Strong IPO demand for 3SBio, but shares fall on debut

The decline comes after the Chinese bio-pharmaceutical firm prices its IPO above the range. Fellow Nasdaq newcomer JA Solar trades up.
Chinaûbased 3SBio IncÆs initial public offering in the US has met with overwhelming investor support, allowing the price to be fixed 14.3% above the top end of the indicated price range.

The bio-pharmaceutical company, which sells its products across China as well as to selected developing countries, raised $123.2 million ahead of its Nasdaq trading debut yesterday, tapping into the strong demand for healthcare investments by US funds in particular.

UBS was sole bookrunner for the offering, while CIBC World Markets and Pacific Growth Equities were also part of the underwriting syndicate.

3SBio focuses on genetically-engineered, protein-based products targeted at the areas of nephrology, oncology, supportive cancer care, inflammation and infectious diseases. It has a leading market share in China for EPO û a hormone that stimulates the production of red blood cells to reduce the need for blood transfusions - through its flagship product EPIAO.

The offer comprised 7.7 million ADS, or 35.8% of the company, which were initially marketed within a price range of $12 to $14. The price eventually fixed at $16 after sources said the order book was more than 20 times covered.

It is possible for a company to price a US equity offering up to 20% above the indicated range without seeking additional approval from the Securities and Exchange Commission and in the past five months this is an option that have been used by several Chinese companies bound for Nasdaq or NYSE, including New Oriental Education, Mindray Medical International and HomeInns & Hotels.

Contrary to those three, however, 3Sbio fell on its first day of trading. The stock did open 9.4% higher at $17.50, but after hitting a high of $18.10 it started edging downward. With 1 hour left of trading it was quoted at $15.04 û 6% below issue price. By that time it had bounced off a low of $14.64 however.

The Nasdaq composite was up 0.6% at the same time, although the Dow Jones Industrial Average was off 0.1% at 12,649 points after pushing through 12,700 for the first time earlier in the session on the back of strong earnings from Cisco Systems.

It was unclear what prompted the selling of 3SBio, but the final IPO price valued the company at about 35 times its estimated 2007 earnings, which was well above that of US pharmaceutical giant Amgen. However, one source familiar with the offering says investors felt the multiple was justified given that 3SBio is a high-growth company.

Amgen, which makes similar products, trades at about 16 times forward earnings, but with a market cap of $81 billion, the opportunities for strong growth are obviously much more limited. By comparison, 3Sbio had a market cap of $2.4 billion at the time of listing.

ôThere arenÆt that many listed companies within the healthcare sector with exposure to China so this is a rare opportunity to invest a company that is both high growth and profitable,ö the source says.

The offer was said to have attracted more than 200 investors, with 65% of the demand coming from the US, 20% from Europe and the remaining 15% from Asia. The deal includes a 15% greenshoe of 1.155 billion additional shares, which is almost certain to be exercised given the strong performance in the secondary market. If so, it will boost total proceeds to $142 million.

The company, which started operations in 1993 under the name of Shenyang Sunshine, posted a net profit of Rmb23.4 million ($2.96 million) in the first nine months of 2006 on net revenues of Rmb92.6 million ($11.7 million). This compared to a net profit of Rmb16.1 million and revenue of Rmb102 million in the full year 2005.

EPIAO accounted for 78.7% of total revenues in the nine months to September, while 11% of the top-line income was generated by TPIAO, a protein-based therapeutic product which is used to treat a deficiency of cells meant to help the blood to coagulate and stop bleeding by repairing the walls of blood vessels.

3SbioÆs offering was 93.3% primary shares and according to the listing document the money raised will be used to fund clinical trials, research and development and to expand and enhance the companyÆs manufacturing facilities and its sales and marketing networks. The overallotment option will be made up of two thirds secondary shares and one third primary shares. Each ADS equals seven ordinary shares.

The healthcare firm was one of two China-based companies to debut on Nasdaq yesterday. It was accompanied by JA Solar Holdings, a solar cell manufacturer which prior to the listing raised $225 million from an IPO led by CIBC World Markets and Piper Jaffray.

JA Solar also priced its offering above the top of the indicated $12.50 to $14.50 range at $15, but had a much stronger debut than 3SBio. With an hour left to go, the stock was still trading 19.4% above its IPO price at 17.90 after opening 27% up at $19.06. During the session it had fluctuated in a range between $16.50 and $19.50.
¬ Haymarket Media Limited. All rights reserved.

Article limit is reached.

Hello! You have used up all of your free articles on FinanceAsia.

To obtain unlimited access to our award-winning exclusive news and analysis, we offer subscription packages, including single user, team subscription (2-5 users), or office-wide licences. To help you and your colleagues access our proprietary content, please contact us at [email protected], or +(852) 2122 5222