Leading Chinese biotech firm Wuxi AppTec says US hurdles will not dim acquisition appetite
- Wuxi AppTec’s executives say they will fully comply with stringent US requirements as they pursue deals in life sciences and biotech
Tighter US government scrutiny of Chinese investment in US biotechnology companies will not dent its interest in pursuing investment opportunities there, said executives of Wuxi AppTec, Asia’s largest provider of contract pharmaceutical research.
“It is not a problem, we will just make the necessary filings according to the legal requirements,” board secretary Yao Chi said at a press conference on Friday to announced the company’s Hong Kong listing plan.
The Shanghai-based firm aims to raise up to US$1 billion from the IPO. The company said about 30 per cent of the proceeds will be used to fund acquisitions and for investments in innovative health care start-ups.
China is pushing hard to overtake Silicon Valley and win the biotech race, and gain control of the world’s biological data
The US Treasury Department recently announced sweeping changes to rules that give the Committee on Foreign Investment in the United States (CFIUS) the power to force foreign acquirers of US assets in high technology fields – including life sciences and biotech – to make mandatory filings.
Even small investments in US firms that develop “critical technologies” in 27 industries will be subjected to the review process, which could potentially lead to rejection of the deals if they are seen as a threat to US national security.
The US Commerce Department is also preparing regulations on export controls covering “emerging and foundational technologies” that is likely to include biomaterials, biopharmaceuticals, new vaccines and drugs that have been the subject of recent state economic espionage efforts from groups in Russia, China and Iran.
Chairman Li Ge said he is not too concerned about these developments on its clients’ Sino-US joint development and technology licensing deals.
“Most of them are drug innovators who do not rely on technology licensing,” he said, adding that the firm derives 75 per cent of its revenues from international customers and only 25 per cent from Chinese clients.
Thomas Gilles, chair of international law firm Baker McKenzie’s Europe, Middle East, Africa and China Group, noted Chinese investment in North America’s health care and biotech sector has fallen this year, while growing in Europe.
Europe-bound investment from China surged to US$2.28 billion in the first half of this year, compared to US$460 million for the whole of 2017, while it fell to US$1.08 billion in North America from US$2.5 billion in the comparable period.
“However, health and biotech remains a key focus area for Chinese investment in North America, at 54 per cent of total Chinese [outbound] investment in the year’s first half,” Gilles said.
Thomas Chou, partner and China mergers and acquisitions practice leader at international law firm Morrison & Foerster, said that although the US has broadened the scope of CFIUS to review transactions, it will be hard for Chinese firms to resist acquisitions in the US.
“US biotech companies generally remain quite interested in partnering with Chinese companies because of the enormous market potential and the recognition that the Chinese are increasingly innovative. That is why the industry trade groups are trying to find ways to help address US national security concerns without cutting off the US from the innovations that are occurring in China.”
Chou also said that the European Union is also working on strengthening its oversight and coordination of its member states’ foreign investment screening, potentially including the biotech sector. But the proposed amendments, likely to be implemented in 18 months’ time, are expected to be less burdensome than the US.
AppTec aims to sell in Hong Kong 116.47 million new shares at HK$64.1 to HK$71.5 each, a 20.7 to 28.9 per cent discount to its Shanghai-listed shares’ closing price on Friday.
Following a US$3.3 billion privatisation and delisting from New York three years ago, AppTec raised 2.25 billion yuan (US$324 million) in May this year by floating shares in Shanghai.
After reaching a record high on June 1 of 138.87 yuan – 6.4 times its IPO price that saw the company warn investors of risks from its high valuation relative to peers – its Shanghai shares retreated to 79.75 yuan on Friday.