The amount of repurchase is not the most important, what is important is what changes in business strategy will be released by the new equity incentive.
On the afternoon of March 13, Hengrui Pharmaceutical announced that it will repurchase no less than 600 million, no more than 1.2 billion company shares, and the repurchase price will not exceed RMB 60.22. The latest closing price of Hengrui Medicine is 37.62 yuan, which is 60% away from the repurchase ceiling price.
Wall Street News & Wisdom ResearchIt is believed that Hengrui’s repurchase of shares for equity incentives will, on the one hand, give employees better incentives in the current market downturn, and on the other hand, repurchase at the current stock price, which will help boost the secondary market share price. Judging from the upper limit of the repurchase price determined by Hengrui, there is still 60% space from the current price.It means that Hengrui has a high probability to use the upper limit of 1.2 billion yuan as the repurchase target. Next, the focus of the market will be on the unlocking conditions of Hengrui’s 22-year equity incentive.
Hengrui’s 2020 Equity Incentive Failed
On December 8, 2021, the company held the 15th meeting of the 8th Board of Directors and the 13th meeting of the 8th Board of Supervisors, which reviewed and approved the “Restrictions on Terminating the Implementation of the 2020 Restricted Stock Incentive Plan and Repurchase and Cancellation”. According to the Proposal on Repurchase and Cancellation of Restricted Shares, a total of 1,176 incentive objects are involved in the repurchase and cancellation of restricted shares, and a total of 17,009,640 restricted shares are planned to be repurchased and cancelled; after the repurchase and cancellation of this time, there will be 0 shares of the remaining equity incentive restricted shares.
The company believes that the equity incentive can no longer achieve the incentive purpose. The exercise price of this part of the equity incentive is 46.91 yuan per share, and the closing price on December 8 was 50.36 yuan. Because the transfer company finally repurchased the incentive equity from the employees, the price was 38.9250 yuan per share.
Jianzhi research has published in the article “Hengrui changed accounting rules, why no longer “hidden profits”? | See Wisdom Research” mentioned that under the background of the current internationalization and head-to-head projects facing Hengrui, the R&D expenditure has increased significantly, and the profit pressure has gradually emerged. It is very difficult to complete the equity incentive in 2020. How to motivate the team to complete is also placed A dilemma for company management. at the same time,Facing the high salary of talents in the pharmaceutical industry, it is also expected that Hengrui gave up the old equity incentives and rearranged the new equity incentives. Hengrui’s previous compromise of R&D capitalization has become an inevitable choice for this established pharmaceutical company in this era.
What is Hengrui’s next choice?
Previously,Hengrui Zhang Lianshan mentioned in an interview with Haitong Pharmaceutical Yu Wenxin:
Pharma’s R&D investment depends on sales revenue, and once the success of sales is not achieved under the background of volume procurement, it will affect the subsequent pipeline research and development.
Wisdom research believes that,The business strategy adopted by Hengrui is the shackle of its own development, which has a strong pro-cyclical effect on sales revenue.When revenue grows rapidly, R&D investment also grows rapidly, but once the growth of sales revenue slows down, it means that R&D investment will also slow down。
The investment in the pharmaceutical industry is high-risk, so investors are pursuing high returns; while the domestic market is a volume market, and the foreign market is a price market. The capital market is becoming more and more cautious. To convince the capital market to invest, products need to be sufficiently innovative.
Innovative drugs are an industry that requires continuous high investment. Hengrui has fallen into its own reverse spiral in the past two years because of this business strategy.
Summarize:The market is putting too much pressure on Hengrui, and whether Hengrui’s strategy can be reversed seems to depend more on changes in the medical policy side.But in the short term, the market should pay attention to how Hengrui’s equity incentives will be done this year.。
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