FAST NEWS: WuXi AppTec Plunges Amid Controlling Shareholder’s Disposal Plan

The latest: Pharmaceutical services outsourcing company WuXi AppTec Co. Ltd. (2359.HK; 603259.SH) announced on Friday that its controlling shareholder intends to reduce its holdings of up to 88,680,300 A shares, representing approximately 3% of the company’s issued share capital, at market price from 4 July to 30 September through competitive bidding and block trading.

Looking up: The disposal only involves the company’s Shanghai-listed A shares and will not result in a change of control of the company. In addition, it does not include the H shares listed in Hong Kong.

Take Note: For a listed company, a major shareholder cutting shares is a bearish signal, meaning that the shareholder may have a negative view of the company’s prospects and hopes to cash in before the share price falls. If the disposal is due to the shareholder’s own capital needs, there may also be other subsequent cuts in the future.

Digging Deeper: Founded in December 2000, WuXi AppTec is a Chinese pharmaceutical outsourcing services provider, covering the entire industry chain from drug discovery to commercialization. The company has grown rapidly on big demand from both foreign and domestic drug developers for outsourced R&D and manufacturing services for their activity in the fast-growing China market. The company has recently forecast a 63% to 65% increase in revenue in the second quarter, the ninth consecutive quarter of revenue growth. However, against this optimistic operating backdrop, the controlling shareholder still intends to reduce its shareholding, a move that will raise market suspicion and adversely affect the share price.

Market Reaction: WuXi AppTec’s A-shares and H-shares opened sharply lower on Monday, with its A-shares closing down 9.8% to 93.05 yuan and its H-shares diving 10.3% to HK$94.55 at the midday break, close to their 52-week lows.

Translation by Jony Ho

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