Hengrui Medicine's Employee Stock Ownership Plan Expires, Hundreds May Miss Out on Millions in Profit

On November 6, 2024, A-share listed company Hengrui Pharmaceutical announced that the second lock-up period of the company's employee stock ownership plan implemented in 2022 will expire on November 7, 2024.

After the expiration of the lock-up period, the Management Committee will appropriately handle the rights and interests after comprehensive consideration based on multiple factors such as relevant provisions of the employee stock ownership plan and market conditions.

The move heralds the opportunity for hundreds of Hengrui's core employees to gain a substantial profit.

The employee stock ownership plan was established in November 2022, and the shares involved were derived from the company's special securities account for repurchase, totaling 12 million shares; The initial transfer price is RMB4.97 per share.

As of November 6, 2024, the closing price of Hengrui Pharmaceutical shares has reached 48.75 yuan per share, an increase of nearly ten times compared to the initial transfer price.

However, the expiration of the employee stock ownership plan does not automatically equate to the immediate benefit of the shares, the key is whether the lifting conditions linked to performance appraisal are met.

The lifting conditions at the company level are related to performance assessment indicators, including innovative drug sales revenue, the number of new molecular entity IND approvals, the number of innovative drug applications and the number of NDA applications accepted (including new indications), and the unlocking ratio of 100%, 90% and 0% is set according to the completion of indicators.

According to the announcement of Hengrui Pharmaceutical, the conditions for lifting the ban at the company level have been met.

Specifically, the cumulative innovative drug revenue including tax from 2022 to 2023 exceeded 19 billion yuan, the number of new molecular entity IND approvals exceeded 21, and the number of innovative drug applications (including new indications) accepted exceeded 13, and the above performance met 100% unlock conditions.

In addition to company-level performance indicators, individual employee performance indicators are also linked to the lifting conditions.

The performance indicators of individual employees are determined according to their positions, and the results of individual performance appraisal are based on the performance appraisal documents signed between the company and employees, and are finally determined by the management committee.

For employees who do not meet the individual performance assessment, the Management Committee has the right to recover the shares that have not been unlocked and transfer them to other qualified transferees.

Therefore, although the ESOP has expired and company-level unlock conditions have been met, employees who fail to complete individual performance reviews will not be able to enjoy the corresponding benefits.

According to the previous announcement, the number of participants in this shareholding plan is not more than 1,158, while the number of eligible holders in 2024 is 932.

This means that about 200 more people failed to meet the unlock conditions, which may include employees who did not complete their personal performance reviews, as well as some who have left the company.

So how much will the 932 eligible employees share in the benefits?

According to the lifting information, the number of stock interests is 2,763,200 shares, accounting for 0.04% of the total share capital of the company, according to the latest closing price calculation, the corresponding amount is about 135 million yuan, and the average person can get about 144,500 yuan.

Considering that this is a three-year ESOP, the total income for the employees over the three years is about 400,000 to 500,000 yuan, which is undoubtedly a pretty generous benefit.

In addition, Hengrui Pharmaceutical has established three employee stock ownership plans, named after the year of establishment, namely 2022, 2023 and 2024 employee stock ownership plans.

At present, the 2023 employee stock ownership plan has also entered the duration, and its share price cost is 23.85 yuan per share, although it has improved compared with the 2022 stock ownership plan, there is still a discount of nearly 50% compared with the secondary market.