Prospective New Stock | Core Pipeline Relies on Mergers and Acquisitions, Shenji Pharmaceutical's Remarkable Performance Cannot Conceal Weak R&D Concerns

Recently, Shenji Pharmaceutical Co., Ltd. (hereinafter referred to as Shenji Pharmaceutical) submitted an application for listing on the main board of the Hong Kong Stock Exchange, with JPMorgan Chase, CITIC SEC, and HSBC serving as joint sponsors. Unlike most 18A innovative pharmaceutical companies that have yet to turn a profit, Shenji Pharmaceutical holds multiple mature products that have been approved for market entry and is expected to achieve over 1 billion yuan in revenue and a net profit of 154 million yuan in 2025, thus attaining stable profitability. However, beneath the shiny performance, there are several concerns: the companys existing product matrix and research pipelines are largely sourced from external acquisitions, resulting in a relatively weak self-research foundation, and its long-term innovation capability remains to be verified. During this IPO, the "gold content" of the company's self-research strength may become a focal point of market attention. Revenue primarily relies on three original research drugs that are already on the market. According to the prospectus, Shenji Pharmaceutical was co-founded by Kangqiao Capital and Mubadala in June 2024, with each holding a 47.62% stake. In November of the same year, just over five months after its establishment and with no actual operations, Shenji Pharmaceutical completed the acquisition of UCB's neurology and allergy businesses in China through its wholly-owned subsidiary, Shenji Hong Kong, for approximately 680 million USD, incorporating mature products like Keppra, Vimpat, and Xanfex, along with its Zhuhai production base, which was renamed Shenji Zhuhai and became a wholly-owned subsidiary. In terms of finances, the core operating entity Shenji Zhuhai's revenues for 2023 to 2025 were 936 million yuan, 935 million yuan, and 1.152 billion yuan (in RMB), respectively. Gross profit increased from 424 million yuan to 551 million yuan, while net profit for the same period was 60.36 million yuan, 30.96 million yuan, and 154 million yuan, indicating significant profit fluctuations; gross profit margin steadily rose from 45.3% to 47.9%. At the same time, significant debt and cost pressures are highlighted. To raise funds for the acquisition, Shenji Pharmaceutical applied for a 2 billion yuan merger loan from Ping An Bank, fully pledging shares of core subsidiaries including Shenji Zhuhai, Shenji Shanghai Trade, and Shenji Hong Kong. By the end of 2025, the total amount of interest-bearing loans reached 1.994 billion yuan, while interest expenses for that year soared to 123 million yuan, accounting for over 80% of the group's net profit. In addition, while there was a recorded goodwill of 983 million yuan that had not yet been impaired, any subsequent impairment would directly erode profits. By the end of the same period, the group's cash on hand was 729 million yuan, and operating cash flow was 340 million yuan. However, inventory turnover days extended to a lengthy 148.7 days, indicating significant tie-up of working capital. In terms of customer concentration, the income share from the top five customers for 2023 to 2025 was 80.3%, 79.9%, and 86.6%, respectively, with the largest single customer accounting for 26.2%, 33.3%, and 32.8%, indicating that the loss of a single customer or fluctuations in orders could directly impact performance. Regarding its commercialization system, the company has established a full-channel network covering 18,000 hospitals, 11,000 medical professionals, and 100,000 pharmacies, with a sales team of 384 people, making it one of Chinas largest neurology specialty sales teams. The Zhuhai base has production capabilities for tablets, capsules, and oral solutions, with an annual production capacity of 190 million Keppra tablets, and a utilization rate of 89.2% projected for 2025. Shenji Pharmaceutical is also advancing capacity expansion, having signed a memorandum of cooperation with the Zhuhai High-tech Zone in August 2025, planning to invest no less than 100 million yuan to build a workshop mainly for the localized production of Xanfex drops and a new class of analgesic tablets. Once in full production, the expected annual output value is nearly 1 billion yuan, with the project having already commenced on June 8, 2026. In terms of product layout, the company has launched six products, including well-known original research drugs such as Keppra, Vimpat, Xanfex, and the recently approved Aijiuwei. There are also several drug candidates currently in research, including NG1706, NG1806, and NG1807, covering treatment areas such as epilepsy, Parkinson's disease, and allergic rhinitis. However, it is understood that the companys income structure is highly concentrated; in 2025, out of 1.319 billion yuan in pharmaceutical sales revenue, Keppra contributed 949 million yuan (71.9%), Vimpat contributed 218 million yuan (16.5%), and Xanfex contributed 131 million yuan (9.9%), with these three products combined accounting for 98.3% of total revenue, while revenue from other products is minimal. Keppra, as a second-generation broad-spectrum anti-epileptic drug, has good safety and was approved in China in 2006, but several domestic companies have already launched generics, limiting future growth potential; Vimpat is a third-generation anti-epileptic product with a differentiated mechanism of action, showing clear efficacy and good tolerance in focal epilepsy seizures; Xanfex is a widely recognized second-generation antihistamine, available in both tablet and drop forms, covering demands across pediatrics, ENT, dermatology, and immunology. The company admits that, before the commercialization of new products accelerates, short-term revenues still heavily depend on a few products like Keppra, and the risks posed by a single-product structure cannot be ignored. Positioning in the Migraine Billion Market, Long-term R&D Capability in Doubt. It is understood that, while introducing several mature products, Shenji Pharmaceutical is also laying out several innovative pipelines, attempting to open a second growth curve before the growth of mature varieties slows down. In addition to its three mainstays, Keppra, Vimpat, and Xanfex, the company has also introduced the original research drug Aijiuwei for migraine, along with NG1706 (an oral dual-mechanism non-opioid pain management drug), NG1806 (a long-acting dual-mechanism non-opioid pain management drug), and NG1807 (an innovative oral dissolving film formulation for schizophrenia). Among these, Aijiuwei (Fremanezumab Injection) is expected to become a new revenue pillar, helping the company tap into the domestic migraine prevention market worth tens of billions of yuan. Migraine is the second most disabling neurological disease globally, affecting about 1.04 billion people, with the global market size reaching $9.6 billion in 2022, and expected to grow to $17.5 billion by 2027, with a compound annual growth rate of 9.4%. Aijiuwei received BLA approval from the National Medical Products Administration in June 2026, and the company plans to submit a request for an age expansion for adolescent patients in the second half of 2026. This drug is the first and only CGRP antagonist approved by the FDA for both pediatric and adult migraines, having been launched in the U.S. and Europe in 2018 and 2019, respectively, with a solid commercial sales record. However, prior to Aijiuwei, Pfizers Reyvow, Eli Lillys Emgality, and Amgen/Novo Nordisks Aimovig have all received domestic approvals, making Aijiuweis first-mover advantage less significant as the fourth imported CGRP-targeted drug in the domestic market. Regarding its other assets, Uprol is Chinas first transdermal dopamine agonist patch for Parkinson's disease, delivered once daily in a non-oral format, helping to reduce the common "end-of-dose phenomenon" seen with oral therapies and potentially reshaping treatment models; NG1706 is an innovative oral dual-mechanism non-opioid analgesic, showing differentiated non-opioid substitution potential in postoperative pain management; NG1806 is a long-acting dual-mechanism non-opioid pain management drug designed to provide 72-hour pain relief and expected to become the first long-acting dual-mechanism product of its kind in China, with clinical value including reducing opioid exposure, shortening hospital stays, and improving postoperative recovery, with plans to initiate Phase III trials in 2026; NG1807 is a buprenorphine oral dissolving film for which an NDA has been submitted and is under review, with plans to extend its use to Alzheimer's disease-related agitation after approval (already approved in the US). However, as an innovative pharmaceutical company, Shenji Pharmaceutical clearly exhibits weak research capabilities. The company's total R&D expenditure for 2025 is merely 5.07 million yuan, accounting for 0.4% of revenue, with 84.4% of that going towards outsourced services and 14.9% towards employee costs, indicating severely insufficient research efforts, raising significant uncertainty about the company's ability to advance its pipeline in the future. More critically, the cost pressures of the business development (BD) introduction model will continue to become apparent over time. According to the licensing agreements, the company must pay initial payments, R&D milestones, sales milestones, and tiered royalties. For Aijiuwei, for example, the subsequent sales sharing ratio typically ranges from 10% to 20% of sales, which will continually erode product profits, further squeezing profit margins. Overall, while Shenji Pharmaceutical has built a mature commercial product pipeline through capital operations and has delivered an impressive financial report, as an innovative pharmaceutical company, the depth of its pipeline and its R&D capability form the foundation of its competitive moat. If the company fails to genuinely "catch up" in the R&D sector, even if it successfully goes public, its future development path is likely to be fraught with challenges and uncertainties.