September 26, 2018 / 3:18 AM / 23 days ago

Breakingviews - Chinese pharma R&D mixes up a potent IPO formula

HONG KONG (Reuters Breakingviews) - One of Asia’s largest pharmaceutical research and testing firms is offering Hong Kong investors a profitable spot of therapy. WuXi AppTec, already listed in Shanghai with a market value of $13 billion, carries out clinical trials and a host of other services for heavyweights like Pfizer and Roche. An overhaul of restrictive mainland rules over recent years to encourage locally developed drugs means business is thriving.

A person holds pharmaceutical tablets and capsules in this picture illustration taken in Ljubljana September 18, 2013. Picture taken September 18. REUTERS/Srdjan Zivulovic

Founded 17 years ago by scientist Ge Li, WuXi is already an established contract researcher, riding China’s drug outsourcing boom. In large part, that’s thanks to high upfront costs and the regulatory complexities of commercialising new drugs in the People’s Republic. Globally, over a third of pharma R&D expenditure is contracted out to companies like WuXi and rivals in countries like India; that figure is expected to rise to almost 50 percent by 2022, with China claiming an increasingly large slice. By then, the overall R&D outsourcing market will hit $180 billion in global sales, up from $100 billion last year, according to research cited in WuXi’s prospectus.

Beijing, meanwhile, is grappling with an overstretched healthcare service, under pressure from an ageing and increasingly wealthy population. That has prompted reforms to shake up its national drug reimbursement list, to fast-track key therapies and accept clinical trial data from abroad, among other things. All of that has made it easier for Big Pharma to work in China, and partner with WuXi. Two years ago, for new drugs developed abroad, the time between approvals in China and the United States averaged 85 months, according to a report from industry body, Regulatory Affairs Professionals Society. Last month, Roche said its lung cancer drug was approved just nine months after the United States.

Local firms are adding to WuXi’s bottom line too, thanks to a pilot programme that allows homegrown developers to outsource their manufacturing and moves to encourage local research. Earlier this month, biotech group Hutchison China MediTech, a WuXi partner, became the first to win unconditional approval for a China-discovered and developed cancer drug.

It’s a powerful financial mix: first-half earnings at WuXi jumped a blistering near-70 percent to 1.3 billion yuan, or $190 million. The company’s Shanghai-listed shares have nearly tripled since their May debut. That bodes well for another healthy listing.

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