QuantumPharm, a Chinese artificial intelligence (AI) drug researcher backed by Tencent Holdings and HongShan, is eyeing an initial public offering (IPO) in Hong Kong to raise up to HK$1.13 billion ($144.7 million) to fuel its global expansion.
Shenzhen-headquartered QuantumPharm, also known as XtalPi, is poised to complete the first IPO under the city’s new listing regime for pre-revenue specialist technology companies introduced over a year ago. Chapter 18C, which became effective in March 2023, allows companies worth at least HK$10 billion ($1.3 billion) to sell shares publicly even if they have yet to book a single dollar in sales.
QuantumPharm is selling close to 187.4 million new shares at HK$5.03-HK$6.03 ($0.64-$0.77) apiece, of which about 95% will be set aside for global investors.
The retail portion of almost 9.4 million new shares may be increased to about 37.5 million, or 20% of the total offering, subject to public demand and a so-called clawback mechanism. The final price will be set on June 7 and the listing on June 13.
QuantumPharm, which serves 16 of the world’s 20 largest biotech and pharmaceutical companies by revenue, is moving towards the Hong Kong listing to stress its focus on the global market.
“We firmly believe that only a global market focus can lead to maximised business opportunities. That is why we have roped in a list of international shareholders and investors,” said Wen Shuhao, the firm’s co-founder, executive director, and chairman of the board, during a media briefing in Hong Kong on Monday.
QuantumPharm has raised almost $732 million in total financing since its inception in 2015. The firm was last valued at nearly $2 billion when it completed an OrbiMed-led Series D round at about $400 million in August 2021.
It also counts Tencent Holdings, HongShan, previously known as Sequoia Capital China, 5Y Capital, China Life Insurance, People’s Insurance Company of China (PICC), and SoftBank Group Corp’s Vision Fund 2 among its investors.
HK IPO to pave way for global expansion
The decision to seek a Hong Kong IPO under Chapter 18C is based on multiple considerations, including the firm’s global expansion plan, said Ma Jian, co-founder and CEO of QuantumPharm. “Hong Kong offers an international capital market that will play a vital role in promoting our company image, transparent corporate governance, and business development globally,” said Ma.
Specifically, the firm is actively exploring expansion opportunities in the US, Europe, East Asia (especially Hong Kong), Southeast Asia, and the Middle East, according to its prospectus.
Ma said that the proceeds from QuantumPharm’s public share sales will also help the firm enhance its R&D capabilities, invest further in advanced technologies, attract global talents, and fund potential acquisitions in the industry.
Founded in 2015 by three postdoctoral physicists at the Massachusetts Institute of Technology (MIT), QuantumPharm seeks to reinvent the pharmaceutical industry’s drug research and discovery approach by using quantum physics, AI, high-performance cloud computing, and robotic automation.
The firm recently expanded into material science, R&D solutions and design and discovery of bio-based materials for clients in the agritech, energy, new chemicals, and cosmetics industries and beyond.
While it has yet to turn a profit, QuantumPharm’s revenue has grown substantially in recent years to reach 174.4 million yuan ($24.6 million), representing a compound annual growth rate of 66.7% in the three years from 2021-2023. Its adjusted net loss stood at 522.2 million yuan (US$73.5 million) for 2023, widening from a deficit of 437.4 million yuan ($61.6 million) in 2022, per its prospectus.
Its CFO Ronald Tam Man-hong said China contributed to about 60% of its revenue in 2023, while the remaining 40% came from its business overseas, especially in the US. Its global expansion plans could lead to an increase in its overseas business share.
QuantumPharm’s cash on hand exceeds 2.8 billion yuan ($394.2 million). That compared with last year’s operating costs of approximately $90 million.
“We’re in a healthy financial condition. Even without the IPO, the firm has enough cash reserves to run for roughly four years. After the new stock is listed, our cash reserves are expected to last for six years,” said Tam.
QuantumPharm initially targeted a US listing of up to $500 million and filed its IPO application confidentially in 2021, with Goldman Sachs as one of the bookrunners, according to an International Financing Review (IFR) report. But the plan was later shelved as banks and regulators grew more cautious about pushing such China-to-US IPOs, especially when the business is involved in potentially sensitive biomedical data, amid continued geopolitical tensions and lingering regulatory risks.
Its counterpart Insilico Medicine, an AI drug discovery company backed by investors like Qiming Venture Partners, is also heading towards a Hong Kong IPO, reportedly targeting $200 million, after it put aside a US listing plan.
