WuXi PharmaTech Sets NYSE IPO

In February of this year, following several years of frenzied increase, a one-day 8% decline in the markets in China caused jitters throughout the world. Pundits responded by using the derogatory term bubble to describe China's stock market. But China recovered from that decline and from several other smaller, subsequent ones and now finds itself, once again, at record levels. And the shoe has been transferred, as other markets around the world remembered during the last week what it feels like to decline. However, as these other markets now suffer various amounts of pain, China markets blithely hold their ground, maintaining their record levels. That means China has the luxury of laughing last, the pleasure of saying I told you so. Of course, there is never a last day in stock markets, as today's situation will morph inevitably into something else, changing up into down soon enough.

It's into this altered financial landscape that WuXi PharmaTech filed for its IPO on the New York Stock Exchange during the past week (see story). When the company disclosed its financial picture in the prospectus, its valuation seemed modest, given the story behind the company. Look at the bullet points: WuXi has produced spectacular growth over its short history, investors have large appetites for all things Chinese, and the background story the need for biopharma to outsource its early discovery operations at low cost is absolutely compelling. But, to twist the old Wall Street adage, an ebbing tide lowers all ships. A slumping market will keep a lid on the valuation given to WuXi, which may be wondering if the NYSE was the best choice for its listing. And, as we must remember, by the time WuXi actually is priced, all of the present realities will be distant memories and a new calculus will be applied to WuXi's pricing. At the very least, WuXi is a strong offering, and thus it is not likely to be indefinitely delayed by the euphemistic market conditions that have suspended other, more iffy enterprises.

Backing up the convincing logic of outsourcing that lies behind WuXi PharmaTech, AstraZeneca (AZN) announced last week that it would cut back operations elsewhere in the world (see story). Left out of the workforce reductions was China. Looking back over the past years, AstraZeneca has been investing heavily in China. In its announcement this week, AstraZeneca had the good taste to skip making this comparison explicit, but it remains nonetheless.

Part of the reason that China has become an emerging powerhouse in biotech is the commitment of its government to the sector. The Eleventh Five-year Plan for biotech was established earlier this summer, and we have made its contents available in English (see story). As before, it shows that biotech will continue to be a priority in China.

On the enforcement side, as a way of showing it is serious about recent problems with food and drug safety, China instituted reforms to deal with the issue, including heavy fines for any company producing substances that harm people (see story).

WuXi's IPO is scheduled for the week of August 6, a remarkably short two weeks from initial announcement to IPO. It will give a good read on how investors feel about China biotech in the current market.

Disclosure: none.