Hansoh Pharmaceutical Group launched on Thursday Hong Kong’s second-largest initial public offering this year, looking for as much as HK$7.8 billion ($1 billion) as the Chinese generic drug manufacturer tries to draw investor attention away from a focus on biotech companies.
Hansoh’s Reg S/144A deal features 551.3 million new shares, equivalent to 9.7% of the company’s enlarged share capital, and a greenshoe option of 82.6 million shares. The shares are being offered at HK$13.06 to HK$14.26 each, according to a deal termsheet.
Around 93% of the shares will be offered to institutional investors, while the rest will be offered to the public, subject to clawback.
Any success of the IPO could give Hong Kong a confidence boost, as the city’s primary market has been relatively slow this year. The Hong Kong Stock Exchange has hosted only one billion-dollar plus IPO so far this year; that was for Shenwan Hongyuan Group.
The Jiangsu-based company, however, will have to brave a softening equity market as investors adopt a wait-and-see approach as the US-China trade spat intensifies. Hong Kong’s benchmark Hang Seng Index has retreated 9.5% since the start of the month.
With most of its revenue generated from generic drug sales, Hansoh will also need to work hard to catch investor attention at a time when the market is very much focused on biotech firms, which are often seen as a “new economy” industry with high growth potential.
The biotech frenzy began last year when Hong Kong’s exchange operator issued new rules to allow pre-revenue biotech companies to list their shares, to develop the city into a global biotech hub.
Since then, seven biotech companies have listed on the local stock market. Shares in four of them, including CanSino Biologics, Innovent Biologics and CStone Pharmaceuticals, are currently trading higher than their respective IPO price.
Unlike these young companies, Hansoh is well-established in the generic drugs market with fully commercialised products. It generates the bulk of its revenue from drugs in three core therapeutic segments, namely the central nervous system (CNS), oncology and anti-infective.
Last year, Hansoh reported Rmb1.9 billion ($275 million) in net profit on Rmb7.7 billion of revenue, which implies a solid net profit margin of 24.6%. Its bottom-line grew 19% from a year earlier.
Sales from six drugs in its core therapeutic segments, including the best-selling CMS capsule Oulanning, accounted for 67% of the firm’s total income last year.
Still, the company plans to strengthen research and development on innovative drugs to complement its existing generic drug portfolio.
It currently has six innovative drug candidates which have already entered phase II clinical trials, and four of them are on course to be launched by the end of next year, Hansoh said in its preliminary prospectus.
To complete its IPO, Hansoh will need $656 million of orders from public investors. It has already secured $344 million of commitment from nine cornerstone investors – a mix of pharmaceutical specialised funds, existing investors and one sovereign wealth fund.
The conerstone investors are GIC Private ($70 million), Boyu Capital ($60 million, pre-IPO investor), Ally Bridge ($40 millon), OrbiMed ($40 million), Prime Capital ($40 million), Hillhouse Capital ($29 million, pre-IPO investor), Cormorant Asset Management ($25 million), Shanghai Pharma ($20 million) and Vivo Capital ($20 million).
All of them have agreed to buy shares at HK$14.26, the top end of the indicative price range.
Pricing for the IPO is scheduled for June 4 and listing is set for June 14.
Morgan Stanley and Citigroup are joint sponsors of the IPO.