Pharmaron Completes A+H Listing with HKEX Debut, Less Than a Year After A-Share IPO

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VCBeat has learned that on November 28, 2019, Pharmaron was listed on the Hong Kong Stock Exchange, less than a year after its listing on China’s A-share market. Pharmaron thus became the second CRO company, following WuXi AppTec, to successfully achieve dual listings on both the A-share and H-share markets.

For its listing on the Hong Kong Stock Exchange, Pharmaron issued a total of 116.5 million shares, which were oversubscribed by more than 113 times. The share price was set at HK$39.50, the upper end of its pricing range, raising approximately HK$4.34 billion.

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Pharmaron opened at HK$43.45 today, surging 10%. As of 10:40 a.m., its Hong Kong-listed shares were trading at HK$43.10.

Pharmaron A-Share Daily K-Line Chart

Since its A-share listing on January 28, Pharmaron has recorded 13 consecutive daily limit-ups. Its stock price is currently hovering around RMB 51, representing a surge of more than 560% from its initial offering price of RMB 7.66 at the beginning of the year.

According to its prospectus, the funds raised by Pharmaron on the Hong Kong Stock Exchange will be primarily used for: expanding the capacity and capabilities of its laboratories and production facilities in China (30%); further expanding its overseas operations (10%); establishing a pharmaceutical R&D service platform for biologic drug development (20%); enhancing its clinical development services (15%); acquiring other CRO companies globally (15%); and supplementing working capital (10%).

Revenue by Business Segment Disclosed in Pharmaron’s HKEX Prospectus

Pharmaron has maintained rapid growth in recent years, with a compound annual growth rate (CAGR) of nearly 33.4% from 2016 to 2018, and its revenue reached RMB 2.9 billion in 2018. Furthermore, based on the revenue data for the first half of 2019, Pharmaron continued to exhibit strong growth momentum throughout 2019.

As the third-largest global pharmaceutical CRO company in drug discovery, Pharmaron continues to expand its service offerings to raise its growth ceiling. Given the strong sustainability of its laboratory services, Pharmaron’s revenue from this segment is expected to grow steadily. The CMC/CMO business is key to demonstrating the company’s economies of scale. Unlike preclinical services, this segment requires substantial investment in fixed assets; therefore, as production capacity increases, it is likely to become Pharmaron’s most scalable business line.

An analysis of the use of funds also reveals that Pharmaron, which, like WuXi AppTec, started with small-molecule drug R&D, is also striving to integrate the entire process from research and development to manufacturing. The proportion of clinical development services and CMC (Chemistry, Manufacturing, and Controls) services in its business continues to rise, and a significant portion of the funds raised in this offering has been allocated to these two segments. Vertical integration is the prevailing trend in the CRO industry, and Pharmaron is advancing further along this path of vertical integration.

Since its inception, Pharmaron has been dedicated to small-molecule drug R&D services, establishing a unique CRO+CMO service platform for drug research, development, and manufacturing. Its business spans multiple interdisciplinary fields, including laboratory chemistry, biological sciences, drug safety evaluation, chemical and formulation process development and manufacturing, and clinical research services.

Pharmaron's Main Business Composition

Pharmaron’s small-molecule drug research and development and manufacturing services originated from laboratory chemistry, with capabilities in small-molecule compound design across major disease areas and large-scale compound synthesis. Leveraging its core laboratory chemistry business, the company has established comprehensive bioscience platforms, including biology, drug metabolism and pharmacokinetics (DMPK), and pharmacology, to provide integrated drug discovery services to clients, while also accumulating an extensive client base.

As the drug discovery and R&D services business expands, the Company’s service platform has gradually extended into the drug development stage. The Company has established a comprehensive and continuously improving drug development service platform. Platform services primarily include drug safety evaluation services with dual GLP certification from the CFDA and FDA; chemistry and process development services; GMP manufacturing of active pharmaceutical ingredients (APIs) and drug formulations; bioanalytical services featuring ultra-high-sensitivity radiolabeled metabolite analysis technology; and clinical trial services backed by more than 200 successful FDA filings.

Pharmaron’s core business is R&D services for small-molecule drugs. Building on this foundation, the company has been committed to establishing an integrated end-to-end service platform. From 2016 to present, Pharmaron has completed five equity acquisitions—namely, Quotient Bioresearch, SNBL Clinical Pharmacology, Kantai Bo (Concord Biosciences), Xceleron, and Nanjing Sirui—as part of its systematic strategic layout to build a fully integrated drug research, development, and manufacturing service platform.

Pharmaron's Equity Acquisition Incident

Quotient Bioresearch is a UK-based company founded in 2013, specializing in radiochemical synthesis and metabolic kinetics research. In 2016, Pharmaron acquired 100% of its equity to further expand the company’s service offerings.

Quotient itself has three subsidiaries, namely Quotient Bioresearch (Radiochemicals) Limited, Quotient Bioresearch (Rushden) Limited, and Quotient Bioresearch Inc. This acquisition has enhanced Pharmaron’s service capabilities in drug discovery, preclinical research, and clinical pharmacokinetics, while also providing additional market entry points globally.

To enhance the Company’s service capabilities in drug discovery, preclinical and clinical pharmacokinetics, while gaining additional market entry points globally, Pharmaron Limited decided to acquire 100% of the equity interest in Quotient. At that time, Quotient had three subsidiaries: Quotient Bioresearch (Radiochemicals) Limited, Quotient Bioresearch (Rushden) Limited, and Quotient Bioresearch Inc.

The second company is Xceleron, which was acquired 100% by Pharmaron in January 2017. This U.S.-based company possesses unique accelerator mass spectrometry (AMS) technology. This technology serves as a comprehensive extension of Pharmaron’s radiolabeled metabolite analysis services. Combined with the prior acquisition of Quotient, Pharmaron has further enhanced its service capabilities in drug metabolism research and development.

The third company is SNBL Clinical, established by the Japanese listed company Shin Nippon Biomedical Laboratories. SNBL Clinical is located at the University of Maryland Medical Center and maintains strong collaborative relationships with multiple prestigious medical institutions, including the University of Maryland. Such a company holds advantages in clinical research services, offering comprehensive solutions that encompass medical collaboration, patient/volunteer recruitment, clinical implementation, regulatory submissions, and data management. Clinical research services have always been a crucial component of Pharmaron’s integrated end-to-end service offerings. In May 2017, Pharmaron completed its acquisition of SNBL Clinical for a transaction amount of USD 2.5458 million.

Pharmaron’s latest acquisition took place in May this year, with the target company being Nanjing Sirui. Nanjing Sirui’s core business lines are primarily concentrated in its subsidiary, Nanjing Ximaidi. Nanjing Ximaidi is a domestic clinical CRO enterprise that boasts a high-quality one-stop clinical CRO service platform. These acquisitions indicate that Pharmaron’s strategic focus has shifted from early-stage drug discovery companies to clinical CROs. This transition aligns with Pharmaron’s broader business evolution from drug discovery toward drug development.

The aforementioned acquisitions were all aimed at expanding the Company’s business capabilities, whereas the acquisition of Kangtaibo was intended to expand its domestic market operations.

Ningbo Kangtaibo, a company established in 2015 by Beijing Kangtaibo and Hangzhou Hongna, acquired the land use rights for a plot in the Binhai area of Hangzhou Bay New Zone through competitive bidding. Pharmaron completed a 100% equity acquisition of the company and developed the Hangzhou Bay site into a biopharmaceutical R&D service base. It is reported that the industrial park has already attracted more than 70 life and health industry projects, providing Pharmaron with increased potential business opportunities from domestic pharmaceutical companies.