Pharmaron Submits Hong Kong IPO Application, Set to Become Another A+H CRO Firm

VCBeat has learned that on August 26, 2019, Pharmaron submitted a listing application to the Hong Kong Stock Exchange. If Pharmaron successfully lists on the Hong Kong stock market this time, it will become another A+H share listed company in the CRO industry after WuXi AppTec.

On January 28 this year, Pharmaron made its debut on the ChiNext board of the Shenzhen Stock Exchange, recording 13 consecutive daily limit ups following its listing. The stock price soared from the IPO price of RMB 7.66, reaching a historical high of RMB 46.77. As of today’s close, Pharmaron’s share price stood at RMB 43.98, with a total market capitalization of RMB 28.864 billion.

Revenue Details Disclosed by Pharmaron in Its Hong Kong IPO Prospectus

According to the revenue data disclosed by Pharmaron in its prospectus, total annual revenue grew from RMB 1.63 billion in 2016 to RMB 2.91 billion in 2018, representing an annual growth rate of approximately 33%. Compared with the first half of 2018, revenue in the first half of 2019 also saw a significant increase, rising by approximately RMB 366 million, with a growth rate of about 28.8%.

Over the past few years, Pharmaron has maintained a sound revenue structure. The primary cost is the cost of sales, accounting for approximately 68% of revenue. After-tax profit has consistently remained at around 10% of total revenue, without significant fluctuations.

Since its inception, Pharmaron has been dedicated to small-molecule drug R&D services, establishing a unique integrated 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 small-molecule drug research and development and manufacturing services originated from laboratory chemistry, possessing capabilities in small-molecule compound design across major disease areas as well as large-scale compound synthesis. Leveraging its core laboratory chemistry business, the company has established comprehensive bioscience platforms encompassing biology, drug metabolism and pharmacokinetics (DMPK), and pharmacology, thereby providing integrated drug discovery services to clients while also accumulating an extensive client base.

With the development of its drug discovery R&D services, the Company’s service platform has gradually extended into the drug development stage. The Company has established a comprehensive and increasingly robust 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 services for 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 Main Business Composition

Pharmaron’s Revenue Breakdown by Business Segment as Disclosed in Its Hong Kong IPO Prospectus

Pharmaron’s integrated drug R&D services are primarily divided into three business segments: laboratory services, clinical development services, and CMC (Chemistry, Manufacturing, and Controls) services. Among these, laboratory services, which mainly comprise preclinical drug development services, constitute the primary source of Pharmaron’s revenue, accounting for 64.8% in the first half of 2019. However, the proportion of this segment in Pharmaron’s total revenue has gradually declined in recent years, as its business layout increasingly shifts toward clinical development services and CMC services, thereby extending its focus from drug discovery to drug development.

Pharmaron’s core business is the research and development services for small-molecule drugs. Based on this, the company has been committed to building an integrated end-to-end platform. From 2016 to present, Pharmaron has completed five equity acquisitions. Through the acquisitions of Quotient Bioresearch, SNBL Clinical Pharmacology, Kantai Bo (Converge Biotech), Xceleron, and Nanjing Sirui, the company has implemented specific strategic layouts under its systematic plan to establish an integrated drug research, development, and manufacturing service platform.

Pharmaron's Equity Acquisition Event

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: Quotient Bioresearch (Radiochemicals) Limited, Quotient Bioresearch (Rushden) Limited, and Quotient Bioresearch Inc. This acquisition helped Pharmaron enhance its service capabilities in drug discovery, preclinical research, and clinical pharmacokinetics, while also gaining more market entry points globally.

To enhance the Company’s service capabilities in drug discovery, preclinical and clinical pharmacokinetics, while securing 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 Pharmaron acquired 100% equity interest 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 previously acquired Quotient Biosciences, Pharmaron has further enhanced its service capabilities in drug metabolism research and development.

The third company is SNBL Clinical, founded by the Japanese listed company Shin Nippon Biomedical Laboratories. SNBL Clinical is located at the University of Maryland Medical Center in the United States and maintains strong collaborative relationships with several renowned 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 an integral component of Pharmaron’s end-to-end integrated 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 this May, with the target 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 targets have shifted from early-stage drug discovery companies to clinical CROs. This trend aligns with Pharmaron’s own strategic evolution, as its business gradually expands 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, 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 this Hangzhou Bay site into a biopharmaceutical R&D service base. Reportedly, 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.