Virtual investor relations

How to win at an IPO in the middle of a global meltdown

As more choose to communicate online rather than conduct face-to-face meetings amid the COVID-19 pandemic, InnoCare Pharma’s successful virtual IPO shows that investors can get the message and many of them are very willing to pay.

Amid weeks of market turmoil and devastating stock market losses, choosing to list your company in the eye of the storm takes some courage.

The top brass at InnoCare Pharma, the Chinese clinical stage biopharmaceutical firm focused on cancer drug discovery, apparently unphased at the global economic unraveling caused by the COVID-19 outbreak, last week raised nearly $300 million. Oversubscribed by 300 times, the share price jumped 10% higher on the first day of trading last week when the Hong Kong bourse fell 5%.

While the company remains unprofitable, reporting a loss of Rmb650 million during the first nine months in 2019, according to the prospectus, InnoCare’s $1.7 billion market cap is almost twice the $880 million valuation priced during the previous fund-raising round.

What is equally remarkable about this IPO is the mode in which it was carried out: virtually.

InnoCare chose not to immediately list following its pre-deal investor education in January 2020, as many bankers and fund managers found themselves working from home.  But with audited financial reports and legal papers already filed, InnoCare’s management still went ahead, citing it was better “get the IPO behind us so we can focus on the scientific projects,” according co-founder Jasmine Cui Jisong speaking to The South China Morning Post.

No touching!

Amid ongoing social distancing, the company’s decision to cancel meetings and convert the investor presentation into digital forms – the first ever example in Hong Kong – were well received by investors. As more understand the necessity given the circumstance, there is a generally “acceptance for video conference / conference calls” according a banker involved in the deal speaking to FinanceAsia.

InnoCare follows the Hubei based, high-end snack store Bestore, which virtually listed on the Shanghai Stock Exchange in Feb 2020, raising $69 million. China Bright Culture Group, which listed in Hong Kong in March 2020, raised $116 million, after conducting a virtual road shows with potential investors.

Online communication platforms are not new and often used as a cost-effective alternative. With more staying at home, many are becoming increasingly comfortable with Zoom, Skype and even FaceTime to speak to coworker and clients.

But even with the contingency plans to allow meetings to go head, a full transition to virtual IPO is unlikely to be a permanent fixture in the equity capital markets calendar, particularly in Asia where nothing can replace a face to face interaction and the obligatory sharing of business cards. However, it seems very possible that more deals could - perhaps should - contain a virtual component where required.

Lock yourself in

InnoCare’s success is also down to the share’s availability, as half the book went to cornerstones investors with a six-month lock period. Many funds were already familiar with the management, while others are increasing their capital exposure to the healthcare stocks.

While some of the response is from short-term speculation, according to a Hong Kong based investment analysts, most leads are already in clinical trials. “With mature drug development mechanisms, the success rate is quite high,” said Pui Man Hoi, a lecturer at the university’s Institute of Chinese Medical Sciences.

The Hong Kong Exchange introduced new listing parameters for pre-revenue and pre-profit biotech companies in 2018, to allow earlier capital market access. Hangzhou-based Venus Medtech, a Chinese producer of cardiovascular devices, listed in December 2019, was the first to take advantage of the rule change.

Morgan Stanley, Goldman Sachs, UBS, China Merchants Securities, CMB International Capital and SPDB International Capital were joint lead managers on the deal.

¬ Haymarket Media Limited. All rights reserved.
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