China Resources Pharma Declines After $1.8 Billion IPO

China Resources Pharmaceutical Group Ltd. fell in its Hong Kong trading debut after its $1.8 billion initial public offering.

The stock dropped as much as 3.9 percent before closing almost 1 percent lower at HK$9.01. The Beijing-based company priced its IPO at HK$9.10 a share, below the midpoint of the HK$8.45 to HK$10.15 marketed range.

Backed by the state-owned conglomerate China Resources Holdings Co., China Resources Pharma is China’s second largest maker and distributor of medicines. Demand for pharmaceuticals in China has been driven by a fast-ageing population that faces rising incidence of diseases like cancer and diabetes. China’s middle class is also more capable and willing to pay for expensive new treatments. However, such trends have also encouraged policy-makers to attempt to reduce health-care expenses, putting pressure on the margins of local and foreign pharmaceutical companies.

"CR Pharm is solid in all the businesses it operates, but is not the differentiated leader in any of them," Laura Nelson Carney, senior research analyst for health care in the region for Sanford C. Bernstein, said ahead of its trading debut. She does not cover the stock and was not involved in the IPO.

One "potential reason that interest is lower than hoped might be that within the manufacturer subsidiary businesses, none are innovation focused, which would command higher valuation and is an area of high investor interest," Carney said, commenting on the mid-range IPO price.

The company plans to spend about 45 percent of the net proceeds on acquisitions in China to expand its pharmaceutical manufacturing and distribution businesses, according to a share offering document. It sells everything from traditional Chinese preparations like donkey hide gelatin to western pharmaceuticals like contraceptive pills and blood pressure drugs.

— With assistance by Hui Li

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