In a maker of TCM products including the Watermelon Frost line. The IPO price was set at 19.8 RMB, the size of the offering was increased, and the shares rose in open market trading. At the end of the year, Guilan Sanjin closed at a price of 27.91 RMB, an increase of 41% for the IPO investors.
The Guilin Sanjin transaction set a positive tone for China life science IPOs in 2009, though in terms of what happened later in the year, a 41% return was only so-so. Many of the subsequent life science IPOs awarded investors with returns of 100% or better.
This is in sharp contrast with China life science IPOs for companies that chose to list in the US, where both the returns and the valuations are much lower. As we pointed out, all three of the IPOs held in the US witnessed a decline from the IPO price. Usually the IPO price had to be set below the expected range, or the transaction would not have been completed. Also, the US-China difference is apparent in terms of valuations. China-listed life science companies seem to routinely have price-earnings ratios that approach 100. In the US, they are closer to 20.
In China, a lot of cash is chasing the too-few opportunities. In the US, investors remain risk-averse, following the near-collapse of their capital markets one year ago.
The most spectacular returns have occurred with companies that listed on the brand new Growth Enterprise Market in Shenzhen, also known by the name ChiNext. This market is usually compared to Nasdaq in the US. Like Nasdaq, it was specifically designed to provide a home for smaller, less well known technology companies.
Anhui Anke Biotech, which produces recombinant drugs, diagnostic kits and traditional Chinese medicines, was a ChiNext star. The company priced its IPO at 17 RMB. Its shares opened at 37, reached a high of 64.88 on the first day and closed the session at 50.08, a rise of 195% from the offering price. Since then, the price has declined somewhat, a pattern that seems to hold for most of the life science companies that debuted on ChiNext. Anhui Anke ended the year at 42.67 RMB, which still represents a 151% return for the IPO investors. The company is richly valued for everywhere but ChiNext, with a price/earnings ratio of 100.
Lepu Medical Technology (Beijing) Co. (GEM: 300003) raised $76 million in its ChiNext debut, the largest amount of any of the initial round of companies. The company makes medical device for cardiovascular and anesthetic use, with a particular emphasis on stents and balloon catheters. It priced its IPO at 29 RMB and ended the year at 51.13 RMB, for a 76% return. Its price/earnings ratio is 96.
Chongqing Lummy Pharmaceutical Co. (GEM: 300006) raised capital to build a $21 million manufacturing facility. The company specializes in anti-infective drugs and specialty medicines. It priced its IPO at 16.5 RMB and ended the year with a 100% gain at 33.43 RMB. Its price/earnings ratio is the highest of the life science companies at 108.
Tianjin Chase Sun Pharmaceutical Co. (GEM: 300026), a specialty pharmaceutical company, derives most of its income from two products : Xuebijing Injection, a treatment for sepsis, and for Fasudil Hydrochloride Injection, which treats cerebral vasospasm. Its IPO was priced at 60, and it closed out 2009 at 91.2, a rise of 52%. The company\\\'s price/earnings ratio is 87.
Beijing Beilu Pharmaceutical Co. (GEM: 300016) is often referred to as a TCM company, though its most important products seem to be western style drugs. The company\\\'s IPO was set at 17.25, and it ended the year at 34.79, a 102% jump for the original investors. The company\\\'s price/earnings ratio is 88.
Are the ChiNext valuations sustainable? History says no. Sooner or later, global standards will prevail and these companies will trade at prices that reflect more normal multiples. Still, if companies and exchanges present investors with the opportunity to double their money on the first day, the companies will enjoy a very festive welcome. Success breeds success until it doesn\\\'t. It is much easier to complete an IPO when investors can expect a huge upside than when they see a high probability of a decline.