ShangPharma Prices IPO at $15, Plans to Broaden Services

| About: ShangPharma Corporation (SHP)

ShangPharma Corporation (NYSE: SHP), a major Shanghai CRO, has completed its New York Stock Exchange IPO. The company priced its shares at $15, more or less in the middle of its expected range, which was $14.50 to $16.50. The offering placed 5.8 million ADSs, comprised of 3.2 million belonging to the company and 2.6 million from selling shareholders. Proceeds to the company were $48 million before fees. In open market trading, the shares quickly slipped to $14.

In its prospectus, ShangPharma said it earned 44 cents per ADS in the first six months of 2010. Annualizing that level of performance means ShangPharma priced its IPO at about 17 times expected 2010 earnings. Each ADS is equal to 18 ordinary shares.

ShangPharma said its 2010 first-half revenues climbed 27% in to $41.6 million. Net income was up 50% to $6.9 million during the same period. The company said it has 151 clients and a research staff that numbers 1525.

Through another company, Michael Xin Hui, a founder of the company, sold 14 million ordinary shares, or 778,000 ADSs, in the IPO, and TPG, the large private equity firm that made a $30 million investment into the company in 2007, sold 32.76 million ordinary shares or 1.8 million ADSs. After the sale, Hui still owns 55.7% of ShangPharma, and TPG has an 11.8% stake.

By selling 1.8 million ADSs, TPG recouped nearly all of its $30 million investment -- its proceeds were $27 million before fees. And they still have just slightly less than half their original holding in the company (11.8% down from 25.2% prior to the IPO). The upshot is that, in three years, TPG almost doubled its investment.

The company said it would use proceeds from the IPO to broaden its services. It is building a 460,000 square-foot cGMP-quality multi-purpose manufacturing facility in Fengxian, Shanghai, which will manufacture intermediates and APIs for preclinical testing and clinical trials. It is also building a 150,000 square-foot laboratory services building in Fengxian, Shanghai for pharmaceutical development services. Both facilities are expected to begin operating next year. ShangPharma already operates four facilities in the Shanghai area, two of them in Zhangjiang Hi-Tech Park.

ShangPharm said it will spend $15 million on construction, $15 million on equipment, $5 million to expand services, and $5 million on working capital needs.

Disclosure: none.

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