YS Biopharma(YS) - 2023 Q4 - Annual Report

PART I Key Information YS Biopharma, a Cayman Islands holding company with operations in China, faces significant PRC government oversight, potential HFCAA delisting risk, and is a 'controlled company' under Nasdaq rules with founder control - The company operates as a Cayman Islands holding company, with primary business activities in China, Singapore, and the Philippines, where investors hold shares in the holding company, not the operating subsidiaries[19] - Substantial operations in China expose the company to legal and operational risks, including significant PRC government influence that could adversely affect business and R&D activities[20] - The company is subject to the Holding Foreign Companies Accountable Act (HFCAA), with uncertain PCAOB inspection access to its US-based auditor's work in China, posing a potential delisting risk despite the PCAOB vacating its 2021 negative determination[21][274] - YS Biopharma is a 'controlled company' as founder and Chairman Mr. Yi Zhang beneficially controls over 50% of the total voting power through a concert party agreement[25][26] - Cash is transferred from the parent company to PRC subsidiaries as capital contributions or shareholder loans, with HK Yisheng making capital contributions of $59.9 million in fiscal 2021 and $45.1 million in fiscal 2022 to Liaoning Yisheng, with no transfers in fiscal 2023[22] Risk Factors The company faces various risks that could materially affect its business, financial condition, and operational results Information on the Company YS Biopharma, a global biopharmaceutical company, focuses on vaccines and biologics, with its YSJA™ rabies vaccine as a primary commercial product and a pipeline driven by its proprietary PIKA immunomodulating technology platform - The company completed its Business Combination with Summit Healthcare Acquisition Corp. on March 16, 2023, with Ordinary Shares and Warrants beginning Nasdaq trading on March 17, 2023, under symbols 'YS' and 'YSBPW'[410] - The company's core marketed product is the YSJA™ rabies vaccine, the first aluminum-free lyophilized rabies vaccine in China, with over 19.9 million doses sold to 1,687 county-level CDCs from October 2020 to March 31, 2023[414][797] - The company's R&D is centered around its proprietary PIKA immunomodulating technology platform, generating a pipeline of eight product candidates, including four in clinical and four in preclinical stages[415][798] - YS Biopharma holds approximately 70 patents across more than 30 countries and regions related to its PIKA technology and product innovations[415] History and Development of the Company This section outlines the company's historical background and key developmental milestones Business Overview This section provides a comprehensive overview of the company's business operations, products, and markets Organizational Structure This section describes the company's corporate structure and its key subsidiaries Property, Plants and Equipment This section details the company's significant tangible assets, including its facilities and manufacturing plants Operating and Financial Review and Prospects YS Biopharma's financial performance, driven by YSJA™ rabies vaccine sales, shows revenue growth and stable gross margins but continued operating losses due to R&D and selling expenses, with a material weakness in internal control over financial reporting identified Key Financial Performance (Fiscal Years 2021-2023) | Financial Metric | FY 2023 (RMB) | FY 2022 (RMB) | FY 2021 (RMB) | | :--- | :--- | :--- | :--- | | Revenues | 687.2 M | 502.9 M | 257.0 M | | Gross Profit | 533.8 M | 385.9 M | 197.4 M | | Gross Margin | 77.7% | 76.7% | 76.8% | | Loss from Operations | (139.4 M) | (119.0 M) | (125.8 M) | | Net Loss | (145.5 M) | (106.0 M) | (191.8 M) | - Revenue increased by 36.6% in FY2023, driven by higher sales volume from expanded CDC and hospital access, and an approximate RMB2 per dose price increase for the YSJA™ rabies vaccine[824] - R&D expenses grew by 50.9% in FY2023 to RMB 318.7 million, primarily due to a RMB 141.3 million increase in testing and clinical trial fees for COVID-19 and rabies vaccines[834][836] - Selling expenses rose by 46.7% in FY2023 to RMB 272.9 million, mainly from an RMB 86.9 million increase in promotion and marketing service fees to expand market access[827][828] - The company identified a material weakness in its internal control over financial reporting due to insufficient U.S. GAAP expertise, with remediation measures underway[901][902] Operating Results This section analyzes the company's revenues, expenses, and profitability for the reported periods Liquidity and Capital Resources This section discusses the company's cash flows, debt, and equity financing to support its operations and growth Research and Development This section outlines the company's R&D activities, pipeline, and related expenditures Trend Information This section discusses significant trends and uncertainties affecting the company's business and financial condition Critical Accounting Policies and Estimates This section describes the accounting policies and estimates that require significant judgment and are crucial to the financial statements Directors, Senior Management and Employees The company's leadership includes founder Mr. Yi Zhang and CEO Dr. Hui Shao, with a seven-member board, and it employs 773 full-time staff, primarily in manufacturing and R&D, supported by share incentive plans - The board of directors comprises seven members, including Chairman Mr. Yi Zhang, CEO Dr. Hui Shao, Mr. Bo Tan, and four independent directors[920][921] Compensation for Directors and Executive Officers (FY 2023) | Compensation Type | Amount (RMB) | | :--- | :--- | | Cash Compensation | 10.4 million | | Benefits in Kind | 0.4 million | - The YS Biopharma 2022 Share Incentive Plan reserves a maximum of 6,656,582 Ordinary Shares for issuance to employees, directors, and consultants[947][948] Employee Headcount by Function (as of March 31, 2023) | Function | Number of Employees | Percentage | | :--- | :--- | :--- | | Research and development | 221 | 28.6% | | General and administrative | 188 | 24.3% | | Manufacturing | 315 | 40.8% | | Sales, marketing and patient services | 49 | 6.3% | | Total | 773 | 100.0% | Directors and Senior Management This section provides information on the company's board of directors and executive officers Compensation This section details the compensation paid to the company's directors and executive officers Board Practices This section describes the company's corporate governance practices related to its board of directors Employees This section provides an overview of the company's workforce, including headcount and functional distribution Share Ownership This section details the beneficial ownership of the company's shares by its directors, officers, and major shareholders Major Shareholders and Related Party Transactions Founder Mr. Yi Zhang is the controlling shareholder, beneficially owning 52.75% of Ordinary Shares through a Concert Party Agreement, while the company has engaged in related party transactions, including repaid loans to an entity he controls - Mr. Yi Zhang beneficially owns 52.75% of the company's Ordinary Shares, exercising control through a Concert Party Agreement with entities controlled by himself and his family members[973][974][981] - All executive officers and directors as a group beneficially own 59.51% of the company's outstanding Ordinary Shares[973] - In fiscal 2021 and 2022, the company provided loans to Yisheng Biopharma Holdings Limited (Hong Kong), an entity controlled by Mr. Yi Zhang, with the full RMB 33.1 million repaid during fiscal 2022[979] Financial Information This section presents the company's consolidated financial statements and notes, prepared in accordance with U.S. GAAP, with no significant changes since the audited financial statements date - The company has elected to provide financial statements pursuant to Item 18, which are included at the end of the Annual Report[1093][1094] - No significant changes have occurred since March 31, 2023, the date of the audited consolidated financial statements[982] Additional Information YS Biopharma, a Cayman Islands exempted company, is not subject to local taxes but faces potential PRC resident enterprise tax uncertainty and U.S. PFIC classification risk for foreign investors - Each ordinary share is entitled to one vote, with ordinary resolutions requiring a simple majority and special resolutions requiring a two-thirds majority vote[987] - The company, incorporated in the Cayman Islands, is not subject to local taxes and has received a 20-year tax concession undertaking effective from October 4, 2022[1041][1042][1044] - There is a risk that PRC tax authorities could deem the company a PRC resident enterprise, potentially subjecting non-resident shareholders to a 10% withholding tax on dividends and gains from share transfers[1047] - The company does not believe it was a Passive Foreign Investment Company (PFIC) for the taxable year ending March 31, 2023, but this annual factual determination is uncertain and could result in adverse U.S. federal income tax consequences for U.S. Holders[392][1061] PART II Controls and Procedures As of March 31, 2023, management concluded that the company's disclosure controls and procedures and internal control over financial reporting (ICFR) were effective, with no material changes during the period - Management evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2023[1079][1080] - Based on the COSO framework, management assessed the company's internal control over financial reporting (ICFR) and concluded it was effective as of March 31, 2023[1081] Corporate Governance and Other Information This section covers corporate governance, including the audit committee financial expert, code of ethics, and principal accountant fees, noting the company's adherence to Cayman Islands corporate governance as a foreign private issuer - The Board of Directors has designated Stanley Yi Chang as the audit committee financial expert[1083] - The company has adopted a Code of Business Conduct and Ethics, available on its website[1084] Principal Accountant Fees (FY 2023) | Fee Category | Amount (RMB) | Amount (US$) | | :--- | :--- | :--- | | Audit fees | 3,083,789 | 448,767 | | All other fees | - | - | | Total | 3,083,789 | 448,767 | - As a foreign private issuer, the company is permitted to follow Cayman Islands corporate governance practices, which may differ from Nasdaq listing standards, potentially affording less protection to shareholders[1089] PART III Financial Statements This section presents the audited consolidated financial statements for YS Biopharma and its subsidiaries for the three-year period ended March 31, 2023, prepared under U.S. GAAP, with an unqualified opinion from Wei, Wei & Co., LLP - The report includes audited consolidated financial statements for the fiscal years ended March 31, 2021, 2022, and 2023, prepared in accordance with U.S. GAAP[1094][1101] - The independent registered public accounting firm, Wei, Wei & Co., LLP, issued an unqualified opinion on the financial statements[1101][1105] Consolidated Balance Sheet Summary (as of March 31, 2023) | Metric | Amount (RMB) | Amount (US$) | | :--- | :--- | :--- | | Total Assets | 1,719.8 M | 250.3 M | | Total Liabilities | 991.3 M | 144.3 M | | Total Shareholders' Equity | 728.5 M | 106.0 M | Consolidated Statement of Cash Flows Summary (FY 2023) | Cash Flow Activity | Amount (RMB) | Amount (US$) | | :--- | :--- | :--- | | Net cash used in operating activities | (182.5 M) | (26.6 M) | | Net cash used in investing activities | (57.0 M) | (8.3 M) | | Net cash provided by financing activities | 317.4 M | 46.2 M | Exhibits This section lists all exhibits filed with the annual report, including key corporate documents, material contracts, and required CEO and CFO certifications under the Sarbanes-Oxley Act - Lists key corporate documents including the Amended and Restated Memorandum and Articles of Association[1095] - Includes material contracts such as the Business Combination Agreement, Shareholder Support Agreement, and Warrant Assignment Agreement[1095] - Contains required certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[1095]