Hillhouse’s Big Biotech Bet Hits a Wall Amid Tightening Rules
Hillhouse Capital’s proposed 2.3 billion yuan ($328 million) investment in Asymchem Laboratories (Tianjin) Co. Ltd. is off after the clinical testing specialist revamped its fundraising plan under new regulatory standards.
Shenzhen-listed Asymchem revised its plan so that it will raise the funds from as many as 35 investors rather than just private equity heavyweight Hillhouse, according to a Wednesday filing. Investors will be selected through a bidding process under the new plan. A Hillhouse source didn’t answer a question from Caixin whether the company would join the auction.
Analysts said the surprise overhaul reflects tightening regulatory scrutiny over investments in listed companies to curb stock speculation. Asymchem, which provides outsourced clinical testing and other services for drugmakers, disclosed a plan in May to sell newly issued shares to Hillhouse at 123.56 yuan each, making the private equity fund a strategic investor with 5%. Asymchem’s stock closed Wednesday at 232.2 yuan.
Several industry insiders said the U-turn in the deal reflected altered regulations that disqualified Hillhouse as a strategic investor. Last week, PharmaBlock Sciences (Nanjing), Inc. dropped a plan to sell 650 million yuan of shares to a mutual fund company following issuance of the new rules.
The China Securities Regulatory Commission recently raised the criteria for strategic investment in listed companies, requiring that such investors be in the same industry as the target or at least a related sector. In addition, the commission ruled that strategic investors should have key resources in the industry and the ability to coordinate with the target company on long-term strategic development.
The new rule also requires strategic investors to hold a big enough stake in the target company to appoint a member to the board, a move designed to exclude many small private equity institutions, analysts said.
To advance its planned investment, Hillhouse pledged in May to bring at least 800 million yuan of orders to Asymchem during the period of strategic partnership and promised not to sell the shares before meeting the goal.
Regulators previously recognized Hillhouse as a strategic investor in the deal, but the latest development indicated that they changed their minds on concerns over stock market speculation, a person close to the regulatory body said.
A private equity manager said regulators previously welcomed Hillhouse’s investment in the pharmaceutical sector, which often demands long-term investments with higher risks. Limiting strategic investors to the same industry as the target is too restrictive, the manager said.
The fast-growing biotech sector has been a focus for Hillhouse in recent years. Its investments include biotech drugmaker WuXi AppTec Co. Ltd., as well as Hangzhou Tigermed Consulting Co. Ltd. In a document recently submitted to the U.S. securities regulator, Hillhouse said 25 of the 54 companies in which it invested by the end of last year were from the biotech space.
In the latest filing, Asymchem also revised its plan for the proceeds of the share sale. In addition to augmenting operating capital, the company said part of the funds would be invested in new-drug development.
Founded in 1998 and listed since 2016, Asymchem is a contract drug development and manufacturing organization that produces products for other companies based on their designs and other specifications. It specializes in conducting clinical trials and provides other services during that phase of drug development.
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