Risk Assessment Report on Sustained Losses and Innovative Drug R&D Risks of Xintong Pharmaceutical

Xi’an Xintong Pharmaceutical Research Co., Ltd. is a biopharmaceutical enterprise focusing on R&D of innovative drugs in the field of liver diseases. It is currently applying for listing on the STAR Market, adopting the 5th set of listing standards for the STAR Market[1]. This standard applies to pharmaceutical enterprises that “have an expected market value of no less than RMB 4 billion, whose main business or products require approval from relevant national authorities, have a large market space, and have achieved phased results”, and requires that at least one core product has been approved to conduct Phase II clinical trials[2].

The company’s core product, the liver-targeted Class 1 innovative drug

, was approved for marketing in October 2024 and launched for sale in December 2024. It is the world’s first liver-targeted hepatitis B therapeutic drug developed based on a liver-targeted technology platform[1]. As of the signing date of the prospectus, the company has 8 core product pipelines for liver disease treatment, forming a relatively complete R&D system for liver disease drugs[1].

According to data in the prospectus, Xintong Pharmaceutical has been sustaining losses, and its financial status is concerning:

Financial Indicator	2022	2023	2024	H1 2025
Operating Revenue (RMB 10,000)	110.03	1,197.82	301.87	976.70
Net Profit (RMB 10,000)	-5,387.10	-6,229.25	-7,935.55	-1,320.36
R&D Expenses (RMB 10,000)	5,323.17	6,209.60	2,608.41	1,268.62
Accumulated Deficit (RMB 10,000)	-	-	-	34,675.87

Data shows that the company’s accumulated losses from 2022 to 2024 reached approximately RMB 196 million. As of the end of June 2025, the accumulated deficit at the consolidated statement level of the company amounted to

[1][3]. Notably, the loss margin narrowed significantly in H1 2025 (-RMB 13,203,600), which may be related to the launch of the core product Xinshumu®[3].

In 2024, the company’s R&D expenses decreased by

compared with 2023, dropping from RMB 62,096,000 to RMB 26,084,100[1]. The prospectus discloses that the decrease in R&D expenses is mainly due to:

• After the completion of Phase Ic/IIb clinical trials for the Heptefovir Fumarate Tablets project, communication with CDE confirmed that the Phase III clinical trial protocol would be launched in H2 2025, resulting in a 73.17% decrease in trial expenses in 2024[1]
• R&D investments related to the Pradefovir Mesylate Tablets project were capitalized and recorded as development expenditures[1]

Deng Yong, Director of the Research and Innovation Transformation Center for Health Law, Beijing University of Chinese Medicine, stated: “The core barrier for innovative pharmaceutical companies is their R&D pipeline, and R&D expenses are the lifeline for maintaining their ‘innovative attributes’. A continuous decline in R&D expenses may lead to risks such as slowed new drug R&D progress and weakened core competitiveness.”[1]

Innovative drug R&D has the typical characteristics of “three highs and one long” (high investment, high risk, high return, long cycle). According to industry data, the risks at each stage of new drug R&D are as follows:

R&D Stage	Success Rate	Average Duration	Average Cost	Consequences of Failure
Pre-clinical Research	~90% eliminated	1-2 years	RMB 200-300 million	Sunk costs
Phase I Clinical Trial	~70% success	1 year	RMB 100-200 million	Partial sunk costs
Phase II Clinical Trial	~50% success	2-3 years	RMB 300-500 million	Major losses
Phase III Clinical Trial	~52-70% success	3-5 years	RMB 1-2 billion	Huge losses
Marketing Application	~90% approval	1-2 years	RMB 50-100 million	Opportunity costs

The global pharmaceutical R&D sector experienced 110 major clinical trial failures in 2024, of which

, with the highest failure rate[4]. The failure rate of clinical research in the oncology field is particularly high, with a 48% failure rate between Phase III clinical development and regulatory application submission, significantly higher than the 29% failure rate of non-oncology clinical research[4].

Two of the company’s products (Heptefovir Fumarate Tablets, MB07133 for Injection) are in the registrational clinical trial stage with seamless Phase II/III transition, and one product XTYW001 is in Phase Ia clinical trial[1]. The failure rate of Phase III clinical trials is as high as 30%-48%, and a failure will directly affect the company’s valuation and financing capacity[4].

The company’s core product Xinshumu® was launched for sale in December 2024, but the construction of its commercialization team is still incomplete[3]. The company expects the product to be included in the National Medical Insurance Catalog in 2025 and start sales promotion at the price after inclusion in 2026. However, it will still take a long time from commercialization implementation to achieving profitability[1][3].

The hepatitis B drug market in China is highly competitive, with nucleos(t)ide analogs being the mainstream drugs, accounting for approximately 80% of the hepatitis B drug market[3]. Affected by volume-based procurement, the prices of traditional hepatitis B drugs have dropped significantly. Meanwhile, 6 functional cure drugs for hepatitis B have entered Phase III clinical trials in China. If such products are successfully approved for marketing, they will have an adverse impact on the commercialization promotion of the company’s nucleos(t)ide analog hepatitis B therapeutic drugs[3].

According to historical data, the average price reduction rates of new varieties included via medical insurance negotiations in 2022, 2023, and 2024 were 60%, 62%, and 63% respectively[3]. Although entering the medical insurance catalog through price cuts via negotiations can achieve “volume in exchange for price”, substantial price cuts will impact the company’s gross profit margin and profitability.

The company has been sustaining losses and has accumulated deficits, so it needs to rely on external financing to maintain operations. The company plans to raise RMB 900 million in this STAR Market IPO, of which RMB 500 million will be used for new drug R&D projects[1]. If the IPO progress falls short of expectations or the financing scale is reduced, it may affect the R&D progress and normal operations.

Product	Indication	R&D Stage	Expected Commercialization Time	Risk Level
Xinshumu®	Hepatitis B	Launched	December 2024	Low
Heptefovir Fumarate Tablets	Hepatitis B	Phase II/III	2026-2027	Medium-High
MB07133 for Injection	Liver Cancer	Phase II/III	2027-2028	Medium-High
XTYW001	Hepatitis B	Phase Ia	After 2028	High
XTYW007	Fatty Liver Hepatitis	IND Application	After 2028	High

The company’s core product Xinshumu® has been approved for marketing, with relatively controllable risks; however, other products are still far from commercialization, and face high uncertainty during this period[1].

Assessment Dimension	Score (1-10)	Explanation
Core Technology Advantages	7	The liver-targeted technology platform is advanced, and the company is a leading enterprise in this field in China
Product Pipeline Completeness	6	Covers major diseases such as hepatitis B and liver cancer, with a relatively complete pipeline layout
Commercialization Capability	4	Just started, the commercialization team and channels need to be improved
Financial Health	3	Sustaining losses, accumulated deficit exceeds RMB 340 million
Market Space	8	The hepatitis B market has a large scale (RMB 12.34 billion in 2024, expected to reach RMB 77.04 billion in 2034)[3]
Management Team Capability	6	Core technical personnel are stable, but commercialization experience needs to be verified
Valuation Rationality	5	Need to pay attention to whether the IPO valuation fully reflects the risks

1. Sustained Losses Are in Line with the Characteristics of Innovative Pharmaceutical Companies
   : As an unprofitable innovative pharmaceutical company applying under the 5th set of STAR Market standards, Xintong Pharmaceutical’s sustained losses are within industry expectations. The core significance of the 5th set of STAR Market standards is to open up financing channels for innovative pharmaceutical companies with long R&D cycles and high investment, focusing on the company’s technological advancement and R&D capabilities rather than short-term financial indicators[2].

2. The Decline in R&D Expenses Needs to Be Viewed Dialectically
   : The 57.99% decrease in R&D expenses in 2024 is mainly due to some projects entering the capitalization stage rather than a reduction in R&D investment. With an approved product on the market, the company’s R&D strategy is transitioning from “pure input” to “input + output”[1].

3. Risks and Opportunities Coexist
   : The company faces multiple risks such as clinical trial failure, market competition, and medical insurance price cuts; however, factors including the launched core product, advanced liver-targeted technology platform, and huge hepatitis B market space also provide development opportunities.

: Focus on the commercial sales performance of Xinshumu® and the progress of medical insurance negotiations. If product sales fall short of expectations or the price reduction in medical insurance negotiations is too large, be alert to the risk of valuation correction.

: Track the progress of Phase III clinical trials for Heptefovir Fumarate Tablets and MB07133 for Injection. The release of clinical trial data will be an important stock price catalyst or risk event.

: Observe whether the company can achieve a profitability inflection point. If the core product successfully scales up to drive revenue growth, the company is expected to achieve continuous profitability like enterprises listed under the 5th set of standards such as Shanghai Elis Pharmaceutical[2].

• Innovative drug R&D has a long cycle and high failure rate, so investment needs to withstand large fluctuations
• The hepatitis B market is highly competitive, facing pressure from volume-based procurement and price cuts in medical insurance negotiations
• The company has not yet achieved profitability, so continuous attention to cash flow status is required
• There is a risk of failure in Phase III clinical trials, which may affect the company’s valuation

[1] Beijing Business Daily - “Plunging R&D Expenses, Shrinking Fundraising, Unprofitable Xintong Pharmaceutical Reapplies for STAR Market Listing” (https://m.bbtnews.com.cn/article/35211)
[2] Securities Times - “Balancing Risk and Inclusiveness: The 5th STAR Market IPO Standard ‘Restarts’” (https://www.stcn.com/article/detail/2097048.html)
[3] CITIC Securities - “Sponsor’s Letter for the Initial Public Offering of Shares and Listing on the STAR Market by Xi’an Xintong Pharmaceutical Research Co., Ltd.” (http://static.sse.com.cn/stock/disclosure/announcement/c/202512/002135_20251229_JYUV.pdf)
[4] Pharnex Cloud - “Review of 110 Failed Clinical Studies in 2024” (https://www.pharnexcloud.com/zixun/sd_35207)