China-based Jiangsu Hengrui Medicine Co., Ltd (SHA: 600276) has announced plans to incentivize its employees through a share distribution program. The company will repurchase up to 12 million shares at an average price of RMB 29.37 (USD 4.22) per share, with the transfer price set at RMB 4.41 (USD 0.63). The total number of employees participating in the employee stock option program (ESOP) will not exceed 1,158.
Performance-Based Unlocking
The ESOP includes performance-based unlocking, requiring employees to reach certain performance goals. The performance assessment will be based on novel drug sales from 2022 to 2024, with three phases of unlocking. The proportion of shares to be unlocked in each phase is 40%, 30%, and 30%, respectively.
Transformation and R&D Investment
Hengrui continues its transformation from a generic drug maker to an innovative company, a process that began in 2018. The company spent RMB 2.9 billion (USD 416 million) on research and development (R&D) during the first half of this year, up 12.74% year-on-year (YOY) and accounting for 28.44% of total revenues, a figure second only to BeiGene. Industry estimates suggest Hengrui may generate RMB 8.5 billion (USD 1.2 billion) from novel drug sales this year.
Market Pressures and Leadership Challenges
Hengrui has faced significant market pressures due to the COVID-19 pandemic, volume-based procurement (VBP), National Reimbursement Drug List (NRDL) price cuts, and other market factors. In the past year, the company has also experienced leadership challenges, with an unsettled leadership team amid reshuffles, while revenues and profits have declined. The latest move to distribute shares may be aimed at retaining key talent.-Fineline Info & Tech
