Some Investors Pass on Eagerly Awaited Pharma IPO

A number of investors who won the right to buy shares in one of China’s leading pharmaceutical firms upon its eagerly awaited mainland initial public offering (IPO) have decided not to buy the shares after all.

WuXi AppTec Co. Ltd. — one of three companies spun off from WuXi PharmaTech after that company delisted from the New York Stock Exchange in 2015 — is to list in its home country’s Shanghai Stock Exchange this week. WuXi AppTec has been the subject of intense attention as market observers think that the price of the firm’s shares will surge upon listing, so the fact that it failed to secure some buyers came as a surprise.

Of more than 104 million new shares it offered to subscribers, around 0.3% were not bought, according to a Wednesday filing (link in Chinese) by WuXi AppTec.

The company’s filing listed the names of six investors that had won the right to buy shares but then failed to hand over the cash. However the named investors abandoned only 5,634 shares, while the total number of shares not bought, including those abandoned, was 328,429.

The firm’s underwriters, Huatai United Securities and Guotai Junan Securities, will purchase the abandoned shares for nearly 7.1 million yuan ($1.1 million), as the IPO price was 21.6 yuan per share, according to the filing.

In China’s IPO system, if demand for new shares exceeds supply, investors are entered into a lottery. Those who subsequently win the right to buy shares have to pay up by a certain date or they forfeit their chance. The AppTec filing shows that only 0.06% of investors who applied for shares won a chance to buy them.

A pharmaceutical industry investor told Caixin that it is not rare for new shares to be forfeited, as there are always investors that don’t make their payment for various reasons.

Founded in 2000 as a small lab, WuXi AppTec has grown into a leading small molecule research and development services provider, serving global pharmaceutical giants including Pfizer Inc., Eli Lilly & Co. and Merck & Co.

After WuXi PharmaTech delisted in the U.S., it spun off three entities with dedicated focuses: WuXi AppTec, Shanghai SynTheAll Pharmaceutical Co. and WuXi Biologics.

The three companies have a total estimated market cap of 150 billion yuan, about seven times WuXi PharaTech’s valuation when management took the company private with a $3.5 billion buyout.

STA Pharmaceutical, a small-molecule pharmaceutical development and manufacturing company, is currently traded on the over-the-counter New Third Board of the Shenzhen Stock Exchange, with a market cap of about 20.1 billion yuan.

WuXi Biologics, an open-access biologics technology platform, raised HK$3.98 billion ($507.1 million) in June in a Hong Kong IPO. The company’s market cap has risen since then to HK$87.5 billion.

Contact reporter Coco Feng (renkefeng@caixin.com)