In the last two months, three China life science companies have
made their debuts on US exchanges. The most important insight from
these IPOs is that they actually took place. In the previous 12
months, the worldwide economic crisis prevented almost all IPO
activity, so a completed IPO became reason enough to celebrate.
With that being said, the three companies -
China Nuokang Bio-Pharma (
Concord Medical (
China Cord Blood (
- did not fare particularly well in their debuts. Part of the
reason for the muted reaction is that none of the three presented
investors with the kind of compelling story that makes for frenzied
bidding. And, it should be added, a significant part of the problem
lies with the underlying financial landscape. After watching the
Dow Jones drop from more than 14,000 to a low of just 6,000 over
the last year and a half, investors in the West remain
understandably wary about stocks, even though the Dow has recovered
to trade above 10,000.
China Nuokang Bio-Pharmaceutical
China Nuokang Bio-Pharmaceutical placed 5 million ADSs at $9 each
on December 10, slightly below the expected price range of $10 to
). Since then, the shares have fallen 16% to $7.60. The company has
a portfolio of fourteen products, but 94% of its revenues derive
from Baquting, an anticoagulant based on the venom of a pit viper.
During the first nine months of 2009, Nuokang Bio-Pharma reported
pro-forma revenues of $29.3 million and net income per share (not
ADS) of $6 million. That is equivalent to 5 cents per share or 40
cents per ADS. Extrapolating, Nuokang Bio-Pharma can expect to net
about 54 cents per ADS, giving the company a price/earnings ratio
of about 14 at its current trading price. Because 2009 revenues are
running about 33% higher than the year-earlier figures, that is a
relatively cheap price.
Nuokang Bio-Pharm has about $46 million in the bank and a market
capitalization of $115 million.
Concord Medical, which began trading a day after Nuokang, is in the
business of operating radiotherapy and diagnostic imaging centers
in China with 83 centers in 36 cities (see
). It fared better in the pricing phase of the IPO, placing 12
million ADSs at $11, on the higher end of its $9.50 to $11.50
range. Since then, however, the shares have not done so well,
sliding 22% to $8.60 in three weeks of open market trading.
Concord reported revenues of $27 million in the first nine months
of 2009, while net income was a substantial $13 million. That is
equivalent to about 24 cents per ADS (for 9 months) or 32 cents for
the entire year, a price/earnings ratio of 27. Concord's revenues
for 2009 are almost twice as high as the previous year, which
together with its higher margins explains why the company would
command a higher multiple than Nuokang.
The company has $161 million in cash and a market capitalization of
China Cord Blood Corporation
China Cord Blood Corp. was a half-IPO because, technically
company was already trading on the OTC Bulletin Board exchange.
However, the company staged a secondary offering that was
simultaneous with a move the NY Stock Exchange, which gave the
transaction much of the feel of an IPO (see
The company has two cord blood storage centers in China, one in
Beijing and the other in Guangdong. The PRC issues just one license
for a cord blood storage center in each metropolitan area, and CCBC
is the only company to have two licenses in its possession.
Licenses have been issued in six of China's 31 regions, and CCBC
plans to compete for the four licenses expected to be issued in
China Cord Blood placed 3.3 million ordinary shares at a price of
$6.05, raising gross proceeds of almost $20 million. It is
currently trading at $6.02, just a few cents off the offering
CCBC's fiscal year ends on March 31. In its 2009 FY, the company's
revenues slipped below the levels of 2008, dropping from 233
million RMB to 195 million RMB ($28.5 million). The company
reported a profit of $3 million or 24 cents per share. Financial
reports have been issued for just one quarter in 2010, and so far
the company is running ahead of its 2009 results. At a current
price of $6.02, CCBC has a price/earnings ratio of 25.
CCBC has about $43 million in cash and a market capitalization of
At these prices, China's life sciences companies don't surprise
anyone: they seem neither under- nor over-valued. Overall,
investors are willing to advance money to China's smaller companies
from the life science sector, but then they have second thoughts
about the valuations, once actual trading begins.
Over time, this makes it more difficult to float new offerings.
Investors must feel they have a decent chance at getting a bargain,
or they will revert to their inclination to leave their wallets in
their pockets at IPO time, waiting for some more advantageous time
in the future to make their purchases. And, so far, the most
amazing fact about these three transactions is that they were
China's Bubble Economy