Porton Fine Chemical will look at M&A in the long term; COVID-19 impact “less- than- expected”, chairman says

01 April 2020

Porton Fine Chemicals (Bo Teng Zhi Yao), a Chinese medical research organization (CRO) company, will still look at M&A targets in Europe and the US in the long term in accordance with its global expansion strategy, said Chairman Ju Nianfeng on its earnings call on 30 March. 

Porton Fine Chemicals (Bo Teng Zhi Yao),a Chinese medical research organization (CRO) company, will still look at M&A targets in Europe and the US in the long term in accordance with its global expansion strategy, said Chairman Ju Nianfeng on its earnings call on 30 March. 

 

It will expand its contract development and manufacturing organization (CDMO) business through M&A in the long term, said Ju. 

 

However, it will not make urgent decisions due to the novel coronavirus outbreak. It will also not consider opportunistic investments based on price volatilities, said the company’s investor relations manager. It will primarily look at the technology and synergies the deal will bring to Porton, he added. 

 

The preferred targets are small molecule and biologics CDMO with sustainable cash flow and well-known clients, added the IR manager. 

 

The company has initiated a small molecule CDMO business and a biologics CDMO business in 2019 and will focus on gene and cell therapy manufacturing in the upcoming years.

 

“The CRO/CDMO is not just outsourcing,” said Ju. “It is playing an increasingly important role in drug innovation and manufacturing.”

 

The company had acquired J-STAR Research, a South Plainfield, New Jersey-based contract chemistry firm in 2017. The acquisition has contributed significant growth to Porton by attracting many small US biotech companies as clients. It has also diversified Porton’s drug discovery and research, said Ju.

 

COVID-19 impact “less-than-expected”

 

The impact of the coronavirus on Porton’s business was less- than-expected, said Ju, adding that Porton’s manufacturing facilities had returned to normal quickly after the Spring Festival. 

 

Meanwhile it has seen increasing overseas orders as the Europe and the US remain in a lockdown. 

 

“We have seen our foreign clients shifting some of its orders from local suppliers to us,” said Ju. “So we are expecting our market share to increase as the coronavirus intensifies in Europe and the US.”

 

So far the increasing orders are mainly from existing clients as they face challenges in their global supply chain, he added. Places like Italy are in a nationwide lockdown and local suppliers are unable to guarantee the capacity, noted Ju.

 

At the same time, Porton is yet to receive any information from clients on whether there would be cancellation of any orders, according to its investor relations manager.

 

That would be the worst situation for the whole industry as the global pharmaceutical supply chain is interconnected, said the IR manager.

 

Meanwhile, it will focus on developing new customers in China as trips overseas are not possible, the IR manager noted.

 

Porton provides tailored active pharmaceutical ingredient (API) CRO/CDMO services including the design, research, development and manufacture of API and intermediates for matured drug products and drug candidates in the R&D stage, according to its 2019 annual report. 

 

According to the annual report, revenue from outside-China accounted for 80% of its total CNY 1.55bn (USD 218m) revenue, while the top 10 clients contributed 58% of its revenue.

 

Its top three clients are GileadJohnson&Johnson and GSK, which have maintained a long-term relationship with Porton and have s many of their blockbuster drugs, such as anti-Hepatitis C drugs, anti-HIV drugs and diabetic drugs manufactured by Porton, as reported by local media.

 

Pfizer, Novartis, RocheBoehringer Ingelheim and  Allergan are major clients for some clinical stage candidates, as reported.

 

Porton has inked deals with a number of small and medium-sized biotech companies in Europe and the US in the past two years, according to its 2019 annual report.

 

The company has just released its 1Q20 earnings guidance on 27 March, stating that it realized CNY 378m – CNY 405m revenue in 1Q20, representing a 50%-60% YoY growth; while the net profit was between CNY 42m – CNY 50m, representing a 154% – 203% YoY growth. This strong growth was due to robust client orders, as announced.

 

Ju said The company has yet to receive any concrete orders for anti-COVID-19 drugs as clients are still in clinical trials to verify the efficacy.

 

One of Porton’s biggest clients Gilead, is conducting global trials of Remdesivir, an antiviral drugs with the potential to fight COVID-19. Gilead’s CEO Daniel O’Day said, in a letter released by the company on 29 March, the company will update trial data in the upcoming weeks for Remdesivir while at the same time the drug has been provided to over 1,000 patients for “compassionate use”.

 

Porton achieved revenue of CNY 1.5bn in 2019, up 30.93% YoY, according to its 2019 annual report.

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