(hereinafter referred to as “Haofan Bio”) is going to be listed on GEM, issuing 27 million shares and raising 1.145 billion yuan, which will be invested in Suzhou Haofan Bio’s 100kg/year peptide and protein reagent R&D and production and headquarters construction project (Phase I), annual production capacity of Ltd. 100kg/year peptide and protein reagent R&D and production and headquarters construction project (Phase I), 1002 tons of peptide reagents and pharmaceutical intermediates construction project and peptide and protein reagent R&D platform construction project and supplementary working capital.

As of the date of the prospectus, Zhu Yong directly holds 63.2% of the shares of Haofan Biologicals, while Zhu Yong dominates 3% of the voting shares of Haofan Biologicals through Suzhou Haoqin, holding a total of 66.2% of the voting shares of the company, and is the controlling shareholder and the actual controller of Haofan Biologicals. The company focuses on the R&D, production and sales of peptide synthesis reagents, covering the full range of synthesis reagents used in the synthesis of amide bonds during the R&D and production of downstream small molecule chemical drugs and peptide drugs.

Haofan’s subsidiary was notified by the Ministry of Ecology and Environment of additional penalties for falsifying the environmental assessment report, and also sold dangerous chemicals without obtaining a hazardous chemical business license. The IPO prospect is not optimistic as the invention patent is also at the bottom of the industry.

The Ministry of Ecology and Environment (MOE) notified the company for additional penalties for falsifying the EIA report.

In 2019, the Ministry of Ecology and Environment issued a letter on the issues found in the third quarter (second batch) and fourth quarter of 2019 EIA document review and handling opinions, showing that 16 construction project environmental impact reports (tables) have omitted evaluation factors, lowered the level of environmental impact assessment work, reduced the scope of environmental impact assessment, incomplete analysis of environmental impact factors, incomplete content or wrong method of source strength accounting of pollution sources The quality problems include incomplete content or wrong methods/results of prediction and evaluation, failure to propose environmental protection measures in accordance with relevant regulations or feasibility demonstration of proposed environmental protection measures that do not comply with relevant regulations.

Source: Ministry of Ecology and Environment official website | Photo: Rongxin Finance

According to the Ministry of Ecology and Environment, the EIA preparation unit of Anhui Haofan, a subsidiary of Haofan Biologicals, “Annual production capacity of 770 tons of peptide reagent and protein cross-linking agent project” had “incomplete source strength accounting of pollution sources”, “incomplete environmental risk prediction and evaluation content” and “incomplete environmental risk assessment”. “The Ministry of Ecology and Environment, in accordance with Article 26 (1) (5) and (9), Article 31 and Article 32 (9) of the Supervision and Administration Measures for the Preparation of Environmental Impact Report (Form) of Construction Projects and the “Environmental Impact Report (Form) Preparation Unit and Personnel of Construction Projects Ltd. and the preparer of the EIA unit, Jiangsu New Qingyuan Environmental Protection Co., Ltd. and the preparer of the EIA unit, and the preparation of points for breach of trust, while the construction unit Anhui Haofan was notified of the criticism; the EIA report approval department Anqing City Ecological Environment Bureau to strengthen follow-up supervision, and urge the construction unit to take effective measures to prevent the project construction on the The company explained that Anhui Haofan “has a significant impact on the ecological environment.

The company explained that the quality of the EIA report of Anhui Haofan’s “annual production capacity of 770 tons of peptide reagents and protein cross-linking agent project” was mainly due to the fact that the preparation unit prepared the EIA report in October 2018 based on the provisions of the original “Technical Guidelines for Environmental Risk Assessment of Construction Projects” (HJ169-2004) version, and did not refer to the “Technical Guidelines for Environmental Risk Assessment of Construction Projects” (HJ169-2004) version. The quality of the EIA report is mainly due to the fact that the preparer prepared the EIA report in October 2018 based on the original Technical Guidelines for Environmental Risk Assessment of Construction Projects (HJ169-2004) and did not refer to the new Technical Guidelines for Environmental Risk Assessment of Construction Projects (HJ169-2018) implemented on March 1, 2019, and therefore did not comply with the environmental risk prediction and evaluation contents in the latest guidelines; and did not find comparable units for analogous conditions analysis, which did not comply with the relevant requirements of the analogous method in 3.9 of the Technical Guidelines for Source Strength Accounting of Pollution Sources (HJ 884-2018). requirements. At present, the project has obtained the “Notice of Acceptance of Trial Production Program of Chemical Construction Project in Anqing High-tech Industrial Development Zone” issued by the Safety Production Supervision Bureau of Anqing High-tech Industrial Development Zone in June 2021, agreeing to the trial production of 350 tons of the first phase of the project.

Sale of dangerous chemicals without obtaining the license of dangerous chemicals

During the reporting period, the company has sold some dangerous chemicals without obtaining the Dangerous Chemicals Operation License. The specific species, amount and proportion to the sales revenue of the year are as follows.

Source: Prospectus | Photo: Rongxin Finance

In March 2022, Suzhou National Hi-Tech Industrial Development Zone Comprehensive Free Trade Zone issued a special “Certificate”, which concluded that Haofan Bio “did not obtain the relevant qualification to sell dangerous chemicals because of its lack of awareness and non-intentional, and that the quantity of dangerous chemicals sold was small and had not caused any personal or property damage, environmental hazards or public safety accidents to third parties.

The company explained that most of the five kinds of dangerous chemicals sold by the company were occasional and sporadic sales with small amounts; these dangerous chemicals were not “highly toxic chemicals” in the Catalogue of Dangerous Chemicals (2018 Edition), but “other chemicals”. “, which are less toxic than highly toxic chemicals and do not belong to the controlled chemicals stipulated in the Catalogue of Specially Controlled Dangerous Chemicals, so the objective hazards in the sales process are relatively small.

In addition, the company also has an administrative penalty. On May 27, 2021, the company exported “1,8-diazabicyclo[5.4.0]undec-7-ene” to Liantang port, which belongs to Class 8 dangerous goods (UN code UN2922) and requires the use of certified dangerous goods packaging. The company was found to have violated the relevant regulations on export of dangerous goods by Liantang Customs for failing to provide the Customs with the “Export of dangerous goods transport packaging use identification result sheet” and issued the “Notice of Administrative Penalty by Liantang Customs of the People’s Republic of China” (Liantang Customs Inspection Notice No. [2021] 0023) to the company. Liantang Customs imposed a fine of RMB2,600 on the Company.

Overlap between customers and suppliers There is a situation that the supplier is an important trader soon after its establishment

There were repeated cases of overlapping customers and suppliers during the reporting period of the Company. During the reporting period, the Company’s sales to overlapping customers and suppliers totaled RMB25.17 million, RMB24.23 million and RMB25.91 million, respectively, and purchases totaled RMB29.81 million, RMB27.69 million and RMB27.24 million, respectively.

Among them, two enterprises, Zhejiang Pukang and Suzhou Zhengji, have relatively large purchase and sales amounts. The company’s main products include peptide synthesis reagents and molecular blocks. The company purchases both molecular blocks and peptide synthesis reagents and sells these products to the same enterprise. Suzhou Zichen, Nanjing Lifu and Meihexin are all traders of the company.

In addition, there are several suppliers who are important traders soon after their establishment. For example, Zhibang Bio was established on January 8, 2020, and became one of the top five suppliers of the Company in that year, mainly supplying RM-1426 to the Company, whose founder has the relevant technology to produce this raw material and founded the above company independently. Considering the history of cooperation, production technology and the stability of raw material supply, the company chose to cooperate with it.

Source: Prospectus | Photo: Rongxin Finance

Baoshengde was established on April 30, 2020 and is one of the top five raw material suppliers of the Company in 2021. This supplier mainly supplies oxalyl chloride to the company, and is the controlling grandchild of Haimen Best Fine Chemical Co. In 2020, Beste established Baoshengde, a subsidiary of Beste, to engage in the production and sales of acyl chloride and silane materials.

Silver Lake Bio, established on June 2, 2017, is one of the top five raw material suppliers of the Company in 2019 and 2021, mainly supplying RM-1426 to the Company, its key personnel have been working in the production of this raw material for many years, and then independently founded the company, there are few suppliers of this raw material in the market, and the quality and price of its raw material meet the requirements of the Company. The quality and price of raw materials meet the company’s requirements.

The prospectus disclosed that Haofan Bio purchased 5,773,300 yuan from the company, accounting for 4.99%. Check the enterprise information network found that Yinhu Bio was established on June 2, 2017, and since its inception, the number of social security contributions of the enterprise has been 0 people.

It is worth mentioning that in 2019, when it entered the list of the top five suppliers of Haofan Bio, Yinhu Bio was also listed in the business exception list by Taizhou Gaogang Market Supervision Administration for “concealing the real situation and falsifying the public information of the enterprise”.

Financial internal control is not standardized Affiliated borrowing up to 62 million

During the reporting period, Haofan Bio borrowed funds from related parties amounting to 62 million yuan, and there were also internal control irregularities such as using personal accounts to receive and pay money to the outside world and third-party repayment, etc. Whether the company’s internal control is sound is also a key concern of the regulatory authorities in the IPO.

During the reporting period, the actual controller of the company paid rent on behalf of the company several times. in 2018, 2019 and 2020, the amount of rent and related expenses paid by Zhu Yong, the actual controller, on behalf of the company was RMB132,900, RMB367,400 and RMB91,800 respectively, totaling RMB592,100 for three years. The leased plant was used by the Company. It indicates that the company’s financial internal control is not sufficiently standardized and there is an off-book payment of rent.

There are also problems of employees receiving payments from customers and third-party repayments. During the reporting period, the company received cash sales amounting to RMB100,700, RMB57,700 and RMB0.9 million respectively, all of which were received by the company’s employees on behalf of some customers after withdrawing the money and handing it over to the company for accounting. The company’s sales in the reporting period there are third-party refunds, of which the amount paid by the customer’s employees on behalf of the customer were RMB 102,100,000, RMB 183,900,000 and RMB 22,300,000; in 2021 there is a unified payment of RMB 3,220,900,000 by the customer within the same group.

Source: Prospectus | Photo: Rongxin Finance

The company has repeatedly split funds to a related party, Suzhou No.1 Pharmaceutical Co., Ltd, including a total of 52 million yuan in 2019 and 10 million yuan in 2020, for a total of 62 million yuan until the last principal and interest is paid off in March 2020. From the use of borrowing, Su One Pharmaceuticals is mainly due to bank loan renewal or deposit of loan deposits and other needs to the company for short-term capital borrowing for temporary turnover. Wu Weizhong, a natural person, holds a director position in Su Yi Pharmaceutical, and also holds 5% of shares of Haofan Bio and is the founding shareholder of the company, and established Haofan Limited (the predecessor of Haofan Bio) in 2003 with Zhu Yong, each contributing 50%.

Haofan Bio said that the above funds borrowing is due to SuYi Pharmaceutical or its subsidiaries for bank loan renewal or deposit of loan deposits and other needs to Haofan Bio for short-term funds borrowing for temporary working capital. The borrowing period is short, and Haofan Bio charged the borrower the corresponding interest rate according to the market interest rate.

Low R&D expenses and patents far lower than peers

Haofan Bio is slightly thin in R&D investment. 2019 -2021, the company’s R&D investment is RMB 7,718,600,000, RMB 22,460,300,000 and RMB 14,796,700,000, accounting for 4.04%, 7.95% and 4.01% of operating revenue in each period. Among them, the company’s share payment to R&D personnel in 2020 amounted to RMB12,840,000, which led to a large increase in R&D expenses in 2020. If we exclude the increase of this part, its R&D expenses as a percentage of sales revenue were 4.04%, 3.41% and 3.96%, which were in a shaking downward trend.

Source: Prospectus | Photo: Rongxin Finance

Compared with comparable listed companies in the same industry, the company’s R&D expense ratio is low, with the average values of comparable companies in the same period being 12.94%, 11.06% and 11.84%, among which, the R&D expense ratio of KeyKai Technology is as high as about 15%. As we all know, the pharmaceutical field has a high technological threshold and is susceptible to technological changes. If the company continues to invest in R&D at a low level, it may not be able to maintain its current competitive position in the future, and the company’s operating results will then be affected to a certain extent.

By the end of 2021, Haofan Bio and its subsidiaries had 23 patents, of which 19 were invention patents and 4 were utility model patents. Among the 19 invention patents, a pH-sensitive phospholipid molecule and its preparation method and application, and a synthesis method of 4-chloro-7H-pyrrolo[2,3-d]pyrimidine are two patents jointly held by East China Normal University and Haofan Biologicals, and at present, the company is still working on a number of research projects with Beijing University of Technology, East China Normal University and Suzhou Institute of Industrial Technology of Zhejiang University. Compared with companies in the same industry, by the end of 2021 KeyKai Technology has accumulated 87 invention patents, Haoyuan Medicine has accumulated 154 intellectual property projects, Haofan Bio is significantly behind in the number of patents.

The company explained that the R&D expense ratio is lower than the R&D expense ratio of companies in the same industry, mainly because the company’s peptide synthesis reagent products account for a higher revenue and faster growth, while the R&D investment in the field of peptide synthesis reagent products is relatively low, which pulls down the overall R&D expense ratio of the company.