e2-Capital, a recently formed online investment bank specializing in technology, media and telecommunications, plans to expand into healthcare and biotechnology in a bid to tap the growing market for herbal medicine and improved pharmaceuticals.
The bank û co-founded earlier this year by SJ Wong, former managing director and head of equity capital markets at BNP Prime Peregrine û has hired HM Pang to head up the company's biotechnology advisory group. Pang was previously executive director of Asia Healthcare and before that worked for several big pharmaceuticals companies including SmithKline Beecham, Glaxo and Norton.
e2-Capital circumvented the need for an initial public offering by agreeing a HK$348 million ($44.7 million) share-swap in February with Goodwill Investment that gave it a backdoor listing on the Hong Kong Stock Exchange. Since then the bank has racked up deals worth HK$658 million from the likes of Softbank, Chinadotcom and the Koo's Group. Now it's targeting healthcare companies.
"We feel that biotechnology is a natural focus for us, so we're gearing up to offer scientific know-how and investment advice in this sector," says Wong.
e2-Capital has HK$220 million in uninvested capital and expects to have another HK$400 million or so from the pending sale of its property portfolio. It plans to advise and help finance a portfolio of companies at various levels of development in the pharmaceuticals and biotechnology sectors.
Focus on synthetic drugs
The company expects to generate short-term revenue from investments in new synthetic pharmaceuticals aimed at Asian markets. Medium-term revenue will come from investments in traditional Chinese medicine products sold in the west as food supplements and in Asia as drugs. Long- term revenue will come from drugs manufactured in China and sold internationally.
It's a big ambition with many potential pitfalls, not least of which are regulatory. Over the past five years the Chinese government has given millions of dollars to research organizations to help find a way to standardize the quality and quantity of any given substance in a traditional Chinese herbal supplement. Until such a standard is developed, buyers have no idea whether the dose received in one unit of Ginkoa, for example, is the same as it is in another. Yet Ginkoa is the second-biggest herbal product sold in the US after St. John's Wort.
That's something e2-Capital hopes to go some way towards changing. It wants to seek out herb suppliers that can ensure uniform and high-quality growing conditions for their crops and then market the more homogenous supply abroad. Typically, representatives of big overseas pharmaceutical chains come three or four times to China each year to buy the necessary raw material in bulk. They then pass on that material to contractors in their home countries who make up the finished product.
e2-Capital aims to nurture companies who can grow consistent product and manufacture it into finished doses at home. In the meantime, it hopes to bring together big consumers of Chinese herbs with big suppliers and create an oversight body between the two that ensures consistent quality of supply for the buyer and a guaranteed market for the seller.
"In Asia, healthcare has always been dominated by foreign multinationals," says Pang. "We can't rely forever on the use of imported, expensive products. We have to develop our own industry."
In the US, most Chinese medicines are classified as food supplements by the US Food and Drug Administration. To be classified as a drug, a product must go through the same arduous series of clinical trials that any synthetic drug must go through. That's a process that can take years and requires large amounts of capital. Still, it's a goal e2-Capital is striving towards.
Right now the bank is building up its management team and evaluating its initial investments. These will take the form of capital from seed funding upwards, advice on mergers and acquisitions and eventually help with an initial public offering. In the meantime it is busy developing its traditional technology portfolio.
Unlike many technology and internet-related start-ups, e2-Capital is already profitable. In 1999 it had revenue of HK$163 million and net profit of HK$16 million. Jardine Fleming analyst Winston Sim expects the company to make HK$245 million in revenue this year and HK$107 million in profit. The projection for 2001 rises to HK$289 million in revenue and HK$168 million in profit. The company's shares were last trading at HK$0.85 each.