Increasing Losses Prompt Zephyrm Bioscience To Seek Funds Through IPO

Key Takeaways:

• Zephyrm Bioscience’s losses have increased by more than two times year-on-year to 237 million yuan in the first half of 2024
• The company has only four products, with only one product in Phase II clinical trials, far from commercialization

By Fai Pui

Stock markets in the mainland China and Hong Kong have once again become active under a series of policy packages to rescue the market. More and more companies are planning go public on the Hong Kong Stock Exchange for fund raising in the fourth quarter, hoping to obtain a higher valuation amid this stock market frenzy.

Founded in 2017, Zephyrm Bioscience Ltd., a young stem-cell drug researcher, developer and producer, filed for a listing application to the Hong Kong Stock Exchange on the last day of September, with CICC as the exclusive sponsor.

Like most biotech companies at their early stages, Zephyrm currently has no commercialized product and thus no revenue. Instead, according to the prospectus, the company has been knee deep in losses pile-up, rising from about 173 million yuan ($24.4 million) in 2022 to 196 million yuan in 2023, and to whopping 237 million yuan in the first half of 2024, which has surged 210% over the same period in 2023.

The sharp increase in losses was mainly driven by the skyrocketing administrative expenses in the first half of 2024, from 18.37 million yuan in 2023 to 143 million yuan. Notably, 114 million yuan of share-based compensation expenses, which had not been incurred in the past two years, is also included in the administrative cost. Meanwhile, R&D is the second biggest cause of its mounting losses. While the relevant spending has increased from 66.31 million yuan in 2022, to 103 million yuan in 2023, now it has already been up to 58.52 million yuan in the first half of 2024, marking a surprising increase of 71.4% over the same period last year.

Mainly engaging in the development of innovative cell therapy products derived from pluripotent stem cells (PSC) that can treat a variety of diseases, Zephyrm is one of the first companies in China and even the world to develop PSC-derived cell therapy products. According to Frost & Sullivan, the company is one of the first in China to be approved for an investigational new drug (IND) application for PSC-derived cell therapy, and the only company in China with multiple PSC-derived cell therapy assets in Phase II clinical trials.

According to the prospectus, Zephyrm’s current product portfolio includes its core product ZH901 and its major products ZH903, ZH902 and ZH906. ZH901 is a M-cell therapy product that is being studied for the treatment of injuries and inflammations as well as degenerative diseases. Its clinical development in China for various indications has entered phase two. About 100 patients have been treated with ZH901 through intravenous infusion or intra-articular administration in the knee joint in multiple clinical trials, but none of them experienced serious adverse effects.

However, all these other three products are still in the early clinical stage. ZH903 is a mDAP cell therapy product for the treatment of Parkinson’s disease; ZH902 is a RPE cell therapy product for the treatment of dry AMD to improve patients’ impaired vision; and ZH906 is a CEnC therapy product for the treatment of corneal endothelial dysfunction.

In addition, Zephyrm has developed a PSC-derived cell therapy products development platform (PROF), which comprises three independent platforms, namely, Pluripotent Stem Cell Seed Platform (PROF-seed), Vital Functional Cell Development Platform (PROF-function), and Formulation Optimization Platform (PROF-formulator). This unique set of integrated technology platforms is designed to help the company develop products more effectively.

In order to support future commercialization, Zephyrm has established a factory in Beijing with a total construction area of approximately 2,380 square meters. It will be able to produce approximately 35,000 injections of cell therapy products annually to support the company’s clinical development and early commercialization. The company is also planning to establish a manufacturing plant in Zhongshan City, Guangdong Province, with a total construction area of approximately 150,000 square meters and an estimated annual production capacity of approximately 500,000 injections of cell therapy products to support commercial production. The new expansion projects will officially commence production in 2030.

Therefore, it is not surprising to know the funds raised in the listing, if succeeded, would be used for the factory in Zhongshan City, and for product R&D and clinical research.

Only 78 Million Yuan Of Cash In Hand

However, the nearly empty pocket for R&D is the biggest reason for Zephyrm’s enthusiasm over IPO. As of the end of June 2024, it only has 78.26 million yuan in cash and cash equivalents, a significant decrease of 53% compared to the end of 2023. However, on the one hand, its R&D expenditure throughout the year of 2023 already reached 103 million yuan, already amounted to 58.52 million yuan in the first half of 2024. On the other hand, this biotech company still has no commercial products or obtain any government subsidies in the first half of 2024. That means turning to the capital market for funds to support R&D becomes the only way to go.

In addition, early investors are also eager to cash out. According to the prospectus, the company launched an angel round of financing in 2019, receiving funds from investors including Zhongke Chuangxing Hard Technology, Zhonghe Tiancheng Entrepreneur Management, Xi’an Yingshi Fukun Biotechnology and Shandong Haoyang Biological Engineering. Back then, it raised 150 million yuan at the cost per share of 3.87 yuan.

One year later, it carried out the A-round financing with the cost per share increasing to 8.3 yuan, pocketing another 160 million yuan from investors such as Beijing Guoke Dingzhi Equity Investment, Beijing Yuanqing Bencao Equity Investment and Beijing Yingshi Biotechnology. Then it conducted another round of financing in the B, B+, and B++ rounds at 9.38 yuan per share between 2022 to 2024. Investors include Beijing Yingsheng Fukun Biotechnology, Jiaxing Chenyue Equity Investment Partnership and Beijing Yingshi Biotechnology. The three rounds of financing have raised 656 million yuan in total for Zephyrm, and all early investors are in a 180-day lock-up period.

With about 20 million yuan invested for 0.89% shares by Beijing Xietai Management Partnership, Zephyrm should be worth about 2.25 billion yuan. However, Hong Kong Stock Exchange is no short of biotechnology stocks. Investing in biotechnology companies is basically placing a bet on whether the company’s products can eventually pass clinical trials and successfully enter commercialization.

Now the show is finally heating up again in Hong Kong, and the IPO is filled with hustling and bustling again. The share price of TYK Medicines (2410.HK), a biotech stock listed in August, has risen by about 150% so far. If Zephyrm can pass the listing hearing, investors chasing short-term profits may flock in to the subscription.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.