REFILE - US list hinders healthcare deals
The US government’s addition of 33 Chinese entities to a list which imposes red tape on their US goods suppliers has hammered the shares of Hong Kong-listed Wuxi Biologics, and is expected to hamper upcoming healthcare deals.
The US Commerce Department on Monday added those entities, including two subsidiaries of pharmaceutical company Wuxi to the so-called "unverified list” as it was unable to establish how they would use products sourced from US exporters. US vendors need to go through additional procedures and apply for a licence before they can export goods to entities on the unverified list.
Shares in Wuxi Biologics tumbled as much as 32% on Tuesday to HK$55 and were quoted at HK$62.25 when trading was halted. The stock continued to fall once trading resumed on Wednesday, closing at HK$55.70 on Thursday.
The company said in a statement on Tuesday that it has been importing certain hardware controllers for bioreactors and certain hollow fibre filters that are subject to US export controls but have received Commerce Department approval for the past 10 years. The Commerce Department has a routine process to verify the proper use of these on site but this has not been possible in the past two years due to the Covid-19 pandemic.
Wuxi said the US decision has no impact on its business and it is also pursuing interim measures to remove the subsidiaries from the list.
More challenging
The news has added challenges to upcoming healthcare transactions in an already lacklustre Hong Kong IPO market. The Hang Seng Healthcare Index was down 3.37% on Tuesday.
“The IPO market is already very weak with many deals on hold and those that went ahead fell on debuts. It’s going to be very difficult for healthcare deals to come to the market now with this additional US regulatory risk,” said a banker who focuses on healthcare transactions.
Clarity Medical Group Holding, an ophthalmic services provider in which Wuxi AppTec owns a 20.8% stake, is planning to price a Hong Kong IPO of up to HK$408m (US$52m) in the lower half of the price range. Wuxi AppTec, which shares the same chairman as Wuxi Biologics but is run independently, saw its shares fall 11.4% to HK$100.70 on Tuesday.
“Demand for the deal is okay so far. Not many investors have questions over Wuxi’s stake in the company, probably because it’s just a small investment,” said a person close to the Clarity deal.
Everbright Securities International is the sponsor, and joint global coordinator with CMB International and Zhongtai International.
Lepu Biopharma, which focuses on oncology therapeutics, on Thursday braved the markets and opened the books for a Hong Kong IPO of up to HK$936m.
"The company has earmarked around 40% of the deal to cornerstone investors and hopefully can find the rest of the demand," said a person close to the deal.
Lepu is selling 127m shares, or 7.6% of the enlarged share capital, in an indicative range of HK$6.87–$7.38 per share.
Vivo Capital and King Star, as cornerstone investors, have committed US$30m and US$20m respectively.
CICC and Morgan Stanley are the joint sponsors.
Medical devices maker Hangzhou Bioer Technology, dental services provider Arrail Group, clinical laboratories operator Adicon Holdings and vaccine maker Jiangsu Recbio Technology have all won listing approvals for their planned Hong Kong IPOs but are waiting for the right market window.