Shanghai-headquartered biopharmaceutical firm Wuxi PharmaTech has taken the first step to relist its biologics unit in Hong Kong after filing a listing application with the city’s stock exchange this week.
The plan to list Wuxi Biologics emerged little more than a year after China’s largest contract research organisation delisted from the New York Stock Exchange in December 2015, following a $3.3 billion buyout by a consortium that included company founder Ge Li.
Wuxi BioLogics' listing could be worth as much as $1.5 billion, according to several sources. But given the long lead time before the deal launches, that number could change.
The company’s initial public offering in Hong Kong and its subsequent secondary market performance will be closely watched by market participants since it will be only the second company to relist in Hong Kong after going private in the US. The deal is not a pure relisting since it is a spin-off of the parent company that was itself previously listed, but bankers are certainly describing it as such.
Hong Kong listing rules require companies to launch an initial public offering six months after filing their listing application. If all goes well, Wuxi Biologics will be able to list by early July at the latest.
That is a quick turn-around. 3SBio, the first Chinese company to delist from the US and relist in Hong Kong, was taken private in May 2013 and relisted in Hong Kong in June 2015.
The deal could serve as a reference to other Chinese medical and pharmaceutical firms that have already delisted in the US, such as Mindray Medical, which may be weighing the option of relisting on an Asian exchange.
Wuxi Biologics and 3Sbio’s choice of Hong Kong as their relisting venue suggests the city remains the top pick for medical and pharmaceutical companies. This is largely because the Hong Kong stock exchange hosts most of China’s biggest pharmaceutical companies, and in turn attracts attention from healthcare specialist funds globally.
By comparison, media and technology companies such as Focus Media and China Mobile Games & Entertainment have chosen to relist on the mainland.
Favourable sentiment
Wuxi Biologics will hope to ride on the strong appeal for biologic drug manufacturers following the highly successful Korea listing of Samsung Biologics late last year.
Investors piled into the Korean drug maker’s share sale in anticipation that demand for biologic drugs will grow exponentially in the coming years. Biologic drugs, which are used to treat complex and chronic diseases, are more difficult to manufacture than chemical drugs. As a result, they are more costly in terms of both manufacturing and selling prices.
Apart from Wuxi Biologics, Korea’s Celltrion Healthcare is another biologic drug maker that is planning to go public this year.
Wuxi Biologics currently operates three production facilities in China with total manufacturing capacity of 5,000 litres. That is much smaller than its Korean counterparts Samsung Biologics and Celltrion Healthcare, which can produce 180,000 and 140,000 litres of drug respectively per year.
But Wuxi Biologics is aggressively ramping up its production capacities to meet future demand. According to the company’s preliminary prospectus, it is expanding its production line in Wuxi, and plans to add 30,000 litres of capacity upon completion by the end of this year.
Unlike Samsung Biologics, which is still in the development phase, Wuxi Biologics has already started commercial production and reported net earnings of Rmb71 million ($10 million) in 2015. The figure had more than doubled to $25 million in the first nine months of last year.
Wuxi Biologics’ customer base is also more diversified, with both international drug developers including AstraZeneca and Johnson & Johnson, as well as domestic players such as Harbin Gloria Pharmaceuticals and Zhejiang Medicine.
The proceeds from the IPO could help Wuxi PharmaTech pay off some of its debt raised for the delisting plan. The company took a $1.1 billion syndicated loan from Shanghai Pudong Development Bank and Ping An Bank to settle part of the delisting payment.
Wuxi Biologics has mandated Bank of America Merrill Lynch, Morgan Stanley and China Merchants Securities as the sponsors of the Hong Kong IPO.
