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The Week in Review: Large IPO Announced
publication date: Oct 20, 2007
author/source: Richard Daverman, PhD
The news from the global M&A world is that the third quarter of 2007 was down considerably – it dropped 42% to $1 trillion this year from $1.7 trillion in 2006 (the numbers are worldwide for all kinds of M&A, not just for China biotech). The blowup of the sub-prime mortgage market served as a convenient fall guy to take the blame for the worldwide decline in M&A. It’s been blamed for a lot of other problems, so why not this too?
Against that negative backdrop, China Nepstar (NYSE: NPD) announced its IPO (see story). The initial filing did not include the expected size of the offering, but it will be substantial – as much as $250 million. Because China Nepstar is a drug store chain, its IPO will be only tangentially related to the fortunes of China biopharma. It is, after all, located in China and involved in medical care delivery, but it does not make or discover drugs. As a retailer, its margins are much lower than the biopharmas, though it is a solid company with substantial revenues.
Its IPO will give an updated read on how investors feel about companies in China. If the large decline in stock prices on Friday means that investors are becoming increasingly skeptical – the phase is usually “keeping their wallets in their pockets” – then the reception given Nepstar’s IPO will become even more significant.
Along those same lines, WuXi PharmaTech (WX), the standout IPO of one of China’s premier CROs, hit a new high on Thursday, closing at $37.02. The IPO was priced at $14, so its record high represented an increase of 164% for initial investors. But during Friday’s decline, the stock took an 8% haircut, dropping $2.99 to $34.03. No news would account for the slide. Perhaps in the general fear of Friday’s drop, investors wanted to nail down profits in some of their biggest winners.
The only other IPOed company making major news in China lifescience last week was China Medical (NSDQ: CMED). The company announced that its high intensity focused ultrasound (HIFU) tumor therapy system was approved for use in Korea (see story). The HIFU machines are already in use in China and they are undergoing trials in the US for cancer. The US has already approved them to treat uterine fibroids. Like WuXi PharmaTech and China Nepstar, China Medical is a large company. It has a market cap of over $1 billion.
The majority of China lifescience companies that are listed in the US are much smaller enterprises, and by and large, they became public companies through the backdoor mechanism of a reverse merger. The US listing gives them access to capital or a stock to use as currency to acquire other companies, a method of going public that will not be as affected by a global slowdown in M&As and IPOs.
Beijing Med-Pharm Corporation (NSDQ: BJGP) is a good example of a company that used its status of a public company (through a reverse merger) to advantage. This week, Beijing Med-Pharm announced a new deal to distribute Ferriprox®, an Apotex treatment for iron overload in the bloodstream (see story). We used the latest deal to review all of the company’s revenue-boosting deals announced this year.
China Biopharma (OTCBB: CBPC), previously a company that distributed vaccines, announced that its partner, Soonfast Pharmaceutical completed a trial production run of its topical antiviral (see story). China Biopharma will seek US approval of the product, which treats herpes simplex virus (HSV) and human papillomavirus (HPV).
China Pharma (OTCBB: CPHI), the third reverse-merger China biopharma in our list, continued to climb higher. The company, which produces a variety of drugs in China, hit a high of about $3.83 before falling back to $3.34 at week’s end (see story). About a month ago, China Pharma was trading at the $1.50 level. The company bought its China operating division, Hainan Helpson Medical & Biotechnology Co., for a total of $11.7 million (including debt), and then recapitalized.
The final reverse-merger biopharma from China that made news last week was Renhuang Pharmaceuticals (OTCBB: RHGP). The company did not sign a deal or have positive numbers to report, but it redesigned its website in an attempt to get its story out to investors (see story). Its stock price has been in decline, so it decided some transparency was in order.