BioCentury – Dec 8, 2018

Despite global trade headwinds and a choppy market for biopharma stocks in China, WuXi AppTec Co. Ltd. (Shanghai:603259; HKSE:2359) successfully price its Hong Kong listing within its proposed range Friday, raising HK$7.9 billion ($1 billion) based on its proposed number of shares. The listing is the third for a unit of New WuXi Life Science Ltd. since a 2016 deal that took the parent company private.

WuXi AppTec priced the offering at HK$68, middle point of its proposed range of HK$64.10-HK$71.50. The company is to announce the actual number of shares sold on Dec. 12.

The biopharma R&D services and manufacturing company had proposed to sell 116.5 million shares in Hong Kong. Based on a resulting total of 1.2 billion shares outstanding, including those listed in Shanghai, the Hong Kong offering price would value the company at HK$79.2 billion ($10.1 billion).

WuXi AppTec’s shares rose RMB0.11 to RMB80.10 in Shanghai on Friday, giving it a valuation on that exchange of about RMB84 billion ($12.2 billion).

A predecessor of the WuXi parent company traded on the New York Stock Exchange until December 2015, when an investor syndicate led by Chairman and CEO Ge Li and Ally Bridge Group took the company private in a $3.3 billion deal. In addition to WuXi AppTec’s dual listings, WuXi Biologics Inc. (HKSE:2269) also has gone public in China.

Last year, Ally Bridge’s Frank Yu told BioCentury an investor base in China would likely be more receptive than Wall Street to the parent company’s long-term growth plans, which involved investments in new facilities and R&D.

With WuXi AppTec’s Hong Kong offering, the subsidiaries will have raised more than $1.8 billion combined from the public markets. In its Shanghai listing in May, WuXi AppTec raised RMB2.3 billion ($354 million), while WuXi Biologics’ 2017 Hong Kong IPO raised HK$4 billion ($510 million). WuXi Biologics’ market cap has roughly tripled to HK$72.3 billion ($9.2 billion) since the time of its listing.

A third subsidiary, WuXi NextCode Genomics Inc., closed a $240 million series B round last year followed last month by a $200 million series C round.

WuXi AppTec’s Hong Kong listing comes during a difficult week for Chinese biopharma stocks. Reports suggested that pricing discounts on generic drugs under China’s centralized procurement program were greater than expected, while tensions rose between the U.S. and China related to trade and the arrest of a technology executive.

The company’s prospectus outlines heightened risks posed by recent trade tensions, as well as the expanded powers of the Committee on Foreign Investment (CFIUS) in the U.S. to review foreign investments in emerging technologies. WuXi AppTec acknowledged in the document that demand for its services could be significantly influenced by the U.S. government’s attitude toward China service providers in the biopharma industry. About 57% of its revenue comes from U.S. customers, and another 18% from European customers. It reported RMB6.9 billion ($1 billion) in total 2018 revenues through Sept. 30.

According to a Dec. 3 regulatory filing, WuXi AppTec plans to use about 37% of the proceeds from the offering to expand global capacity and capabilities, including developing clinical trial sites in China; to build a facility to manufacture cell and gene therapy components in Wuxi; and to establish a Hong Kong-based R&D innovation center.

It is earmarking about 27% of the proceeds to acquire CRO and CMO/CDMO companies and about 4% to invest and incubate in healthcare companies with “innovative business models,” including biotechs and healthcare IT and diagnostic companies.

Aftermarket performances on the Hong Kong exchange’s new biotech chapter have been mixed thus far. The first biotech to go public, Ascletis Pharma Inc. (HKSE:1672), has lost 55% of its value since listing, while Hua Medicine Ltd. (HKSE:2552) has been trading near its IPO price and Innovent Biologics Inc. (HKSE:1801) shares are up 56%.

Trading of WuXi AppTec shares in Hong Kong is to begin Dec. 13.