Pharmaron Sells 10.21% Stake in Proteologix to Johnson & Johnson for $102 Million

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Recently, Pharmaron announced the sale of its equity in an overseas joint venture company. The 10.21% stake in Proteologix held by its wholly-owned subsidiary, Pharmaron Hong Kong Investment, will be sold to Johnson & Johnson through a merger and acquisition by Proteologix for approximately US$102 million (equivalent to about RMB 738 million).

Data shows that Proteologix was founded in 2021, focusing on precision immunology. It is committed to developing a new generation of multispecific antibody therapies for autoimmune and inflammatory diseases. Proteologix's current main pipeline portfolio includes PX128 and PX130. Among them: PX128 is a bispecific antibody targeting IL-13 + TSLP, aimed at moderate to severe atopic dermatitis (AD) and moderate to severe asthma, and is about to enter Phase I clinical trials; PX130 is a bispecific antibody targeting IL-13 + IL-22, also for moderate to severe atopic dermatitis, currently in the preclinical development stage.

PX128 can inhibit IL-13-mediated Th2 skin inflammation, an important pathogenic pathway in atopic dermatitis (AD) and asthma, and PX128 can also suppress TSLP (a tissue inflammatory mediator in AD and asthma). Similar to PX128, PX130 can also inhibit IL-13-mediated Th2 skin inflammation and additionally restore the skin barrier by inhibiting IL-22, preventing inflammation caused by environmental stimuli (such as allergens). By targeting two distinct pathways, Proteologix designs therapies addressing different mechanisms. Currently, both drugs are formulated for lower dosing frequency to enhance patient treatment convenience.

Regarding this transaction, Pharmaron stated that the sale of equity will help increase cash inflow, replenish the company’s cash flow, promote the construction of its R&D service capabilities, and further solidify its end-to-end and integrated processes.PharmaceuticalsR&D service platform, thereby better meeting customer needs. Proteologix is a company in which the company holds a stake, and the company has not included it in the consolidated financial statements. After the completion of this transaction, the company will no longer hold equity in Proteologix. According to preliminary estimates by the company's finance department, this transaction is expected to have a significant positive impact on the company’s net profit for the fiscal year 2024.

Johnson & Johnson's acquisition of Proteologix mainly targets an innovative biopharmaceutical pipeline for the treatment of autoimmune diseases. This acquisition will further strengthen Johnson & Johnson's presence in the autoimmune field. Additionally, within 60 days after the effective date of the merger and acquisition, Johnson & Johnson is required to pay an initial payment of approximately $86.821 million to Pharmaron through a paying agent. Within 60 days after Johnson & Johnson or its affiliates achieve the R&D project milestones specified in the agreement, they must pay Pharmaron a milestone payment of approximately $15.321 million through the paying agent.

Pharmaron's Perspective: This Equity Sale May Alleviate Its Performance Pressure in 2024 to Some Extent. According to the company’s 2023 annual report, it achieved revenue of 11.538 billion yuan, a year-on-year increase of 12.39%, and net profit attributable to shareholders of 1.601 billion yuan, a year-on-year increase of 16.48%. According to the Q1 2024 earnings announcement, the company's revenue for the quarter was approximately 2.671 billion yuan, a year-on-year decrease of 1.95%; net profit attributable to shareholders of listed companies was about 231 million yuan, a year-on-year decrease of 33.8%. Pharmaron stated that due to the temporary cooling of global pharmaceuticals and healthcare investment and financing, as well as the temporary slowdown in customer demand growth, the company’s revenue experienced a phased decline during the reporting period.

It is reported that the equity interest in Proteologix held by Pharmaron Hong Kong Investment mainly came from subscriptions by Pharmaron in September 2021 and November 2022, for which it paid $3 million and $4 million respectively from its own funds. This means that Pharmaron's investment of $7 million has appreciated more than 13 times over a period of two to three years, which will positively impact its net profit for the fiscal year 2024.

Moreover, regarding whether this equity sale is related to the recently much-discussed U.S. "Biosecure Act" proposal, according to the 21st Century Business Herald, Pharmaron stated that the sale of its equity in overseas associate companies is not related to the "Biosecure Act," and is not intended to reduce American concerns. "At present, the 'Biosecure Act' incident has not impacted our operations in the U.S. market, as it has just passed the voting stage in the U.S. House Oversight and Accountability Committee. We still need to wait for the final confirmed version and implementation details. Currently, we are signing contracts with U.S. clients as usual, and related businesses are proceeding normally."

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