New Stock Analysis | Wangshan Wangshui: From 6.42 million profit to 2.18 billion loss, the cash flow cliff and the hundred billion market gamble behind nine pipelines.

The Main Board of the Hong Kong Stock Exchange is set to welcome a new biopharmaceutical company. According to the Hong Kong Stock Exchange's disclosure on October 20, Suzhou Wangshan Wangshui Biopharmaceutical Co., Ltd. (referred to as Wangshan Wangshui) has passed its listing hearing, with CITIC SEC serving as its exclusive sponsor. Established in 2013, this company focuses on three major treatment areas: neurology, reproductive health, and viral infections, and has built a pipeline of nine innovative assets, two of which have entered the commercialization stage. However, upon examining Wangshan Wangshui's prospectus, a contradictory business story is revealed: on one hand, there is a vast market potential of billions of dollars; on the other hand, there is fluctuating financial performance; on one hand, there is a diversified layout of innovative pipelines, on the other hand, there is a high dependence on revenue from a single product. What is the true value of this biopharmaceutical newcomer? Three major markets worth billions From profit to severe losses According to data from Zhoushi Consulting, the Chinese antiviral drug market, neurology drug market, reproductive health drug market, and antiviral drug market are projected to grow from RMB 103.9 billion, RMB 36.2 billion, and RMB 20.3 billion in 2024 to RMB 123.5 billion, RMB 42.2 billion, and RMB 40.3 billion in 2035, respectively. Among them, the reproductive health drug market has shown the most significant growth, nearly doubling in size over a decade. "Despite significant market growth, developing successful therapies still poses considerable challenges," the prospectus explicitly states, presenting a vast unmet clinical need and enormous market opportunities for innovative treatments. Wangshan Wangshui has strategically positioned itself in these three markets. The company has acquired and developed two core products, LV232 and TPN171. LV232 is a dual-target 5-HT transporter/5-HT3 receptor modulator used to treat severe depression, while TPN171 is a 5-phosphodiesterase inhibitor used to treat erectile dysfunction. Wangshan Wangshui's financial condition shows significant volatility. Data shows that the company recorded revenues of RMB 200 million, RMB 11.832 million, RMB 3.224 million, and RMB 12.958 million in the first four months of 2023 and 2024 fiscal years, respectively. Of particular interest, the company recorded a net loss of RMB 218 million in 2024, compared to a net profit of RMB 6.427 million in 2023. The prospectus explains that this fluctuation is primarily due to a decrease in revenue. Upon closer analysis, it is clear that Wangshan Wangshui's revenue sources are diversified, including external licensing of VV116, provision of CRO services, and drug sales. The revenue peak in 2023 was largely driven by the external licensing transaction of VV116. While this one-time revenue boost can enhance short-term financial statements, it is difficult to maintain as a consistent revenue source. Once the licensing income is recognized, the company's true profit-making ability comes to light. While revenue has significantly declined, Wangshan Wangshui's R&D investment has remained high. Research and development expenses reached RMB 131 million and RMB 135 million in 2023 and 2024, respectively. Even in the year of severe operational deterioration in 2024, the company did not reduce its R&D investment. This commitment highlights the "R&D first" nature of the biopharmaceutical industry but is also a direct cause of the company's massive losses. The high level of R&D investment reflects the company's ongoing investment in innovative pipelines. The prospectus shows that Wangshan Wangshui has established nine innovative asset pipelines, with two in the commercialization stage, four in the clinical stage, and three in the preclinical stage. This comprehensive pipeline layout requires substantial financial support, especially as R&D expenses continue to soar during the clinical advancement of core products LV232 (anti-depressant) and TPN171 (ED treatment). However, there is a noticeable time gap between R&D investment and output. Before innovative drugs achieve successful commercialization, the company must rely on generic drug businesses and external licensing to sustain cash flow. While this "balance between innovation and imitation" strategy is common in the industry, Wangshan Wangshui has yet to find the optimal balance between the two. The survival test on the cash flow front The survival and development of biotechnology companies largely depend on their cash flow situation. A detailed analysis of Wangshan Wangshui's cash flow statement reveals significant volatility in operating cash flow. Data shows that, excluding management team rewards, the company's operating cash flow shifted from a positive RMB 47.366 million in 2023 to a negative RMB 151 million in 2024, a shocking reversal. Looking at the changes in cash and cash equivalents, Wangshan Wangshui's cash reserves are rapidly depleting. In 2024, after considering the impact of exchange rates, the company's cash and cash equivalents increased by only RMB 24.922 million, contrasting starkly with the RMB 222 million financing cash inflow of the same year. This contrast indicates that the company's cash burn rate is alarmingly high. Based on the scale of operating and investment cash outflows in 2024, if no new financing is injected, the company's cash reserves may struggle to support long-term operations. This also explains why the company has chosen to push ahead with its Hong Kong Stock Exchange listing plan at this point as listing can not only provide financial support but also establish a sustainable funding platform for the company. It is worth noting that data from the first four months of 2025 shows the company's cash and cash equivalents decreased by RMB 48.304 million, with the year-end balance dropping to RMB 72.833 million. If this consumption rate continues, the company's financial pressure will intensify further. Wangshan Wangshui's cash flow situation is not unique. In the high-investment, long-cycle field of innovative drug development, most companies go through a long "cash burn" period. Successful biotechnology companies can often achieve key pipeline value breakthroughs or successful IPO financing before cash is completely exhausted. According to industry norms, managing cash flow in biotechnology companies requires capturing several key points: transitioning from preclinical research to clinical research, entering critical clinical trials with core products, and preparing for drug market launches. Each point corresponds to different funding needs and financing strategies. For Wangshan Wangshui, the company is at a critical stage of advancing multiple pipelines into clinical research, making its need for funding urgent. A successful IPO will open a valuable development window for the company, but more importantly, the company needs to prove its pipeline's commercial value and its own commercialization capabilities to the market. What is the commercial value of TPN171? In the field of biopharmaceuticals, an innova...