Deals

As CBMG moves to complete go-private deal, pressure on U.S.-listed Chinese companies mounts in Washington

$383M deal set against backdrop of White House, Senate push to tighten auditing rules

CBMG’s deal comes amid a Trump administration proposal and legislation designed to tighten auditing rules regarding foreign companies listed on U.S. exchanges. 

While CBMG’s $383 million take private deal was put in motion before U.S. officials further ratcheted up pressure on U.S- listed Chinese companies, the move highlights the trade-offs Chinese companies face in considering where to list and whether to remain listed in the U.S. 

Cellular Biomedicine Group Inc. (NASDAQ:CBMG) has GMP facilities in three cities: Shanghai, Beijing and Wuxi; and is running clinical studies in China of cancer and degenerative disease programs. It plans to maintain its Maryland headquarters following the close of the deal. 

The company is one of more than a dozen life sciences companies to appear on a Public Company Accounting Oversight Board (PCAOB) list of U.S.-traded companies based in countries where the board’s ability to conduct inspections is impaired: China, including Hong Kong; France; and Belgium. 

CBMG first announced it had received a proposal to go private in November, which predates a recent Senate bill and Trump administration proposal seeking to de-list Chinese companies. 

Earlier this month, the President’s Working Group on Financial Markets released a plan recommending that Chinese companies listed on a U.S. stock exchange provide the PCAOB with access to their auditing paperwork by Jan. 1, 2022, to maintain their listings. 

And in May, the U.S. Senate unanimously passed a bill that would prohibit a company’s securities from being listed on any U.S. exchange if the company has failed to comply with PCAOB audits for three years in a row. The Holding Foreign Companies Accountable Act was sponsored by Sens. John Kennedy (R-La.) and Chris Van Hollen (D-Md.)

“It’s asinine that we’re giving Chinese companies the opportunity to exploit hardworking Americans,” Kennedy said in a statement at the time (see “Proposed Legislation Could Deter Chinese Biotechs from Listing in the U.S.”). 

CBMG did not respond to inquiries regarding the reason for taking the company private, or whether it will seek a listing on the Hong Kong stock exchange or Shanghai’s STAR market, where it could potentially garner a higher valuation.

Biotech listings on STAR in particular have seen robust investor demand, with some posting substantial stock gains in their first day of trading. On Thursday, vaccine company CanSino Biologics Ltd. (HKEX:6185; Shanghai:688185) rose 84% in its trading debut, while in June biologics company SinocellTech Ltd. (Shanghai:688520) climbed 185% (see “Biggest STAR Listing Yet”; “Pop Gives SinocellTech Massive Market Cap”). 

CBMG will conduct a 30-day “go shop” process during which it can solicit and consider acquisition proposals; it may end the privatization agreement to accept a better proposal. 

In a separate interview to discuss the moves to tighten auditing rules, Qiming’s Nisa Leung told BioCentury that Hong Kong would be a natural destination for Chinese biotechs seeking an international listing.

“On the biotech side, before the Hong Kong exchange changed their regulations, a lot of Chinese companies were thinking of U.S. listings, but now we’re seeing a majority of Chinese biotech companies planning to list in Hong Kong,” said Leung. “Before these policies under Trump, there was already quite a bit of interest to list in Hong Kong given the vicinity. It’s a lot easier to meet with investors. And in the last two years, Hong Kong has demonstrated itself to be a viable exchange for Chinese biotech companies to list.”

CanSino and SinocellTech are Qiming portfolio companies.

This year has seen a trickle of Chinese biotechs listing on NASDAQ. 

In January, Shanghai’s I-Mab Biopharma (NASDAQ:IMAB) raised $104 million in an IPO that valued it at $807.3 million, marking the first innovative, China-based drug developer to list on NASDAQ in two years. 

Molecular diagnostics companies Burning Rock Biotech Ltd. (NASDAQ:BNR) and Genetron Holdings Ltd. (NASDAQ:GTH) followed in June. Guangzhou-based Burning Rock raised $256.2 million at a $1.7 billion valuation and Beijing-based Genetron raised $256 million in an offering the valued it at more than $1.4 billion.

Leung declined to predict how recent proposals and legislation in the U.S. designed to tighten audits of foreign U.S.-listed companies might affect investor sentiment in Chinese biotechs already listed on U.S. exchanges, or whether it would encourage dual-listings in Hong Kong or on STAR. 

CBMG will be acquired for $19.75 per share by a consortium comprising CEO Bizuo Liu and other members of the management team; Dangdai International Group Co. Ltd.; Mission Right Ltd.; Wealth Map Holdings Ltd.; Earls Mill Ltd.; OPEA SRL; Maplebrook Ltd.; Full Moon Resources Ltd.; Viktor Pan; Zheng Zhou; Yunfeng Fund III L.P.; TF Capital Fund III L.P.; and Velvet Investment Pte. Ltd.

The price represents a 12% premium over the company’s closing price of $17.67 on Nov. 8, 2019, before the initial proposal.