Pharmaron Rings the Bell on ChiNext, Completing the A-Share Lineup of China's Top Three CRO Giants

Authors: Hao Han, Cao Xian, Zhou Mengya

On January 28, 2019, Pharmaron officially listed on the ChiNext Board of the Shenzhen Stock Exchange (stock code: 300759). The company issued a total of 65,630,000 shares at an offering price of RMB 7.66 per share. The stock opened at RMB 9.19 on January 28. As of the publication of this article, Pharmaron’s share price had hit the daily upper limit of RMB 11.03, representing a 43.99% increase over the offering price, with a total market capitalization of RMB 7.239 billion.

WuXi AppTec, Pharmaron, and Tigermed are the three giants of China’s CRO industry. WuXi AppTec, listed on the Shanghai Stock Exchange A-share market, saw its stock hit the daily price limit for 16 consecutive trading days. Relying on major clients such as Takeda Pharmaceutical and Roche, Tigermed, which was listed on the Shenzhen Stock Exchange in its early years, has consistently maintained strong revenue growth. With Pharmaron now going public, market enthusiasm for the company is expected to rival that of WuXi AppTec, given its position as the second-largest CRO enterprise in China.

China’s CRO industry is currently seeing the emergence of one unicorn enterprise after another. Against the backdrop of accelerated national new drug approval processes and the advancement of generic drug consistency evaluations, the growth environment for domestic CRO companies is highly likely to see further improvement in the future.

However, the CRO industry is already saturated with numerous players. Even though policies are showing a strong positive trend, this cannot change the fact that the industry has become a "red ocean." As leading companies go public one after another, the polarization within the CRO industry may become increasingly pronounced, leading to a phase of restructuring and consolidation. Mergers and acquisitions are likely to become the main theme of investment and financing activities in the future CRO sector. At the same time, how CRO companies continue to expand their business directions remains a key issue for the future development of the entire industry.

Since its inception, Pharmaron has been dedicated to small-molecule drug research and development 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 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 encompassing biology, pharmacokinetics, and pharmacology, providing customers with integrated drug discovery services while also accumulating an extensive customer base.

With the expansion of its drug discovery and R&D services, the Company’s service platform has gradually extended into the drug development phase. 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 the FDA; chemistry and process development services; GMP manufacturing of active pharmaceutical ingredients (APIs) and drug products; bioanalytical services featuring ultra-high-sensitivity radiolabeled metabolite analysis technology; and clinical trial services backed by more than 200 successful FDA filings.

Benefiting from the sustained and steady growth of the global drug R&D and manufacturing services market, as well as its competitive advantages in integrated end-to-end service capabilities, client base, and scientific research team, Pharmaron has maintained robust revenue performance in recent years.

From January to September 2018, the Company achieved revenue of RMB 2,035,503,300, representing a year-on-year increase of 25.92%. Among this, the net profit attributable to shareholders of the parent company was RMB 230,628,500, a year-on-year increase of 48.48%; the net profit attributable to shareholders of the parent company after deducting non-recurring gains and losses was RMB 228,380,600, a year-on-year increase of 51.52%.

The prospectus stated that the Company’s business continues to grow, with no material adverse changes.

Pharmaron was co-founded by Dr. Lou Boliang, Mr. Lou Xiaoqiang, and Ms. Zheng Bei. Dr. Lou Boliang studied at the Shanghai Institute of Organic Chemistry, Chinese Academy of Sciences, from 1983 to 1989, under the supervision of Academician Dai Lixin, an organic chemist, and subsequently earned his master’s and doctoral degrees in organic chemistry.

Since its establishment, Pharmaron has completed five rounds of financing, leveraging its R&D strengths in small-molecule drugs and attracting prestigious investment firms such as Legend Capital, Honghui Capital, and CITIC Private Equity Funds.

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 the present, Pharmaron has completed four equity acquisitions—of Quotient Bioresearch, SNBL Clinical Pharmacology, Kangtaibo, and Xceleron—as part of its strategic layout under a systematic plan to build a comprehensive, integrated drug research, development, and manufacturing service platform.

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 its service portfolio.

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 owned three subsidiaries: Quotient Bioresearch (Radiochemicals) Limited, Quotient Bioresearch (Rushden) Limited, and Quotient Bioresearch Inc.

The second company is Xceleron, which Pharmaron acquired 100% equity 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. Coupled with the prior acquisition of Quotient, Pharmaron has further elevated 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. Located at the University of Maryland Medical Center in the United States, SNBL Clinical maintains strong collaborative relationships with several prestigious medical institutions, including the University of Maryland. This positioning enables the company to leverage its advantages in clinical research services, offering comprehensive solutions that encompass medical collaboration, patient/volunteer recruitment, clinical trial execution, regulatory submissions, and data management. Clinical research services have long been a critical component of Pharmaron’s integrated end-to-end service offerings. In May 2017, Pharmaron completed the acquisition of SNBL Clinical for a transaction amount of USD 2.5458 million.

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 the 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.