Innovent Biologics, Inc. (HKG: 1801), headquartered in China, has announced a subscription agreement in which its wholly owned subsidiary Fortvita will sell a 20% stake to Lostrancos Ventures Ltd. for USD 20.5 million. This news has sparked market controversy, with some investors criticizing the valuation of Fortvita as being too low, leading to a nearly 13% decline in Innovent’s share price the following day.
Fortvita, established in 2018, serves as Innovent’s international business platform, focusing on the research and development of advanced therapies for challenging diseases worldwide. Lostrancos, owned by Innovent’s Co-founder, Chairman, and CEO Yu Dechao, will see Yu retain 82.93% of Lostrancos’ equity post-transaction.
The primary contention surrounds the pricing. Fortvita’s valuation is based on an asset-based approach, estimated at approximately USD 234 million, largely due to its pipeline being in early discovery and preclinical stages. However, critics argue that Fortvita holds overseas rights to several innovative products in Innovent’s portfolio, including PD-1/IL-2 bispecific antibodies, Claudin18.2/CD3 bispecific antibodies, and various antibody-drug conjugates (ADCs). Given that the biotech industry often values companies on potential pipeline prospects, there are concerns that Fortvita’s equity valuation may be understated. Notably, Yu Dechao recently divested HKD 152 million (USD 21.3 million) of Innovent shares on September 30 and October 2, an amount equivalent to the funds required for the Fortvita stake acquisition.
In response to investor concerns, Innovent held a conference call on October 29, during which Yu Dechao acknowledged the trading issue and expressed regret. He stated that due to confidentiality, details about the Fortvita pipeline remain undisclosed, though most products are high-risk preclinical molecules with overseas rights. He emphasized that the valuation reflects the current status of the products, with all Chinese rights retained by Innovent. The commitment from key management to invest in the Fortvita platform underscores the company’s long-term strategy in developing its international business. As of market close on October 29, Innovent’s share price further declined by 4%.- Flcube.com
