Innovent Biologics shares take US$332 million beating on stock placement plan

Chinese biotech company Innovent Biologics is seeking to raise HK$2.4 billion (US$306 million) from a stock placement at a discount to fund research and grow its drug discovery business. The stock slumped by the most in a month.

The company plans to issue 68 million new shares at HK$34.92 each, or 8.8 per cent below its last-traded price on Monday, according to a stock exchange filing on Tuesday. It hired Morgan Stanley, one of its IPO sponsors and arrangers in October 2018, to help find buyers for the shares.

The new shares represent about 4.2 per cent of its enlarged capital, and the net proceeds will be mostly allocated to fund its global clinical programmes, marketing, commercialisation and general corporate use, the company said.

The stock fell as much as 12 per cent to HK$33.80, before recovering to HK$35.80 at the closing of Tuesday trading. Tuesday’s slump erased HK$3.9 billion of its market value. The stock has risen 6.9 per cent this year, while the Hang Seng Index declined 8.9 per cent.

Investors generally frown on stock placements to outside investors at a deep discount, more so in a market that struggles with confidence. Recent placements by property developers Country Garden and China Vanke and sportswear brand Anta Sports Products have met with sell-offs that erased billions from their market value.

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Innovent Biologics competes with a large pool of competitors in China, including the likes of WuXi Biologics, CanSino Biologics and HutchMed. The mainland Chinese biologics market was forecast to reach 550 billion yuan in size this year, or about one-sixth of the global market, according to forecasts in its 2018 stock offering.

The company, based in Suzhou in eastern Jiangsu province, reported a 21 per cent increase in revenue to 2.7 billion yuan (US$370 million) for the six months to June 30. Though unprofitable, the company narrowed the net loss to 139 million yuan from 950.5 million yuan a year earlier.

“We continue to see Innovent as our top pick in China biotech, given its rapidly growing commercialisation portfolio,” Wilfred Yuen, analyst at Daiwa Capital Markets wrote in a note last week. He raised his 12-month price target to HK$50 from HK$46, implying a 28 per cent upside from the current level.