, Contini is advancing F351 for the treatment of liver fibrosis caused by hepatitis B, which has already entered Phase 3 clinical trials and is expected to become the world's first approved treatment for this indication.

However, the main population with hepatitis B is concentrated in China and other developing countries, which may to some extent limit the internationalization of F351.

Based on this, Contini plans to expand the indication of F351 to liver fibrosis caused by fatty liver. This is slightly different from the current popular GLP-1 class weight-loss drugs, which focus more on the prevention and treatment of fatty liver.

Whether F351 can replicate the success of Pirfenidone, the market is eagerly awaiting.

Xin Feng: How do you think the company's core drug, Pirfenidone, should respond to the competition from generic drugs in the future?

Luo Ying: Looking back, before Contini, interstitial lung diseases already existed.

I remember that at that time, because there was no medicine in China, there were very few doctors treating this disease. During clinical trials, every diagnosis required Professor Zhu Yuanjue, a leading figure in the field of respirology, to personally confirm whether it was truly an interstitial lung disease. Even today, there are not enough doctors in our country who truly understand this disease. Since our company commercialized Pirfenidone (Esirin) in 2014, we have spent a lot of effort assisting various provinces in establishing interstitial lung disease groups, conducting training for young doctors, organizing various academic conferences. Our company has made significant contributions in this treatment field, which is something we are most proud of.

So, in this process, our moat is actually the long-term reputation of our Esirin.

On the other hand, we are also providing a one-stop service. This year, we have already acquired a generic version of Nintedanib.

For example, if a patient is not satisfied with the effectiveness of one drug, they will switch to another, which is very normal.

So, we provide a one-stop service, and we have acquired both varieties. This is unique globally, as we are the only company that owns two drugs for treating pulmonary fibrosis Idiopathic pulmonary fibrosis (IPF) is a rare disease, so providing timely services to patients is crucial. Although competitors have been on the market for a while now, we still hold over 55% of the market.

Xin Feng: Why did the company choose to focus on rare diseases? Aren't you concerned about the limited market size?

Luo Ying: This is indeed a very big topic.

In the United States, there is the Orphan Drug Act, which specifically encourages companies to develop drugs for rare diseases, allowing pharmaceutical companies to set very high prices to recoup development costs. China is also continuously promoting the certification of drugs for rare diseases, providing more opportunities for rare disease patients to access medication.

From the classification of human diseases, rare diseases are increasing because in the past, a large disease category like pulmonary fibrosis would suffice, but now there are specific types like idiopathic pulmonary fibrosis, leading to further subcategories. Ultimately, all diseases could potentially become rare diseases.

Xin Feng: Have you considered expanding internationally, such as entering the U.S. market to broaden sales opportunities?

Luo Ying: Our drug for liver fibrosis has completed Phase I clinical trials in the U.S. and is preparing for Phase II trials. I hope that our drug for liver fibrosis will demonstrate good efficacy and safety in future clinical trials in the U.S.

It is also possible that we may seek a partner in the U.S. to undertake this, as drug development in the U.S. is quite expensive and not something every company can afford.

Xin Feng: The company's core research pipeline, the pirfenidone derivative F351, is mainly used to treat liver fibrosis caused by hepatitis B. How did the idea to develop this indication come about?

Luo Ying: Because this disease currently has no effective treatment, or the existing treatment methods completely fail to meet clinical needs. We do not want to develop drugs that many others are already working on or slightly modifying existing drugs; we believe this is not the direction our company should take.

In China, hepatitis B is the leading cause of various liver diseases, followed by fatty liver and alcoholic liver diseases, hence we chose the indication of fibrosis caused by hepatitis B.

Xin Feng: The main market for hepatitis B treatment drugs is in China. How do you plan to expand the sales space for the drug in the future?

Luo Ying: In the future, we will expand this drug towards the treatment of fibrosis caused by fatty liver and fibrosis in other organs.

Xin Feng: Seeing other companies working on GLP-1, do you feel tempted or worried?

Luo Ying: I think it's fortunate that we didn't focus on GLP-1, because apart from the early movers in this field, later pharmaceutical companies may face commercialization challenges.

Our principle in developing new drugs is to target areas where there are currently no effective treatments available, focusing on drugs that patients urgently need.

Of course, the purpose of developing new drugs is not to have fewer competitors, but because these drugs are beneficial to patients.

Xin Feng: Some believe that strong pharmaceutical companies should conduct clinical trials in multiple locations globally, but this also incurs high costs. How do you view this issue?

Luo Ying: This is a very complex issue It's actually very difficult. For example, what kind of pharmaceutical companies are considered powerful? Our pharmaceutical companies may be far from being comparable to large foreign pharmaceutical companies. In the current environment, only highly profitable companies dare to conduct clinical trials overseas.

Developing new drugs carries a significant amount of risk, with only a 20% success rate overseas. It's not very realistic for domestic companies to bet all their profits on this 20% probability.

Xin Feng: Does Contini Pharmaceuticals' development philosophy lean towards commercialization before continuously advancing to the next product?

Luo Ying: Yes, although this approach is slow, it is in line with the national conditions and relatively low in risk. If you cannot generate such profits, then you shouldn't engage in activities that require those profits.

Xin Feng: AI pharmaceuticals are a focus of the market's attention. Will the company consider applying this technology?

Luo Ying: AI is definitely the future, but one should not hold unrealistic expectations. In the news, people like to tell exciting stories, but such stories are rare in real life. From what I have seen so far, AI pharmaceuticals are only an assistive tool and cannot be the main focus. There is still a long way to go before it can truly be considered pharmaceutical.

If someone thinks they can take shortcuts with AI and bypass certain things, I can say that it's not quite feasible at the current level. However, the future is uncertain. Maybe in another 10 or 20 years, there will be progress.

I have seen successful examples of AI improving the chemical structure of drugs, but these are improvements, not original creations, and still very immature.

I believe we need to give AI pharmaceuticals a lot of time without expecting immediate returns.

Xin Feng: In the current pharmaceutical industry, innovative pharmaceutical companies that have not achieved self-sufficiency face difficulties in financing. Would you consider acquiring such innovative pharmaceutical companies?

Luo Ying: When the entire industry environment is unfavorable, it is an opportunity to buy into profitable companies. If you wait until the target company has money, the valuation will be much higher. Considering some acquisitions during this period, including counter-cyclical actions, should be a strategic move for many industry leaders.

As long as it benefits the company, we will consider all kinds of actions.

Xin Feng: It's difficult for domestic innovative pharmaceutical companies to rely solely on the commercial success of one drug to make money. Often, continuous research and investment are needed. How do you think the balance between shareholder returns and capital expenditure should be maintained?

Luo Ying: This is the main issue for listed companies.

But how to solve this problem, I think it varies for each company and depends on the shareholders' understanding. If shareholders believe you can spend more time on innovative drugs, then you can. It mainly depends on the shareholders' willingness.

Therefore, we need to ensure the profitability of innovative pharmaceutical companies and not let them rely solely on external financing, as shareholders may not be willing to wait. The company needs to have the ability to generate new pipelines for development