WuXi PharmaTech plans $120m US public offering

The choice of stock exchange comes as no surprise as the firm's total net revenues over the last three years were generated from sales to customers located in the US. The Shanghai-based company said it will list 13.2m American Depositary Shares (ADS) - one ADS represents eight ordinary shares - and according to yesterday's filing with the Securities and Exchange Commission, the estimated price range of the offering is between $11 (€8) and $13 per ADS. The 13.2m shares include 10m ADSs offered by the firm itself and 3.2m offered by a group of selling shareholders. In addition, Credit Suisse, Jefferies & Co, and JP Morgan - the underwriters for the offering - have also been granted the option to buy up to an additional 2m ADSs to cover any overallotments. Based upon an assumed price of $12 per ADS, WuXi said the net proceeds would be around $107.8m, or approximately $129.9m if the underwriters exercise their option to purchase additional ADSs in full. The CRO, which specialises in preclinical laboratory testing services, said it would use $40m of the proceeds to build a preclinical drug safety evaluation centre in Suzhou, another $40m to expand its Jinshan facility, and the balance for "general corporate purposes". WuXi was created in 2001 and has since experienced strong growth mainly driven by the growing number of large pharma and biotech companies who are now offshoring or outsourcing R&D activities to regions with significant resource and cost advantages, such as China. The firm, who represents China's leading supplier of pharmaceutical R&D outsourcing services, saw its net revenues increase from $33.8m in 2005 to $69.9m in 2006, a 107 per cent jump. In addition, sales in the first quarter of 2007 reached $33.8m, a whopping 165 per cent jump from $12.8m in the first quarter of 2006. Meanwhile, it said its two largest customers in 2005 and 2006, Pfizer and Merck & Co, accounted 15.4 per cent and 13.7 per cent in 2006 of its net revenues, respectively. In the past five years, the Chinese CRO industry has become a booming market. Advantages offered by China include a large talent pool in the chemistry, biology and medical sciences and other related fields, relatively low-cost labor and capital expenditures, a developed infrastructure and favourable government incentives providing for utility, land and tax advantages.