The application for freezing Dalian Wanchun's assets of 200 million yuan was approved by the court? Hengrui Pharmaceutical responded that the information is true and is under arbitration

On September 11, it was reported that recently, the Beijing Second Intermediate People's Court issued the civil ruling of Hengrui Pharmaceutical and Dalian Wanchun Brin Pharmaceutical Co., Ltd. (hereinafter referred to as "Dalian Wanchun"), approving Hengrui Pharmaceutical's property preservation application for freezing the assets of 200 million yuan under the name of Dalian Wanchun.

In response to the above information, Hengrui Pharmaceutical confirmed the matter to the reporter of Securities Daily, saying: "The information is true, and the case is currently being arbitrated by the arbitration commission. The company applied for property preservation through arbitration."

Looking back, the cooperation between Hengrui Pharmaceutical and Wanchun Pharmaceutical began in 2021. On August 26, 2021, Hengrui Pharmaceutical announced that it had signed a strategic cooperation agreement with Wanchun Pharmaceutical subsidiary Dalian Wanchun. According to the agreement, Hengrui Pharmaceutical paid an equity investment of 100 million yuan to Dalian Wanchun, and promised to pay a down payment and milestone payment of no more than 1.3 billion yuan in total, in order to obtain the joint development interests and exclusive commercialization interests of Dalian Wanchun's GEF-H1 activator Punebulin in Greater China.

In September 2020, Panabrin was successively recognized as a "breakthrough therapy" by Chinese and US drug regulatory agencies in the field of CIN prevention. In 2021, the CIN indication NDA application of Pneblin was successively accepted by the United States and China and awarded the qualification of "priority review". In August of the same year, Pneblin combined with docetaxel reached the main endpoint of the total survival period in the global phase III clinical study of non-small cell lung cancer patients (EGFR wild type), and plans to submit the indication NDA application in the first half of 2022.

However, Pneblin did not go public as scheduled.

In December 2021, the marketing application of punebulin for chemotherapy induced neutropenia (CIN) was rejected by the US Food and Drug Administration (FDA). In the reply letter, FDA pointed out that the results of a single registration test are not enough to prove the efficacy of the treatment of neutropenia after chemotherapy with punebulin combined with pefepristine. The second phase III clinical trial is required, and punebulin cannot be approved for marketing in the United States.

At that time, Huang Lan, the co-founder of Wanchun Pharmaceutical, responded through the company's official website: "Wanchun Pharmaceutical firmly believes that the joint application of Punabrin and G-CSF has great potential to improve the treatment level of CIN. At the same time, the company plans to continue to communicate with FDA to consider the possible clinical path of CIN in the future, which may include adding a clinical study."

On March 10, 2023, Hengrui Pharmaceutical announced that the parent company of Dalian Wanchun had received the drug notification from the State Food and Drug Administration, and the application for the listing of new drugs of Punablin had not been approved. The specific application indication of the drug is that it is used in combination with polyethylene glycol recombinant human granulocyte stimulating factor for the treatment of neutropenia (CIN) caused by chemotherapy in adult patients with non myeloid malignant tumors.

At that time, Hengrui Pharmaceuticals introduced that according to the Cooperation Agreement on Punablin Products, the company had paid a down payment of 200 million yuan to Dalian Wanchun, and the company had not yet carried out any clinical research on Punablin. As for the equity investment of RMB 100 million to Dalian Wanchun as agreed in the Capital Increase and Share Purchase Agreement, the company has not yet paid and the equity has not been delivered. There is no subsequent R&D plan for this product at present.

Subsequently, the market also paid attention to the disposal of the down payment of 200 million yuan.

According to the aforementioned strategic cooperation agreement, if there is any dispute between both parties during the agreement period, both parties shall settle it through friendly negotiation. If no settlement is reached, either party may submit the dispute to China International Economic and Trade Arbitration Commission for arbitration in Beijing in accordance with the Commission's arbitration rules in effect at the time of applying for arbitration. Both parties agree to compensate the other party and exempt the other party's indemnified person from any liability on the premise that our party is identified as the party in fault.

Wang Zhibin, a lawyer from Shanghai Minglun Law Firm, told the Securities Daily that according to the provisions of the Civil Procedure Law and relevant judicial interpretations, property preservation is a guarantee measure that the plaintiff can unilaterally initiate. The plaintiff can preserve part of the defendant's property by providing sufficient guarantees. There is no inevitable relationship between the success of property preservation and the outcome of the lawsuit. However, if the plaintiff loses the lawsuit finally, the defendant can bring a lawsuit for the loss caused by his property restriction and demand the plaintiff to compensate.

It is worth mentioning that the share price of Wanchun Pharmaceutical fell sharply after the listing of Punablin was blocked in China and the United States. In November 2022, Wanchun Pharmaceutical announced that it had received a written delisting warning from NASDAQ because its share price was less than $1 per share for 30 consecutive trading days. As of September 11, the reporter reported that the share price of Wanchun Pharmaceutical had dropped to $0.9 per share.

What impact will this freeze have on Wanchun Pharmaceutical and its subsidiary Dalian Wanchun?

In response, Yang Zhaoquan, director of Beijing Weinuo Law Firm, told the Securities Daily that after the property preservation measures were taken, the enterprise's capital could not flow. However, the company can adopt counter guarantee. Banks, insurance companies, etc. shall issue letters of guarantee and promise to bear the ultimate possible liability for compensation. The court can release the freezing of funds according to the letter of guarantee.

key word: Brin Dalian medicine arbitration