Watson Bio's Capital Reallocation Behind the Scenes: Declining Performance but Significant Cash Consumption? Who is Arbitraging as Minority Shareholders "Buy Low and Sell High"?

Produced by: Sina Listed Company Research Institute

By / Xiachong Studio

Key takeaways: While Watson Biologics’ target company performance has continued to decline, why does it spend book cash to acquire a minority equity stake? Not long after, the company again shifts control via a low-priced private placement for additional shares. Behind this series of transactions, are there mutually prerequisite conditions? It is worth noting that the minority equity stakes in the above series of reallocations or “low buy, high sell”-style arbitrage were successfully pulled off—specifically, the minority stake was taken at a precisely low price right before the target’s products were about to be launched, and then, as performance continued to deteriorate, it was sold to the listed company at a relatively higher price. So, is there any benefit transfer behind these capital readjustments?

Recently, Watson Biologics released its 2025 annual report, with results mired in a continued downtrend.

Data show that in 2025, the company’s full-year operating revenue was 2.42B yuan, down 14.29% year over year; net profit attributable to shareholders of the parent was 178 million yuan, up 25.03%; and net profit attributable to shareholders of the parent after deducting non-recurring items was 95.4509 million yuan, down 11.94% year over year.

In its annual report, Watson Biologics clearly stated: “In 2025, competition in China’s vaccine industry continued to intensify. On the one hand, international giants accelerated the layout of major vaccine product varieties and quickly grabbed market share. In China, multiple new vaccine products from domestic vaccine enterprises were approved for listing one after another, and the market displayed a diversified competitive landscape. On the other hand, the age structure of vaccination populations and consumer habits in the domestic market have also continued to change. The market competition pressure the company faces remains very significant.”

“Private placement + acting-in-concert parties + board reshuffle” a three-step sequence to shift control

Watson Biologics’ capital operations have been ongoing recently.

First, through the three-step sequence of “private placement + acting-in-concert parties + board reshuffle,” the company brought in an actual controller and ended the corporate governance structure of a company with no controller.

Step 1: Directed share issuance to obtain core equity. On March 19, the company planned to issue to specific parties, Tengyun Xinwo, no more than 207,983,751 shares of A-share common stock, with an issue price of 9.63 yuan per share. The total fund-raising amount would be no more than 2 billion yuan. After deducting issuance expenses, all proceeds would be used to supplement working capital. Upon completion of this issuance, Tengyun Xinwo would directly hold 11.51% of the company’s shares.

Step 2: Sign an acting-in-concert agreement to consolidate control. On the day before the issuance (March 17), the company’s existing key shareholders, Li Yunchun (one of the company’s founders), Chengdu Xiyun Enterprise Management Partnership (Limited Partnership), Guangzhou Yingwo Enterprise Management Partnership (Limited Partnership), and Huang Tao, Tengyun Huizhi (Beijing) Biotechnology Co., Ltd., Tengyun Health Management Co., Ltd., and other entities signed the “Joint Investment and Acting-in-Concert Agreement.” The agreement stipulates that all parties will keep acting in concert in terms of the company’s production and operations, corporate governance, and other major decision-making matters, with a validity period of seven years and extendable. If the parties fail to reach a unanimous opinion, the decision will be based on the views of Huang Tao, Tengyun Bio, and Tengyun Health. By this point, the proportion of voting-right shareholdings collectively held by Tengyun Xinwo and its acting-in-concert parties would reach 14.46% of the total share capital after issuance.

Step 3: Reshuffle the board of directors to secure decision-making dominance. The announcement makes clear that after the completion of this private placement issuance, the company’s board of directors will be composed of nine directors, including three independent directors. Tengyun Xinwo will nominate four non-independent directors and two independent directors to the company’s board of directors—exceeding half of the total number of directors—thereby forming de facto control at the board level.

By this point, Tengyun Xinwo will become the company’s controlling shareholder, and Huang Tao, the actual controller of Tengyun Xinwo, will become the company’s actual controller.

On one hand, cash dividends to minority shareholders; on the other, the listed company repurchases cash

A rather coincidental situation is that before the company welcomed its new actual controller, the company repeatedly spent cash to repurchase minority equity stakes in its core assets.

According to publicly available information, on the evening of November 28, 2025, Watson Biologics released an announcement proposing to acquire, for a total of 1,999 million yuan, 13.7836% equity of its controlling subsidiary Yuxi Watson Biotech Co., Ltd. (hereinafter referred to as “Yuxi Watson” or “the target company”) from two transaction counterparties: Huixiang Yuetai (Tianjin) Investment Partnership (Limited Partnership) (abbreviated as “Huixiang Yuetai”) and Tianjin Lanwo Investment Partnership (Limited Partnership) (abbreviated as “Tianjin Lanwo”).

Yuxi Watson is a core subsidiary of Watson Biologics. Watson Biologics currently has eight vaccine products approved for production, listing, and sale. Among them, seven products are produced by Yuxi Watson. Yuxi Watson’s operating and financial condition is relatively strong, and it is the most main source of the company’s revenue and profits. In 25 years, Watson Biologics’ revenue was 2.42B yuan and net profit was 125 million yuan, while Yuxi Watson’s revenue was as high as 2.36B yuan and net profit was 316 million yuan.

On May 29, 2025, August 4, 2025, and August 12, 2025, the company’s president’s office meeting approved motions regarding acquiring minority equity stakes in Yuxi Watson. According to the announcement, the company planned to acquire, for a total price of 938 million yuan, 4.9733% equity in Yuxi Watson held in aggregate by Guolian Shuying Fund and Yingrong Fund.

In addition to frequent cash buybacks of minority equity stakes, the company also made large cash dividend distributions to minority equity holders at the same time. In May 2025, the shareholders’ meeting of the subsidiary Yuxi Watson approved the “Profit Distribution Plan for Yuxi Watson for 2024.” According to the resolution of the shareholders’ meeting, Yuxi Watson distributed cash dividends of 2.74B yuan to its parent company, Yunnan Watson, and distributed cash dividends as high as 761 million yuan to minority shareholders holding 21.74% equity.

It is worth noting that against the above backdrop, the company’s cash was apparently consumed quickly. At the beginning of 2025, the company held nearly 4 billion yuan in cash on its books, but by 2025 it had only 1.35B yuan left. So, we are left wondering: with the company’s performance declining, is it beneficial for the company’s development that its cash is significantly drained?

Who benefits behind these reallocations? Are there doubts about the transactions?

Minority shareholders in Yuxi Watson have carried out “low buy, high sell”-style arbitrage. That is, they precisely took equity at a relatively low price when Yuxi Watson was at its high-light moment, and then sold it at a relatively higher price to the listed company after industry competitive pressures increased.

Before Yuxi Watson’s 13-valent vaccine was listed, equity stakes were repeatedly transferred in and out, diluting the equity of the listed company. Among them, Tianjin Lanwo and Huixiang Yuetai obtained more than 20% of the equity.

“Yuxi Watson” was established in 2005 and is a holding subsidiary of Watson Biologics. Its portfolio includes a major 13-valent pneumococcal conjugate vaccine product. Yuxi Watson became the second company in the world and the first in China to possess a 13-valent pneumococcal conjugate vaccine product. Because market demand for the 13-valent pneumococcal conjugate vaccine is large while supply is basically monopolized by Pfizer, its value is highly scarce. According to publicly available information, after the 13-valent pneumococcal conjugate vaccine product was approved for development in 2005, it took until 2018 for results to be “within reach.” The Phase III clinical trial for the 13-valent pneumococcal conjugate vaccine was unblinded on January 21, 2018, with results reaching the preset objectives. On February 1, it obtained the filing and production acceptance. On March 28, it was included in the 27th batch of proposed prioritized review candidates. On April 9, it was formally included in prioritized review, so prioritized resources would be allocated for review. In the same year, on September 17, the CDE website showed that the major technical review steps for the company’s上市 application for its 13-valent pneumococcal conjugate vaccine had been completed and it had entered the supplemental application phase.

A rather coincidental situation is that on March 16, 2018, Huixiang Yuetai invested 650 million yuan to obtain 11.30% equity in Yuxi Watson, at which time the corresponding valuation exceeded 6 billion yuan. On April 24, 2018, Junan Investment invested 600 million yuan to obtain 11.76% equity in Yuxi Watson. A year later, on April 26, 2019, Junan Investment transferred 10.44% of its Yuxi Watson shares to Tianjin Lanwo at a price of 649.6 million yuan.

In recent years, Yuxi Watson’s performance has also declined significantly. In 2023, its revenue exceeded 3.8 billion yuan, while in 2025 its revenue fell sharply to 2.36B yuan. Against this backdrop, why does the listed company spend cash to acquire minority equity again? Is this acquisition mutually prerequisite with the transfer of controlling rights?

It is worth noting that the listed company made two minority equity acquisitions around 2025, and their transaction pricing and valuations were different.

Watson Biologics planned to acquire, for 938 million yuan, the 4.9733% equity in Yuxi Watson held by Guolian Shuying Fund and Yingrong Fund, and the corresponding valuation level for Yuxi Watson was over 18 billion yuan. Meanwhile, when acquiring minority equity from Huixiang Yuetai and Tianjin Lanwo, Yuxi Watson was valued at over 14 billion yuan.

In summary, it can be seen that minority equity holders took shares at a successful low price as the target asset approached its high-light moment, and now that revenue continues to shrink, they sold to the listed company at a relatively higher price. The benefits for relevant shareholders involved in the above arrangements can be said to be substantial.

It is worth noting that one of the largest beneficiaries of the minority shareholders this time may be the mysterious person Ding Songliang. Huixiang Yuetai may be controlled by Haixiang (Tianjin) Investment Co., Ltd., where its executing partner is one of the partners. The ultimate beneficial controller of Haixiang (Tianjin) Investment Co., Ltd. is ultimately Ding Songliang. We traced Tianjin Lanwo through, and the final actual controller is also Ding Songliang.

It is worth noting that, according to data from Tianyancha, Ding Songliang’s close partner is Li Jiechun, and both serve as supervisors at relevant companies. A rather coincidental point is that the company chairman’s full name is Li Yunchun, which differs from Li Jiechun by only one character.

In addition, we note that the chairman appears behind this low-priced private placement. The issue price for this private placement was 9.63 yuan per share, not lower than 80% of the average trading price of the company’s stock over the 20 trading days prior to the pricing benchmark date for this issuance (the average trading price equals the total trading amount over the 20 trading days prior to the pricing benchmark date divided by the total trading volume over the 20 trading days prior to the pricing benchmark date).

And behind the private placement issuer Tengyun Xinwo, there are also minority shareholders with stakes: one is held by Xiaxiuzhengxinli (LP) at 12%, and the other by Xixing Management (LP) at 8%. It needs to be emphasized that the ultimate controller behind Xiaxiuzhengxinli is none other than the company chairman, Li Yunchun, whose shareholding ratio is as high as 99%.

As for why the listed company repurchases minority equity, the company said it will further increase its shareholding in Yuxi Watson, enhance control over Yuxi Watson, and improve decision-making efficiency for Yuxi Watson. It will also help further improve the company’s revenue and profit levels, thereby increasing operating performance. This equity acquisition was made after comprehensive consideration of Yuxi Watson’s actual situation, the specific transaction plan, and the company’s long-term development plans. It is a prudent decision that aligns with the real needs of Yuxi Watson’s business development and also with the long-term development interests of the company and Yuxi Watson.