Thick on Star Backers But Thin on Revenue, Cutia Therapeutics Chases IPO

Key Takeaways:

• Cutia Therapeutics has filed for a Hong Kong listing, even as its losses grow following the launch of its first two hair loss drugs last year
• The company is backed by a number of big-name investors, including WuXi AppTec’s venture arm, Yunfeng Capital and Sequoia Capital

By Emily Chan

It calls itself a biopharmaceutical company. But that barely covers up a big touch of vanity that’s just below the surface at Cutia Therapeutics, a maker of hair loss products that hopes to thicken up its prospects with a Hong Kong IPO.

In its preliminary prospectus filed earlier this month, the 3-year-old company calls itself a dermatology-focused maker of drugs for scalp diseases and care, skin diseases and care, localized adipose accumulation management and topical anesthesia. It has pipeline of 11 drugs and drug candidates. Two of those have already launched with third-party marketing partners, while another five clinical and four pre-clinical drugs are under development.

It’s worth noting that six of its topical drugs, over half of its portfolio, are for treatment and prevention of hair loss, including “CUP-MNDE,” a topical minoxidil spray, and “CUP-SFJH”, a topical natural plant extract, which were both approved for sale in China last year.

Of its five clinical drug candidates, CU-40102, a topical finasteride spray, is now being commercialized in a pilot plan in South China’s Hainan province. The company says CU-40102 is the first of its kind approved for the treatment of androgenetic alopecia in the world. The similarly-named CU-40101 is already in phase 1 clinical trials to also treat hair loss caused by androgenetic alopecia.

Cutia’s hair obsession doesn’t stop there. Two of its other preclinical drug candidates are also for hair loss treatment.

The company’s other three treatment areas play a more supporting role to hair loss products, which are the stars in its prospectus. Of the three candidates in the skin disease and care area, only CU-10201, for the treatment of acne, is in a registered phase 3 clinical trial, with a commercialization pilot taking place in Hainan. The other two, for the treatment of atopic dermatitis and psoriasis, are only in the preclinical stage. Its other two areas, localized adipose accumulation management medication and topical anesthesia, each have just one product candidate, one in phase 1 and the other in phase 2 clinical trials.

Finasteride and minoxidil, better known for their brand names as Propecia and Rogaine, are mainstream medicines for the treatment of androgenetic alopecia. Third-party data from the prospectus shows annual sales of those two drugs in China reached 400 million yuan ($57.4 million) and 1.6 billion yuan, respectively, in 2021. Their global sales were around $100 million and $1 billion, respectively, showing there’s a fertile market for such products.

Meager sales

Despite kicking off sales after their approval last year, CUP-MNDE and CUP-SFJH, have yet to become cash cows for the company. The pair of medications generated just 2.7 million yuan in sales in the last year and a half, including a meager 658,000 yuan in the first half of this year. Those figures pale in comparison with the minoxidil product Mandi, developed by 3SBio Inc. (1530.HK), which was approved in 2001 and churned out 370 million yuan in sales in the first half of this year alone.

With so little revenue, it comes as little surprise that Cutia has posted cumulative losses of 770 million yuan in the last two and a half years, with the figure rising from 199 million yuan in 2020, to 319 million yuan last year, then doubling to 252 million yuan in the first half of 2022. The company’s R&D expenses for the period totaled 355 million yuan, while it incurred more than 130 million yuan in administrative expenses. That means that barring some very rapid revenue growth, an end to the company’s losses won’t be coming anytime soon.

As it seeks to widen its offerings, Cutia has shifted its focus to three other products – CU-40102, an androgenetic alopecia spray with fewer side effects that is in commercialization trials; CU-10201, an antibiotic to treat moderate-to-severe acne vulgaris; and CU-20401, a “diet pill” that reduces excessive topical fat accumulation. Among them, CU-20401, which has completed phase 1 clinical trials, is considered a core product, and is expected to start phase 2 clinical trials in the third quarter of next year.

Orlistat is the only drug currently approved in China for treatment of obesity, but can cause gastrointestinal adverse reactions. To offer more options for such treatment, the Center for Drug Evaluation of China’s National Medical Products Administration issued guidelines last December to encourage and promote development of weight control drugs. With that kind of official support, Cutia could have a brighter future if CU-20401 can make inroads into China’s weight loss market.

Strong backers

Cutia has previously attracted funds from a number of big-name investors. It raised $275 million in four financing rounds starting from 2019 to as recently as October last year, earning a valuation of 5.2 billion yuan after that latest round. Its shareholders include 6 Dimensions Capital, a healthcare private investment company tied to WuXi AppTec (2359.HK; 603259.SH), as well as Yunfeng Capital, Sequoia Capital and Fidelity Investments (Hong Kong). Thus, it’s fair to say Cutia Therapeutics has an all-star lineup for its IPO.

As its losses pile up, the company has become mired in total non-current liabilities of 2.44 billion yuan at the end of June, the vast majority coming from convertible redeemable preferred shares issued to investors. But the company’s current liabilities at the end of June were a much smaller 38.12 million yuan. That means that with current assets of 1.30 billion yuan, its current ratio is 34.1 times, much stronger than those for counterparts 3SBio, Kintor Pharmaceutical (9939.HK) and Jiangsu Hengrui Medicine (600276.SH), which range from 3.44 times to 11.47 times. That means Cutia is in relatively sound shape financially.

Nevertheless, the company still faces the challenge of weak sales – the most important element for long-term success. Until it can show a better ability to improve that top-line figure, it could have difficulty attracting serious longer-term investors.