HK seeks to cash in on Chinese biotech

Annual spending on prescription medicines has crossed RM388.5b in China

by BLOOMBERG

BEIJINGChinese drug companies have been on a tear in the US stock market. Now, entrepreneurs and investors betting on the Asian country’s fledgling biotechnology industry see another reason for optimism.

The stock exchange in Hong Kong — home to the world’s fourth-largest equity market — is in the middle of weighing a proposal that would allow biotech companies to list even before they turn a profit. If those plans go through, it would pave the way for more Chinese healthcare firms to raise money via initial public offerings (IPOs), giving them easier access to funds for research.

Annual spending on prescription medicines has crossed US$100 billion (RM388.5 billion) in China as the incidences of diseases like diabetes and cancer have surged. The Asian country has lagged behind the US and other developed markets on innovation, and Beijing has said it wants to build homegrown champions in the healthcare industry.

The proposed Hong Kong listing rules would provide a boost to those plans, while helping the exchange list more of China’s so-called new-economy companies that are particularly attractive to international investors.

Without access to the Hong Kong market, such pre-profit companies “will likely go to America, but now Hong Kong comes in with its advantages in geography and language”, said Lu Xianping, founder of Chipscreen Biosciences Ltd, a Shenzhen-based drug developer. Chipscreen is preparing for an IPO and weighing options including mainland China and Hong Kong, according to Lu, whose company has one cancer drug on the market in China and is developing other oncology and diabetes therapies.

Hong Kong Exchanges & Clearing Ltd famously missed the opportunity to list Alibaba Group Holding Ltd, with the Chinese e-commerce giant choosing to list in the US where its weighted voting structure was allowed.

The biotech proposal comes as a string of Chinese companies working on innovative drugs are seeking IPOs. The Hong Kong exchange aims to finalise the new rules and begin taking applications around June, and plans to add people with biotech expertise to its listing division, CEO Charles Li told the media on Jan 24.

China’s drug innovation has gained momentum in recent years, in part due to dramatic regulatory reforms to speed up approvals. The surge in Chinese biotech stocks shows growing appreciation for Chinese research and development, and the opportunity among US investors, said Debra Yu, head of US crossborder healthcare investment banking for China Renaissance, a Chinese boutique investment bank.

Three Nasdaq-listed pioneers have surged over the past year: Hutchison China MediTech Ltd has jumped about 172% as of Jan 25 in the US, BeiGene Ltd has gained 246% and Zai Lab Ltd has risen more than 35% since its September IPO.

Other companies have also benefited from the general optimism. Wuxi Biologics Cayman Inc, a profitable Shanghai-based service contractor that helps its clients develop and manufacture biotech drugs, has seen its share price surge more than 165% after a Hong Kong listing in June.

It can take up to 10 years to fully develop a new drug, and success can be elusive even in the later stages. Only a tiny fraction of experimental medicines ever make it to the market.

In the US, the Nasdaq Biotechnology index has seen sharp swings and the stocks of small biotech companies are often hammered over bad news from clinical trials.

For instance, Axovant Sciences Ltd lost 74% of its market value in a day in September after a main pipeline drug failed a crucial clinical trial. By contrast, Seattle-based Juno Therapeutics Inc surged earlier this month after Celgene Corp announced it would buy the biotech firm.

Hua Medicine Ltd, a Shanghai-based developer of mainly diabetes drugs, recently hired George Lin, former head of Asia consumer, retail and healthcare investment banking at Bank of America Corp. The company is evaluating options including a Hong Kong or US IPO, Chen Li, its co-founder and CEO, said in a phone interview. — Bloomberg