Continuous losses, high debt ratio, Hainan Haiyao plans to reduce its stake in China Antibody to raise funds

Recently, Hainan Haiyao announced that it plans to reduce its holdings in China Antibody, a Hong Kong-listed company, by no more than 68 million shares, accounting for no more than 5% of China Antibody’s total share capital. Currently, Hainan Haiyao holds 159 million shares of China Antibody, representing 11.46% of its total share capital.

Hainan Haiyao previously engaged in large-scale acquisitions, private equity investments, stock trading, construction of large engineering projects, and property purchases, all of which involved significant spending, laying the groundwork for future crises. From 2019 to 2025, Hainan Haiyao’s cumulative losses are expected to exceed 4.3 billion yuan. Its core products have been impacted by centralized procurement and medical insurance cost controls, leading to declines in both sales volume and prices, affecting its main business. Hainan Haiyao stated that this reduction will help optimize the company’s asset structure, improve asset liquidity, and enhance utilization efficiency.

Insufficient “self-sustaining” capacity in core business, declining performance year after year

Hainan Haiyao’s main products include antibiotics, gastrointestinal drugs, oncology drugs, raw materials and intermediates for formulations, as well as other products. Additionally, it has a medical services segment and a traditional Chinese medicine segment. The 2025 semi-annual report shows that the pharmaceutical segment’s revenue was 353 million yuan, down 29.43% year-over-year, accounting for 84.34% of total revenue. Among the top three revenue contributors—cephalosporin formulations, other varieties, and raw materials/intermediates—each declined by 66.28%, 24.62%, and 47.85%, respectively.

In terms of revenue, since 2018, Hainan Haiyao’s revenue peaked at 2.47B yuan and has declined annually, falling to 991 million yuan in 2024. The projected revenue for 2025 is between 800 million and 900 million yuan. After deducting non-recurring profits and losses, net profit has been in continuous loss since 2017, with an estimated net loss of -480 million to -380 million yuan in 2025. The performance in 2025 is mainly affected by multiple factors: under policies like medical insurance and centralized procurement, market competition has intensified; innovative drugs are yet to be launched; newly approved generics have not yet gained volume; raw material projects have been transferred to fixed assets, increasing depreciation expenses; and high-interest debt has led to elevated interest expenses, all impacting performance.

Affected by market conditions, the performance of Hainan Haiyao’s major holdings can also be seen in its three main subsidiaries. According to the 2025 semi-annual report, the revenue and net profit of these subsidiaries have both declined year-over-year, with some in loss. Although the associated company Shanghai Lishengte Medical Technology Co., Ltd. is profitable, its net profit has also decreased compared to the same period last year.

With ongoing policies like centralized procurement at the national and local levels, some product gross margins are being squeezed. Hainan Haiyao has had to adjust its product structure, increase investment in innovative drug R&D, and accelerate new product launches and market development. Notably, the Class I new drug for anti-liver fibrosis, Fufenni-ton capsules, was included in the National Medical Products Administration’s breakthrough therapy list in February 2025 and has entered Phase III clinical trials. The Class I innovative antiepileptic drug Pengebabin tablets is undergoing Phase IIa clinical research. However, R&D investment for innovative drugs is costly and risky; new drugs face commercialization challenges after launch. Currently, Hainan Haiyao’s pipeline of innovative drugs is limited, mainly focusing on generics, with overall R&D investment relatively modest—only 27.3357 million yuan in the first three quarters of 2025.

Reducing equity holdings to “raise funds”

With insufficient core business “self-sustaining” capacity and gaps in R&D, Hainan Haiyao has decided to divest part of its equity in China Antibody, recovering some investment gains to “raise funds.”

In 2013, Hainan Haiyao acquired a 40% stake in China Antibody for a total of $9.9006 million of its own funds. After multiple rounds of financing from 2013 to 2018, Hainan Haiyao did not participate in any subsequent capital increases, resulting in its shareholding being diluted over time. By 2018, its stake in China Antibody was 31.01%. Based on this, Hainan Haiyao sold approximately 10% of China Antibody for about 100 million yuan, reducing its stake to 21.01%. In 2019, China Antibody’s Hong Kong IPO further diluted Hainan Haiyao’s holdings to 11.46%. Now, Hainan Haiyao plans to reduce its holdings in China Antibody by no more than 5% of the total share capital.

China Antibody mainly develops biologics based on monoclonal antibodies. Currently, no products have been approved for listing. In 2025, its net profit attributable to the parent was -105 million yuan. On November 12, 2019, China Antibody was listed on the Hong Kong Stock Exchange, with an issue price of HKD 7.6 per share. On its first trading day, it opened at HKD 7.3 per share. As of the close on April 6 this year, the stock price had fallen to HKD 1.76 per share, a cumulative decline of 76.84%. However, its R&D pipeline includes several globally first-in-class monoclonal antibodies, and industry analysts expect some products to enter listing applications within the next one or two years. Despite Hainan Haiyao’s long-term losses and the stock’s low valuation, this reduction does not constitute a complete exit.

The gains from equity investments still cannot resolve Hainan Haiyao’s main business “self-sustaining” difficulties. The Q3 2025 report shows that as of the end of the reporting period, Hainan Haiyao’s total liabilities were 5.47B yuan, including 4.36 billion yuan in current liabilities, with short-term liabilities of 1.26B yuan. Its total assets are 5.79 billion yuan, with a high debt ratio of 94.44%. At the end of the period, cash and cash equivalents amounted to only 260 million yuan.

Relying solely on divesting China Antibody shares can only provide short-term cash flow relief. If Hainan Haiyao cannot resolve its core business development issues, high debt levels, and improve R&D capabilities, its losses may continue.