Genetron Health Signs Definitive Agreement for Going-Private Transaction, Paving the Way for Continued Innovation in Precision Oncology

*Article reposted from Xinhua News Agency

Recently, several U.S.-listed Chinese companies, including 58.com, United Family Healthcare, Qinhuai Data, and O2Micro, have completed or planned privatization and delisting. On October 12, Genetron Holdings (NASDAQ: GTH), a leading precision medicine company listed in the U.S., announced that it had officially signed a privatization merger agreement.

Pursuant to the agreement, the buyer consortium participating in this transaction includes CICC Kangrui Medical Fund, Wealth Strategy Holding Limited, Wuxi Guolian Group, CCB (Beijing) Investment Fund Management Co., Ltd., and Wuxi Huihong Yingkang Investment Partnership (Limited Partnership), among others.

According to the agreement, the acquisition price is $0.272 per ordinary share and $1.36 per American Depositary Share (“ADS,” with each ADS representing five ordinary shares). This transaction price represents a premium of approximately 15% over the closing price on the last trading day before Genetron Holdings Limited announced receipt of the privatization proposal, and a premium of 21% compared to the average closing price over the 30 trading days preceding such announcement. As of October 11, 2023, the last trading day prior to the announcement, the premium stood at 42%. The announcement stated that the privatization transaction is expected to be completed in the first quarter of 2024.

The “perfect storm” for Chinese concept stocks continues. The share price of JD.com, a well-known Chinese concept stock, has been hitting new lows. As of September 21, 2023, JD.com’s market capitalization had fallen by 70% from its peak.

Since 2019, U.S. regulators have first issued the Holding Foreign Companies Accountable Act (HFCAA), imposing stringent restrictions on Chinese concept stocks through three key areas: information disclosure reviews, securities trading, and listing thresholds. In June 2020, then-U.S. President Donald Trump signed the Presidential Memorandum on Protecting United States Investors from Significant Risks from Chinese Companies, aiming to mitigate the risks faced by American investors in Chinese concept stocks. Furthermore, the Accelerating HFCAA enacted in 2022 further tightened regulatory policies, exacerbating the already severe challenges confronting Chinese concept stocks.

For Chinese companies listed in the U.S., a significant shrinkage in market capitalization has become a widespread phenomenon. Professional investors indicate that this situation will not undergo any fundamental change in the medium to long term, which is also the reason behind the current trend of delisting and privatization among these Chinese stocks.

Industry insiders have revealed that one of the reasons a company chooses to go private and delist is due to constraints imposed by relevant policies and the severe volatility of the U.S. capital markets, which in turn affect the speed of corporate decision-making, the agility of strategic pivots, and the flexibility of resource allocation and restructuring.

Senior market observers noted that a U.S. stock listing is not the only option, and privatization is neither inherently good nor bad but rather a strategic choice for companies. The ability of Genetron Holdings Limited and its investors to finalize a privatization agreement amid the current unfavorable overall economic climate demonstrates their confidence in the future.

It is reported that the buyer consortium for this privatization boasts extensive investment experience and substantial financial strength. The group includes CICC Kangrui Healthcare Fund, one of China’s largest RMB-denominated healthcare funds; CCB (Beijing) Investment Fund, one of the country’s largest professional asset management funds; government industrial funds that prioritize biopharmaceuticals as a core sector; and high-net-worth individual investors committed to long-term investments in the life sciences sector. Notably, the consortium includes existing shareholders who have continuously invested in Genetron Holdings Limited, underscoring broad confidence in the long-term value of the sector in which Genetron operates.

Since the second half of this year, a series of measures to promote the development and growth of the private economy have been introduced intensively. On July 19, the release of the "Opinions of the Central Committee of the Communist Party of China and the State Council on Promoting the Development and Growth of the Private Economy" proposed a series of policy measures addressing the pain points and difficulties faced by private enterprises, bringing benefits and injecting confidence into the environment for the private economy.

The “Opinions” propose supporting the enhancement of scientific and technological innovation capabilities. The “Notice on Implementing Several Recent Measures to Promote the Development of the Private Economy,” jointly issued by the National Development and Reform Commission and other departments, states that private enterprises should be supported in participating in major scientific and technological breakthroughs and taking the lead in tackling key challenges in fields such as industrial software, cloud computing, artificial intelligence, the industrial internet, gene and cell therapy, and new energy storage. Gene and cell therapy has become an important area for China to cultivate new drivers and competitive advantages for future development.

As a leading cancer precision medicine company in China, Genetron Holdings Limited holds qualifications and honors such as National High-Tech Enterprise, National Postdoctoral Research Station, and Top 100 Beijing Private Enterprises for Technological Innovation. It was also named one of the annual “50 Smartest Companies” by MIT Technology Review, alongside Huawei, Tencent, and Xiaomi.

Genetron Holdings Limited participated in the “13th Five-Year Plan” Major National Science and Technology Projects led by the Ministry of Science and Technology, initiating data accumulation and product development in the fields of lung cancer and digestive system cancers. It became the only precision medicine enterprise included in the national major special projects for early screening of multiple cancer types, including liver cancer, lung cancer, and gastrointestinal cancers, under the Ministry of Science and Technology. Its precision diagnosis and treatment project for lung cancer was awarded the Second Prize of the National Science and Technology Progress Award.

Industry insiders stated that support for the private economy from governments at all levels in China is unprecedented, creating a more favorable business environment, and that privatization breakthroughs can create more development opportunities for companies in the future.

The healthcare industry is not only a vital component of the national economy but also a key element in advancing the Healthy China initiative. Accelerating the high-quality development of the healthcare industry holds significant importance for enhancing public well-being, realizing Chinese-style modernization, and jointly building a global community of health for all.

In the field of early cancer screening, there is substantial unmet demand and market potential in China and globally. The rapidly evolving new drug development sector also requires high-quality genomic technology providers. Genetron Holdings Limited has already established a technically moated platform and product pipeline in these application areas through significant upfront R&D investments.

Genetic testing is increasingly becoming an infrastructural technology in the life sciences sector. Solutions based on genetic testing are playing an ever more critical role, whether in addressing clinical needs such as medication matching, early screening and diagnosis, and recurrence monitoring, or in supporting new drug development through biomarker discovery, patient stratification, and efficacy assessment.

“Healthy China 2030” and other programmatic documents have repeatedly emphasized the state’s prioritization of public health. Genetron Holdings Limited operates in a sector that not only aligns with the national strategic goal of shifting cancer prevention and control upstream but also enhances the global standing of China’s scientific and technological innovation capabilities.

The biomedical industry is characterized by strong R&D intensity, necessitating sustained investment in technological innovation. Consequently, short-term losses should not be a primary concern; instead, greater emphasis should be placed on the value that continuous R&D spending and product innovation bring to the industry.

Currently, the precision medicine industry is a key sector prioritized for encouragement and development by the state. Genetron Holdings Limited has been continuously driving industry advancement, from technological innovation to the establishment of industry standards. It is foreseeable that Genetron holds vast potential for future growth.