Chinese drugmaker Simcere Pharmaceutical Group Ltd. raised HK$3.57 billion ($460.6 million) in Hong Kong by issuing 261 million shares at HK$13.7 apiece on Oct 27. Its debut hit a setback, with its share price (HKEX:2096) dropping over 20% in mid-morning and extending losses to nearly 24% to close at HK$10.46.
Sponsored by Morgan Stanley and CICC, the IPO was oversubscribed by 590 times by the retail tranche. This is Simcere’s second listing after its IPO in New York in 2007. It was the first Chinese pharmaceutical company with both biologics and small molecule drugs to be listed on the New York Stock Exchange. In 2013, the company was taken private for $495 million by a consortium led by its founder, Jinsheng Ren.
“Simcere’s story is not attractive [to investors],” Ning Lei, managing partner of Xinhuahaina Medical Fund told BioWorld. “But it has a decent portfolio and sufficient cash flow.”
Established in 1995, Simcere has been making profits with its generic drug business, and it is known in the industry with its biologics development collaborations with Bristol-Myers Squibb Co. (BMS) and Amgen Inc.
Currently, Simcere has 10 major products in its portfolio. Seven of them are generic drugs, two are innovative drugs and one is a new formulation drug, together accounting for 82% of the company’s revenue last year. All of the products were developed and approved before the company’s privatization in 2013.
After privatization, Ren has vowed to transform the prominent generic maker into an innovative drugmaker, as profit margins for generics are shrinking in China. At Simcere, sales of generics accounted for 60.7% of its total revenue in 2017, but the figure further dropped to 46.5% in 2019.
Analysts said Simcere’s disappointing debut on Tuesday was due to its high valuation, as it was valued like a pre-revenue innovative biotech company when it is still largely a generic drugmaker. Three weeks ago, pre-revenue biotech players Everest Medicine Ltd. and Genor Biopharma Co. Ltd. raised $451 million and $371 million, respectively, in the Hong Kong stock market.
Still, Simcere has remained attracted cornerstone investors such as Hillhouse Capital, Lake Bleu Prim and Orbimed Funds, which agreed to subscribe to $190 million worth of shares.
Innovative drugs to drive growth
Determined to become an innovator, Simcere has now set a clear direction in focusing on oncology, CNS diseases, and autoimmune diseases. It is stepping up efforts in drug innovation, devoting 14.2% and 23.6% of its total revenue to R&D in 2019 and the first half of 2020, respectively. With three R&D centers, in Nanjing, China, Shanghai and Boston, the drugmaker plans to use 60% of the IPO proceeds to continue the R&D of its selected product candidates.
“We believe innovative pharmaceuticals are generally subject to more limited competition and relatively lower pricing pressure in centralized tender processes, thereby allowing us to command higher profit margins,” Simcere said in its most recent prospectus.
Orencia is a CTLA4-Fc fusion protein for treating moderate to severe rheumatoid arthritis. The drug was co-developed with BMS and launched in August in China. Prior to the China approval, it was developed by BMS and first approved in the U.S. in 2005. Also launched in China in August is Xianbixin, an injectable treatment of cerebrovascular disease including acute ischemic stroke
KN-035 is expected to go on market next year is KN-035, at which point it could potentially become the world’s first subcutaneously injectable anti-PD-L1 monoclonal antibody. The candidate was developed by Jiangsu Alphamab Biopharmaceuticals Co. Ltd. and 3D Medicines (Beijing) Co. Ltd., from which Simcere obtained rights to promote the drug for all oncology indications in China in March. KN-035 is expected to be under NDA review in the second half of this year.
Meanwhile, Simcere is expanding its innovative product pipeline with nearly 50 candidates in different stages of development, according to the prospectus.
Knowing that the oncology market is too big to ignore, the company is focusing on this segment the most, with 20 candidates disclosed in the prospectus. They aim at a wide range of targets, such as VEGF, NTRK/ROS1, CDK4/6, PD-L1, CD80/IL2, TNFR2, PD-L1/IL15, EGFR, and PD-L1/TGFβR.
In particular, Simcere is tapping into cell therapy. It has three CAR T-cell therapy candidates that target CD19 and BCMA, one of which is in phase I trials. The other two have cleared IND applications.
Besides internal R&D, the company is also actively inking partnerships to quickly expand its oncology pipeline. Its partners include the Chinese companies Suzhou Hightechbio Biotechnology Co. Ltd., Beijing Immunochina Pharmaceuticals Co. Ltd., Shenzhen Pregene Biopharma Co. Ltd, Beijing Tcrcure Biotechnology Co. Ltd., Alphamab and 3D Medicines. Outside China, it has partners in Apexigen Inc. and G1 Therapeutics Inc. from the U.S., South Korea’s GI Innovation Inc. and the Dutch firm Merus N.V.
Simcere also revealed in its prospectus three CNS candidates and three more programs for autoimmune diseases, all of which are small molecule candidates in the early stages of development.