BEIJING – Look out, Hong Kong Stock Exchange (HKEX). Chinese pre-profit biotech startups are now starting to apply for listing on Shanghai's sci-tech innovation board known as the STAR, with the latest application filed by HIV drugmaker Frontier Biotechnologies Inc., of Nanjing.

Frontier is known as the developer of China's first and only injectable HIV drug, Aikening (albuvirtide). The drug won market approval in China in May of last year and was launched three months later.

With its IPO backed by UBS Securities Co. Ltd., the company plans to issue no more than 89.96 million shares to raise ¥2.01 billion (US$286 million) to fund the clinical studies testing the combination of Aikening and 3BNC-117 and to scale up its manufacturing capacity to produce 10 million of injections annually.

3BNC-117 is the second drug candidate in Frontier's lineup of anti-HIV/AIDS drugs. It is a broad-spectrum neutralizing antibody targeting the HIV-1 gp120 CD4 binding site. Frontier got the worldwide license for 3BNC-117 from Rockefeller University in the U.S. in 2017 for use in combination.

Through combining it with Aikening, Frontier said it expects the therapy will form an all-injectable, long-acting, two-drug regimen. The company started phase II trials in the U.S. in late 2018 and gained approval to start testing in China in May.

Beyond HIV, Frontier is developing a topical patch product known as AB-001 for the treatment of acute and chronic muscle and joint pain and inflammation. It has completed phase II trials in the U.S. and could be a best-in-class product.

Despite the commercialization of its core product, Aikening, the company is yet to make a profit. The drug only generated revenue of ¥1.91 million last year, far too little to cover the company's R&D expenses at ¥99.4 million that year. Frontier thus chose to list on the STAR as a pre-revenue company.

That pathway requires the companies to have an expected market capitalization of at least ¥4 billion as well as a core business or product that is approved by the Chinese authorities, has great market potential, and shows some promising results. Pharmaceutical companies must have at least one core product that is approved for phase II trials.

Frontier said in its application that its market capitalization is around ¥5.4 billion after several financing rounds.

What intrigues the market is that Frontier was said to be considering an IPO on the HKEX, which has opened its door to pre-revenue biotech companies since April 2018. But the Nanjing-based company chose Shanghai instead.

"Simply put, Shanghai's STAR board is more in line with our positioning," Frontier CEO Changjin Wang told BioWorld. He did not further reveal the reasons for switching to the STAR.

To compare, the HKEX requires pre-revenue biotech companies to have a market cap of at least HK$1.5 billion (US$191 million), to have engaged in R&D of its core product for at least 12 months before listing, and to have developed at least one core product beyond the concept stage.

HKEX vs. STAR

Frontier is not the first company to back out off an HKEX listing. Qingdao Haier Biomedical Co. Ltd., a biomedical cryogenic storage devices maker, withdrew its application with the HKEX in March to turn to the STAR instead. It plans to raise ¥1 billion in that IPO to scale its R&D capability.

But things are also going both ways. Medical device firm Venus Medtech (Hangzhou) Inc. has just applied for listing on the HKEX this month, after it reportedly sought IPO advice for listing on the STAR.

There are two possible reasons why those companies opt for Shanghai instead of Hong Kong, according to Jialin Zhang, senior research analyst at China Healthcare at ICBC International Research Ltd.

"The STAR board is a home market with government support. Valuation and liquidity are also higher," Zhang told BioWorld. "However, it requires less track record of operation."

That might reflect the differences between the stock markets in Hong Kong and China. Hong Kong investors have been more cautious, while Chinese investors have been more enthusiastic about health care companies with innovative technologies.

When the first batch of those companies was listed on the HKEX, most saw their share prices drop. But on the STAR, stocks gained as much as 140% on average on the first trading day.

Life sciences experts said the HKEX offers more sophisticated international investors who understand biotech, while the STAR gives higher valuation. Biotech companies must think about which bourse is the best for them.

Of the pre-profit companies, nine have been listed on the HKEX since April 2018 and six are pending approval, while four have applied to the STAR and none has been listed yet.

Along with Frontier in the STAR listing queue are Guangzhou-based biosimilar maker Bio-Thera Solutions Ltd., Beijing-based surgical robot developer Tinavi Medical Technologies Co. Ltd. and innovative drugmaker Suzhou Zelgen Biopharmaceuticals Co. Ltd.

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