Hongxu Biomedical Technology (Beijing) Co., Ltd. (hereinafter referred to as "Hongxu Biomedical") recently issued a statement clarifying the litigation situation involving Shanghai Medicilon Inc.'s subsidiary.
The statement indicated that Shanghai Medicilon Inc.'s contract performance failed to meet contractual and industry standards, resulting in severe losses for both the project and the company. Consequently, Hongxu Biomedical was compelled to file a lawsuit with the People's Court. Currently, the court has frozen Shanghai Medicilon Inc.'s bank accounts as part of property preservation measures.
Hongxu Biomedical is seeking a court ruling requiring Shanghai Medicilon Inc.'s subsidiary to pay breach of contract penalties for delayed performance prior to contract termination, return paid service fees, and compensate for various losses, totaling approximately 159 million yuan, with 150 million yuan specifically for damage compensation.
According to financial reports, Shanghai Medicilon Inc. is currently operating at a loss, with total profit of -21 million yuan this year, net profit attributable to shareholders of -13 million yuan, and adjusted net profit attributable to shareholders of -27 million yuan. Multiple attempts to contact Shanghai Medicilon Inc.'s board secretary regarding litigation-related issues were unsuccessful, as calls were automatically disconnected after being transferred.
**Shanghai Medicilon Inc. Sued for Delivery Delays, Hongxu Biomedical Claims "Severe Losses"**
In this dispute, Shanghai Medicilon Inc. serves as a CRO (Contract Research Organization), specifically a pharmaceutical research and development contract outsourcing service institution, previously recognized as a Shanghai "Little Giant" technology enterprise.
Public information shows that Chinese pharmaceutical companies' R&D and regulatory capabilities can be categorized into five types: strong R&D with strong regulatory capabilities, strong R&D with weak regulatory capabilities, weak R&D with strong regulatory capabilities, weak R&D with weak regulatory capabilities, and no R&D or regulatory capabilities. The first category represents very few companies, while the second, third, and fourth categories comprise the vast majority. The fifth category, companies with no R&D or regulatory capabilities, accounts for approximately 15%-20% or even higher. For a pharmaceutical company to become strong in both R&D and regulatory affairs is difficult, costly, and sometimes impossible. For most pharmaceutical companies, partially or fully outsourcing to CRO companies is an inevitable choice in modern professional division of labor, offering greater expertise, efficiency, better results, higher success rates, and cost reduction.
On September 5 this year, Shanghai Medicilon Inc. announced that its subsidiary was sued by client Hongxu Biomedical. The dispute originated from a "Technical Service Contract" signed between the subsidiary and Hongxu Biomedical on December 18, 2020, whereby Hongxu Biomedical commissioned the subsidiary to conduct non-clinical safety evaluation research on its Class I biotechnology drug (peptide) to ensure smooth acquisition of clinical trial approvals in both China and the United States. The contract stipulated that the subsidiary should complete four testing projects, including analytical testing and safety evaluation, within eight months and provide trial reports in both Chinese and English versions. Hongxu Biomedical alleged that the subsidiary breached contract terms during performance and demanded contract termination and compensation for related losses.
In its September 18 statement, Hongxu Biomedical responded that Shanghai Medicilon Inc. severely delayed delivery of the Chinese version safety evaluation research report, which failed to pass review by the National Medical Products Administration's Center for Drug Evaluation. Hongxu Biomedical had to commission a third-party CRO company for supplementary testing before obtaining clinical trial approval. Additionally, Shanghai Medicilon Inc. severely delayed delivery of the English version safety evaluation research report, which failed FDA review. This ultimately resulted in Hongxu Biomedical's first domestic IND application being rejected when using Shanghai Medicilon Inc.'s safety evaluation research report, with the second IND application only passing after relying on supplementary testing reports from a third-party CRO company, causing delays in domestic approvals and failure in US applications.
The statement claimed that Shanghai Medicilon Inc.'s contract performance failed to meet contractual and industry standards, causing severe losses to both the project and company.
The announcement shows Hongxu Biomedical is seeking court confirmation that the "Technical Service Contract" be terminated effective from the date the complaint is served to the defendant, and requesting judgment for the subsidiary to pay breach of contract penalties for delayed performance prior to contract termination, return paid service fees, and compensate for various losses, totaling approximately 159 million yuan, with 150 million yuan specifically for damage compensation.
Shanghai Medicilon Inc. stated in its announcement that the contract amount for the business involved in this case was 5.576 million yuan (with Hongxu Biomedical still owing the subsidiary 557,600 yuan in contract payments). Hongxu Biomedical's claim amount is approximately 27 times the contract value.
**CRO "Little Giant" Posts Losses for Two Consecutive Years**
Shanghai Medicilon Inc. publicly stated it does not recognize Hongxu Biomedical's claims and will actively defend itself according to law, taking measures including but not limited to counter-suits and pursuing legal responsibility for Hongxu Biomedical's alleged violations.
According to the semi-annual report, Shanghai Medicilon Inc. remains in a loss-making state. In the first half of this year, total revenue was 540 million yuan, total profit was -21 million yuan, net profit attributable to shareholders was -13 million yuan, adjusted net profit attributable to shareholders was -27 million yuan, and the ratio of R&D investment to revenue decreased by 0.12 percentage points compared to the end of last year.
Additionally, by the end of June this year, Shanghai Medicilon Inc.'s accounts receivable book value was approximately 540 million yuan, accounting for 37.24% of current assets at period end.
Shanghai Medicilon Inc. is considered a company that seized opportunities during the previous innovative drug boom cycle. The company went public in 2019, with peak performance in 2022, but experienced declining revenue in 2023 and 2024, with net profit attributable to shareholders and adjusted net profit posting losses for two consecutive years.
Shanghai Medicilon Inc.'s shareholding structure is relatively dispersed. The largest shareholder and one of the actual controllers, Chen Jinzhang, holds 12.15% of shares. From the shareholder structure, Shanghai Medicilon Inc. appears to be a family-controlled listed company. Among the top ten shareholders, most are related as brothers, uncles and nephews, or in-laws. Chen Jinzhang and CHUN-LIN CHEN are acting in concert and are both actual controllers of Shanghai Medicilon Inc., with a cousin relationship.
According to 2024 annual report data, Shanghai Medicilon Inc.'s Chairman, General Manager, and core technical personnel CHUN-LIN CHEN received total pre-tax compensation of 1.315 million yuan from the company during the reporting period.
CHUN-LIN CHEN previously served as Director of Pharmacy Department at Parkview Cancer Center in the United States and Chief Scientist of Non-clinical Drug Evaluation Department at Fujifilm Pharmaceutical USA, bringing extensive experience in pharmaceutical R&D. He founded Shanghai Medicilon Inc. Limited in February 2004 as Director and General Manager, and established the subsidiary in February 2008 as Chairman. CHUN-LIN CHEN currently serves as a member of the Drug Metabolism Professional Committee of Shanghai Pharmacological Society, Director of Pudong New Area Biological Industry Association, and member of the Drug Metabolism Professional Committee of Chinese Pharmacological Society. He also serves as visiting professor at the School of Life Sciences of China Pharmaceutical University and was elected as a foreign full member of the Russian Academy of Natural Sciences in September 2021.
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