Yuekang Pharmaceutical charges for A+H: Performance under continuous pressure, first three quarters hit multi-year 'worst'

$Youcare Pharmaceutical Group (688658.SH)$$Youcare Pharmaceutical Group Co., Ltd. (811032.HK)$

The listing boom of A-share companies spinning off H-shares remains strong even as the year draws to a close. Recently, Yuekang Pharmaceutical Group Co., Ltd. (hereinafter referred to as Yuekang Pharmaceutical; 688658.SH) submitted an application for listing on the main board of the Hong Kong Stock Exchange, with CITIC Securities as the sole sponsor.

Regarding the significance of dual listing platforms, Yuekang Pharmaceutical pointed out that it aims to enhance the company's overall competitiveness, elevate its international brand image, and make better use of international capital markets while diversifying financing channels. The company was listed on the STAR Market on December 24, 2020.

Performance under continuous pressure, first three quarters hit multi-year 'worst'

According to the prospectus and Tianyancha, Yuhang Pharmaceuticals was established in August 2001. The company's pipeline includes innovative candidate products covering discovery, preclinical, and clinical stages, involving four core modalities - oligonucleotides, mRNA vaccines, peptides, and innovative traditional Chinese medicine. The pipeline aims to address significant unmet needs in major disease areas and supports the parallel advancement of multiple projects, with selected assets positioned for development in China and overseas when appropriate.

The company has built an integrated cross-modal R&D technology platform covering preclinical research, clinical development, regulatory registration, and commercialization. Core platforms include modality platforms for oligonucleotides, mRNA vaccines, and peptides, supporting a nanomaterial delivery system platform and an AI-driven drug discovery innovation platform, supplemented by chemical and traditional Chinese medicine development platforms. These platforms are designed to work synergistically across the development lifecycle, from target discovery and molecular design to process development, analytical characterization, and preparation of documents for regulatory submissions and cross-border clinical supply.

Yuhang Pharmaceuticals has established its own drug research institute and internal clinical contract research organization (CRO), assembling an international high-level R&D team of 384 professionals as of July 31, 2025, including 56 with doctoral degrees. Ten internationally renowned academicians and experts collaborate, maintaining close partnerships with over 20 top academic institutions and more than 500 clinical sites in China, including Peking University, the Chinese Academy of Medical Sciences, and Capital Medical University, as well as Peking Union Medical College Hospital, Xuanwu Hospital, Tiantan Hospital, Fuwai Hospital, China-Japan Friendship Hospital, Peking University First Hospital, and Peking University Third Hospital. These resources support an integrated end-to-end R&D platform covering preclinical research, clinical development, regulatory submissions, and commercialization.

It is reported that the company sells most of its products to third-party distributors, who are direct customers responsible for distributing to end users such as hospitals, other medical institutions, and pharmacies. As of July 31, 2025, 2,439 distributors have been appointed, with a distribution network covering all 31 provinces, municipalities, and autonomous regions in China.

However, at the financial data level, Yuhang Pharmaceuticals has faced significant pressure in recent years.

In 2022-2024 and the first three quarters of 2025 (the reporting period), the company achieved revenues of 4.542 billion yuan, 4.196 billion yuan, 3.781 billion yuan, and 1.759 billion yuan, respectively, with year-on-year growth rates of -8.53%, -7.61%, -9.90%, and -41.20%. Net profits attributable to parent company shareholders were 335.2 million yuan, 184.8 million yuan, 123.7 million yuan, and -148.0 million yuan, with year-on-year growth rates of -38.53%, -44.87%, -33.05%, and -170.56%.

Looking at a longer timeframe, Yuhang Pharmaceuticals' performance has continued to decline since its peak in 2021, with its Q3 2025 report showing the weakest performance for the same period in many years.

From Q3 2020 to Q3 2024, the company’s revenue year-on-year growth rates were -6.39%, 19.26%, 4.69%, -15.54%, and 1.15%, while net profit year-on-year growth rates were 39.97%, 47.07%, -10.18%, -54.61%, and 37.73%.

At the same time, the company’s gross margin has continued to decline, reaching 64.65%, 62.67%, 57.80%, and 49.44% during the reporting period.

Increased R&D investment has led to downward revisions in profit forecasts.

In its research report dated November 28, 2025, Kaiyuan Securities pointed out that the pressure on Yuekang Pharmaceutical's performance in the first three quarters was mainly due to a price adjustment made at the end of 2024 for the 'Ginkgo Biloba Extract Injection.' At the same time, the company continued to push forward with new drug research and development, resulting in an increase in R&D investment expenses year-over-year, which also had a certain impact on the company's net profit.

In the first half of 2025, the company’s revenue fell by 40.14% year-over-year, while the net profit attributable to shareholders dropped by 183.36% year-over-year. The interim report stated: these results fully reflect the profound changes and severe challenges currently faced by companies in the pharmaceutical industry. In response to the adverse conditions within the industry, the company adheres to its development strategy, continuously optimizing and adjusting its operating strategies, improving operational efficiency to adapt to new trends in the industry’s development.

Indeed, in terms of cost expenditures, Yuekang Pharmaceutical's three major expenses appear relatively high.

During the reporting period, the company’s sales expenses were 1.978 billion yuan, 1.767 billion yuan, 1.302 billion yuan, and 503.8 million yuan respectively, with sales expense ratios of 43.56%, 42.11%, 34.43%, and 28.64% respectively. Research and development expenses were 344.4 million yuan, 351.9 million yuan, 374.3 million yuan, and 316.6 million yuan respectively, with R&D expense ratios of 7.58%, 8.39%, 9.90%, and 18.00% respectively. Management expenses were 245.3 million yuan, 230.3 million yuan, 239.9 million yuan, and 187.7 million yuan respectively, with management expense ratios of 5.40%, 5.49%, 6.34%, and 10.67% respectively.

Kaiyuan Securities’ investment recommendation is as follows:Considering the company's continuous increase in R&D spending, we have lowered the original earnings forecast. It is expected that the net profits attributable to shareholders for 2025-2027 will be -183 million yuan, -53 million yuan, and 69 million yuan respectively (originally projected at 51 million yuan, 206 million yuan, and 561 million yuan). Earnings per share (EPS) are projected at -0.41 yuan, -0.12 yuan, and 0.15 yuan respectively. The current share price corresponds to a price-to-earnings ratio (PE) of -60.6x, -208.5x, and 161.2x respectively. We remain optimistic about the company’s innovative layout and the long-term growth potential of its small nucleic acid technology platform, maintaining a 'Buy' rating.

Kaiyuan Securities noted that in terms of innovative traditional Chinese medicine (TCM), the company’s key TCM innovations (Class 1 new drugs) such as Hydroxysafflor Yellow A for Injection, Tongluo Jian Nao Tablets, and Zihua Wenyi Zhousou Granules are all in the final review stage of New Drug Application (NDA), with steady progress being made toward their market launch. In the field of small nucleic acid innovative drugs, YKYY015 injection (targeting PCSK9) was approved for clinical trials in the US in July 2024 and in China in October 2024; Phase I clinical trials are currently underway in China. YKYY029 injection (targeting AGT) received approvals for clinical trials in both the US and China in July 2025, with domestic Phase I clinical trials currently ongoing. YKYY013 injection, used for treating chronic hepatitis B virus infections, received clinical trial approvals in the US and China in September and November 2025 respectively. Additionally, multiple pipelines, including anti-atherosclerosis treatments, are in the preclinical stage. In other innovative drug developments, YKYY025 injection (RSV mRNA vaccine) and YKYY026 injection (VZV mRNA vaccine) have received US clinical trial approval. The company has completed Phase IIa clinical trials of CT102 injection, the first domestically produced antisense nucleic acid drug for treating primary liver cancer. (Report produced by Harbor Finance)

Shi Zifu, Wang Lu from Harbor Business Observer

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