Recently, Yantai Lannacheng Biotechnology Co., Ltd. (referred to as "Lannacheng"), a subsidiary of Dongcheng Pharmaceutical, submitted its IPO prospectus to the Hong Kong Stock Exchange, aiming for a listing on the main board. China International Capital Corporation (CICC) serves as the exclusive sponsor.

Established in 2021, Lannacheng focuses on the R&D and production of novel targeted radiopharmaceuticals for diagnosis and therapy. Prior to its IPO, the company attracted investments from prominent institutions such as Shandong New Momentum, Greenwoods Capital, Shenzhen Capital Group, Qianhai Ark, and the Yantai State-Owned Assets Supervision and Administration Commission. After completing its Series C financing in July 2025, Lannacheng's valuation reached approximately RMB 3.29 billion. However, behind its impressive funding history lies a company that has incurred nearly RMB 300 million in losses over two and a half years, has no commercialized products, and heavily relies on its parent company while facing pressure from a valuation adjustment mechanism (VAM).

**40% of Procurement Linked to Parent Company, Core Products Mostly Licensed** In 2021, Dongcheng Pharmaceutical founded Lannacheng as a key platform for innovative drug development. The company specializes in the discovery, development, and commercialization of radiopharmaceuticals for oncology diagnosis and treatment, commonly known as "nuclear medicine." Radiopharmaceuticals leverage the unique properties of isotopes, offering significant potential in non-invasive diagnostic imaging and therapeutic applications.

As of September 22, 2025, Lannacheng has built a pipeline of 13 drug candidates, including seven diagnostic radiopharmaceuticals and six therapeutic radiopharmaceuticals. Among its core products, 18F-LNC1001 (a PSMA-targeted PET diagnostic drug) is in Phase III clinical trials, with a New Drug Application (NDA) expected in 2026. Meanwhile, 18F-LNC1005 (a FAP-targeted pan-cancer diagnostic drug) has entered Phase II/III combined trials, and 177Lu-LNC1011 (a prostate cancer therapeutic radiopharmaceutical) is in Phase II trials.

While the nuclear medicine sector holds promising prospects—evidenced by the success of blockbusters like Novartis’ Pluvicto—commercialization challenges remain significant. Due to the extremely short shelf life of radiopharmaceuticals (typically 8 to 72 hours), production facilities must be located near end-users or equipped with radiopharmacies, demanding robust production and logistics capabilities. Lannacheng plans to construct a 4,900-square-meter GMP production base in Yantai, slated for operation in 2026, to support future commercialization. However, with only RMB 171 million in cash and equivalents, the company lacks sufficient funds for large-scale infrastructure development.

Notably, Dongcheng Pharmaceutical also controls other nuclear medicine subsidiaries, such as Dongcheng Andike, covering the supply of radioactive raw materials, drug preparation, isotope packaging, and downstream radiopharmacy networks. While these subsidiaries focus on raw material supply and production, Lannacheng is primarily dedicated to drug R&D. If Lannacheng advances to commercialization, it could leverage the group’s existing distribution channels.

However, reliance on the parent company raises concerns about independence. According to the prospectus, Dongcheng Pharmaceutical has consistently been Lannacheng’s largest supplier, accounting for 43.1%, 35.9%, and 39.5% of total procurement in 2023, 2024, and the first half of 2025, respectively.

Another issue is that most of Lannacheng’s core products are licensed rather than internally developed. For instance, in April 2022, the company acquired global exclusive rights to the preclinical candidate LNC1001 from Nanjing Jiangyuan Andike (a Dongcheng subsidiary), which originated from Peking University Cancer Hospital. Similarly, another candidate, 18F-LNC1016, was licensed from Xinrui Pharmaceutical for RMB 63 million.

**Spin-Off IPO Under VAM Pressure: Parent Company’s Weak Earnings Struggle to Support "Cash-Burning Giant"** Since its inception, Lannacheng has raised over RMB 1.03 billion through multiple funding rounds, including a RMB 40 million Series A in 2022, RMB 200 million Series B in 2023, RMB 300 million Series B+ in 2024, and RMB 150 million Series C in 2025, followed by a RMB 340 million Series C+ in July 2025.

A critical concern is the VAM tied to its Series C financing, requiring Lannacheng to complete a qualified IPO (with a market cap of at least HKD 6 billion on a major exchange like HKEX) by June 30, 2026. Failure would trigger Dongcheng’s obligation to repurchase shares. The VAM also stipulates milestones such as clinical progress and IND approvals.

By June 2025, Dongcheng had recognized this obligation as a financial liability, with the repurchase cost rising from RMB 885 million to RMB 1.112 billion. If the IPO fails, Dongcheng would face a cash crunch, as its reserves are insufficient to cover the repurchase.

Dongcheng’s decision to spin off Lannacheng reflects its own financial strain, as the nuclear medicine segment needs to achieve self-sufficiency. Lannacheng’s R&D expenses totaled RMB 109 million in 2023, RMB 115 million in 2024, and RMB 55.5 million in H1 2025, while revenues—mainly from interest income, government grants, and investment gains—were minimal (RMB 1.027 million in 2023, RMB 11.279 million in 2024, and RMB 813,000 in H1 2025). Net losses widened to RMB 112 million, RMB 119 million, and RMB 65.045 million during the same periods, totaling nearly RMB 300 million over 2.5 years.

Operating cash flow remained deeply negative (RMB -115 million, -132 million, and -68.279 million), and investment cash outflow exceeded RMB 284 million cumulatively, highlighting heavy reliance on financing and parental support.

Dongcheng itself faces declining earnings, sluggish traditional businesses, and high goodwill (RMB 2.499 billion, or 55.7% of net assets as of June 2025). Its 2024 revenue fell 12.42% YoY to RMB 2.869 billion, with net profit down 12.35% to RMB 184 million. H1 2025 revenue dropped 2.6% YoY to RMB 1.34 billion, while net profit slid 20.7% to RMB 88.6525 million.

The spin-off aims to ease Dongcheng’s financial burden while unlocking Lannacheng’s valuation potential. Notably, after the spin-off announcement, a relative of a Lannacheng executive sold 140,700 Dongcheng shares. The company clarified that the trades occurred before the insider information was known.