SciClone Pharmaceuticals Completes $15.2 Billion Privatization, Exits HKEX for the Second Time

On July 5, SciClone Pharmaceuticals announced the completion of its privatization transaction, officially delisting from the Hong Kong Stock Exchange. The transaction was valued at approximately HK$11.8 billion (about RMB 11 billion), making it the largest completed privatization deal in the healthcare sector in the Hong Kong capital market over the past decade. Furthermore, this transaction also represents the largest healthcare M&A deal led by private equity firms in Greater China in the past three years.

On March 28, 2024, DFC Capital, the controlling shareholder of SciClone Pharmaceuticals, issued a privatization offer to the company, proposing to take it private at HK$18.80 per share. The privatization transaction received approval from over 99% of the votes cast at the extraordinary general meeting held on June 19, 2024.

Science Sun stated that, following the completion of the privatization transaction, it will continue to focus on business development and serve patients worldwide.

Li Zhenfu, Founding Partner of Topall Capital and Chairman of SciClone Pharmaceuticals, stated, “Since Topall Capital began investing in SciClone Pharmaceuticals in 2012, we have accompanied the company for 12 years. Over these many years, the company has achieved one milestone after another and successfully overcome numerous challenges. Although SciClone has attained certain achievements in the past, looking ahead, everything is just beginning. We look forward to ultimately realizing SciClone’s long-term value potential through this privatization transaction.”

Zhao Hong, President and Chief Executive Officer of Science Sun Pharmaceutical, stated, “Over the past many years, DeFu Capital has provided strong support to the company in all aspects, including strategic planning, product in-licensing, and talent and management team building, enabling us to achieve continuous breakthroughs in our business. The long-term partnership with DeFu Capital has been a key factor in our success. We look forward to building on our past achievements to make further progress, continuing to provide more and better medicines to the market and benefiting patients worldwide.”

SciClone Pharmaceuticals is a biopharmaceutical company focused on the treatment of oncology and severe infectious diseases. Its predecessor, SciClone US, was established in California, United States, in May 1990 by Thomas E. Moore and Nelson M. Schneider, with a focus on drug acquisition and development.

In 1992, SciClone US went public on the Nasdaq. Its growth strategy had been performing well; however, given that SciClone US’s core business was heavily reliant on the Chinese market, continuing to operate as an independent U.S.-listed company was not conducive to sustaining strong long-term growth. Therefore, after weighing the challenges and benefits of continued operations, SciClone US’s board of directors decided to sell the company to a Chinese consortium, accepting a premium acquisition offer.

In October 2017, SciClone US was acquired by a Chinese consortium for $605 million in a privatization transaction and subsequently delisted. Following the delisting, through a series of restructurings, the business of SciClone US was transferred to Sinocare Inc., which was listed on the Main Board of The Stock Exchange of Hong Kong Limited in March 2021.

Saisun Pharmaceutical’s core product is “Zadaxin,” a thymosin alpha-1 drug, which is also the company’s only proprietary marketed product. As an originator drug, Zadaxin has been approved for marketing in numerous countries worldwide, including China, South Korea, and Thailand. Its currently approved indications include the treatment of chronic hepatitis B and chronic hepatitis C, use as an immune enhancer, and adjunctive therapy for cancer. In addition, Saisun Pharmaceutical has eight products in its pipeline, has in-licensed two products from overseas, and provides distribution services for a total of six products on behalf of its multinational pharmaceutical partners.

Zadaxin is primarily used in the Chinese market for the treatment of chronic hepatitis B and as a vaccine enhancer for immunocompromised patients. Since the prevalence of chronic hepatitis B, the primary indication for Zadaxin, is low in the United States but high in China, Science Sun’s market focus is predominantly in China, where sales of Zadaxin account for the majority of the company’s total revenue.

In 2003, the drug was widely used to treat SARS patients during the SARS outbreak. In 2020, Zadaxin was included in the Diagnosis and Treatment Protocol for Novel Coronavirus Pneumonia issued by the National Health Commission and the National Administration of Traditional Chinese Medicine, leading to an increase in demand and usage. However, with the decline in demand for COVID-19 treatments, sales growth of Zadaxin may be affected.

According to previous financial data from SciClone Pharmaceuticals, the company’s revenues for 2017, 2018, 2019, and the nine months ended September 30, 2020, were RMB 1.213 billion, RMB 1.408 billion, RMB 1.708 billion, and RMB 1.584 billion, respectively, while its net profits were RMB 19.6 million, RMB 535 million, RMB 614 million, and RMB 689 million, respectively. During these periods, Zadaxin accounted for the majority of the company’s total revenue, representing approximately 91.7%, 83.0%, 79.0%, 80.2%, and 83.7%, respectively.

According to Science Sun’s 2023 annual report, the company’s revenue for the year ended December 31, 2023, reached RMB 3.156 billion, representing a 14.8% increase from 2022. Gross profit in 2023 rose to RMB 2.356 billion, up 13.8% year over year, while net profit amounted to RMB 1.122 billion, an increase of 31.2% compared with 2022. Excluding one-time fair value changes and impairment losses, core net profit was approximately RMB 1.237 billion, reflecting a growth of about 19.5% from the previous year’s core net profit. In addition, operating cash flow reached a milestone of RMB 1.404 billion, an increase of RMB 220 million.

Among them, the sales revenue of Zadaxin increased by 21.3% year-on-year from RMB 2.168 billion in 2022 to RMB 2.631 billion in 2023, accounting for 83.4% of the company's total revenue for the period.

As can be seen, since its listing on the Hong Kong Stock Exchange, Science Sun has achieved year-on-year growth in revenue and continuous expansion in operating profit. However, this performance has been built primarily on its core product, Zadaxin. Influenced by the current objective market environment, the company’s strong fundamentals have not been fully reflected in its stock valuation, while trading activity and liquidity have also been constrained. These factors constitute the primary rationale behind the controlling shareholders’ decision to pursue privatization.

In fact, the market has been sluggish in recent years due to structural changes in H-shares. Against this backdrop, a significant number of biotech companies have chosen privatization or delisting. This year alone, three pharmaceutical companies listed on the Hong Kong Stock Exchange—China Traditional Chinese Medicine Holdings, Henlius, and Science Sun—have opted for privatization and withdrawal from the HKEX. The primary reasons are all related to insufficient trading liquidity and poor stock price performance on the Hong Kong Stock Exchange. On February 21 and June 19, Sinopharm Group and Fosun Pharma respectively announced announcements to privatize China Traditional Chinese Medicine Holdings and Henlius, withdrawing them from the Hong Kong stock market.

In the current capital market environment, many companies feel that their stock prices fail to accurately reflect their actual asset values. Persistent low trading volumes and insufficient financing capabilities have made it difficult for these companies to leverage equity financing as a viable source of funding for business development, thereby constraining their growth to some extent. For such companies, the benefits of maintaining a public listing are limited, yet they must bear the associated costs. Furthermore, pressures from the public market and regulatory requirements may restrict their flexibility in strategic planning and investment.

For Science Sun, going private can provide a more flexible environment, enabling the company to make necessary business adjustments and restructuring in line with its long-term strategic goals.

Product and market strategies are also potential factors driving privatization. SciClone Pharmaceuticals currently relies heavily on a single product, Zadaxin, which has been on the market for 25 years. With the expiration of Zadaxin’s patent, 17 domestic pharmaceutical companies have recently initiated research and development of generic thymosin alpha-1. Jitai, a generic thymosin alpha-1 produced by Shuangcheng Pharmaceutical, passed the consistency evaluation in December 2020, while four other generic versions are still awaiting such evaluation. The emergence of additional generics and their inclusion in volume-based procurement programs would have a significant impact on SciClone Pharmaceuticals.

Against the backdrop of the national implementation of volume-based centralized drug procurement and medical insurance cost containment, Zadaxin faces the risk of price reductions in the future. In response to challenges from generic drugs and changes in medical insurance policies, privatization can provide the company with greater operational flexibility to adjust its product and market strategies.

Following privatization, Science Sun Pharmaceutical may relist or undertake other capital operations under more favorable market conditions in the future, such as returning to the A-share market, to secure a more advantageous financing environment.

According to the official announcement by Double Frontier Capital, this transaction aims to create greater flexibility for SciClone Pharmaceuticals through privatization, thereby driving its long-term future development. Upon completion of the privatization transaction, SciClone Pharmaceuticals will remain true to its original mission, striving to achieve new breakthroughs on the foundation of its existing business and completing the transformation from “good to great.” Double Frontier Capital will continue to provide strong support as always, continuously empowering SciClone in multiple areas, including optimizing its drug pipeline portfolio, expanding product application fields, and upgrading its R&D and business development capabilities.