March 9, 2018 / 8:37 AM / 9 months ago

China's Hua Medicine plans $400 million Hong Kong IPO, led by Goldman: sources

HONG KONG (Reuters) - Chinese drug developer Hua Medicine is planning to raise at least $400 million in an initial public offering in Hong Kong in the latest in a series of biotech floats in the city, said people with knowledge of the matter.

FILE PHOTO: Li Chen, CEO of Hua Medicine, poses for a photograph in front of the company logo, at his office in Shanghai, China February 11, 2015. REUTERS/Aly Song/File Photo

Hong Kong is formulating new rules for early-stage drug developers in an effort to woo companies in the fast-growing sector - notably those in China - into choosing the city over New York, the traditional hub for initial public offerings from the industry.

Shanghai-based Hua, a diabetes-focused drug developer, had considered both locations but selected Hong Kong because of the city’s proposed new listings regime, which Hong Kong Exchanges and Clearing (0388.HK) expects to have in place within a couple of months, said a source with direct knowledge of the deliberations.

Goldman Sachs (GS.N) is leading the transaction while CLSA, the offshore platform of China’s Citic Securities(600030.SS), is also working on the deal, the sources added. The company plans to go public in the second half of the year, said one of them.

Goldman and CLSA declined to comment. Hua didn’t respond to a request for comment.

Hua will be joining a slew of biotechs interested in Hong Kong’s less-demanding listing rules. Other hopefuls include Shanghai Tasly Pharmaceutical, the biopharma unit of Tasly Pharmaceutical Group, Shanghai Henlius Biotec, a subsidiary of Fosun’s pharmaceutical unit and U.S.-based cancer detection start-up Grail.

Hua’s likely valuation and the size of the stake to be sold are not yet decided, said the people, who declined to be identified as they were not authorized to speak with the media. The company is also yet to decide whether to sell existing shares, new shares, or a combination of both, the people said.

The company’s development pipeline includes a novel diabetes treatment which is expected to be approved in China by 2019, its chief financial officer George Lin told Reuters in December.

Many Chinese biotechs keen to float are at an early stage and as yet have no sales - a long-running hurdle for floats in Hong Kong, where its main listing rules demand profits as well as sales. Currently, China’s securities laws do not allow firms that have yet to turn profitable to go public on the mainland.

Hong Kong’s new rules are expected to allow so-called “pre-revenue” biotechs to list subject to certain extra criteria, including that the firms must have developed at least one core product beyond the concept stage. Applicants must also have a minimum market capitalization of HK$1.5 billion ($191.30 million).

The plans are part of HKEX’s broader move to attract blockbuster Chinese “new economy” companies, from biopharma firms to online retailers.

Chinese immunotherapy company BeiGene, Shanghai-based Zai Lab and Hutchison China MediTech, are all listed on Nasdaq, previously the preferred listing venue for mostly as-yet unprofitable biotech drug developers.

According to Hua’s website, the company counts U.S. venture capital firms ARCH Venture Partners and Venrock and China’s largest contract medical researcher WuXi AppTec among its current investors.

Reporting by Fiona Lau of IFR and Julie Zhu; Editing by Shri Navaratnam

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