Ever since the Hong Kong Stock Exchange (HKEX) overhauled its listing rules to welcome pre-revenue biotech companies in April 2018, Hong Kong has become the largest biotech fundraising hub in Asia, and the second largest in the world after Nasdaq, HKEX executives said Tuesday at the bourse’s biotech summit. The biotech IPO pipeline continues to grow and pre-revenue companies are more accepted into the city’s financial system.

The HKEX has already launched six pre-revenue biotech and medtech IPOs during the first half of this year, compared to a total of nine last year. Currently, seven more pre-revenue companies are in the IPO pipeline, which means the number of pre-revenue IPOs is set to break the 2019 record.

The seven companies are Antengene Corp. Ltd., Bio-Thera Solutions Ltd., HBM Holdings Ltd., JW Therapeutics Co. Ltd., Everest Medicines Ltd., JHBP Holdings Ltd. and Remegen Co. Ltd., and submitted their prospectuses between June and August. Together, they will keep the IPO pipeline robust in the second half of this year.

To date, 20 pre-revenue biotech companies have been listed in Hong Kong, raising a total of HK$48 billion (US$6.19 billion), said Bonnie Chan, managing director and head of listing at the HKEX on Tuesday. Those companies have gone on to raise follow-on capital of HK$46 billion, she said.

It is not only the volume of applicants that is notable, but also their diversity. “We are now observing a very broad sampling of life science players from the entire ecosystem of pharmaceuticals, biologics and medical devices,” Chan said. “In terms of therapeutic focus, cancer still ranks as the most popular. However, we are already seeing other areas gaining popularity, such as vaccinology, autoimmune diseases and so forth.”

The market’s listing application pipeline suggests that cell therapy is generating excitement, she said, pointing to an increased number of applicants that focus on therapies in the category, such as CAR-T. In vitro diagnostics and next generation medical devices, a relatively new segment in China's biotech sector, are also gaining greater recognition.

Biotech stocks have also delivered a stellar performance on the HKEX. The share prices of the 20 pre-revenue biotech companies have gone up 70% since their debut, or 40% since the beginning of this year, said Wilfred Yiu, managing director and head of markets at the HKEX.

The average daily trading volume of these 20 companies also continued to increase, from HK$270 million in 2018 to HK$611 million in 2019 and HK$1.4 billion during the first eight months of this year, Yiu added.

“These figures reflect that the biotech companies’ performance and the investors’ interest for this sector have made great progress during the past two to three years,” he said. “Investors are becoming more willing to invest in biotech companies.”

The performance of biotech stocks has also been driven by the pandemic, on top of the existing favorable factors such as China’s growing aging population and increased input in biotech innovation.

In particular, vaccine maker Cansino Biologics Inc.’s shares have increased a whopping 648% in value since its market debut, while the shares of Innovent Biologics Inc. and Shanghai Junshi Biosciences Co. Ltd. jumped 175% and 93%, respectively, putting them in the lead among the HKEX-listed biotech stocks.

The pre-revenue biotech IPOs are also often significantly oversubscribed. Innocare Pharma Ltd. and Akeso Inc., two pre-revenue IPOs that launched in March and April during the pandemic, have received 298 and 692 times retail oversubscription, respectively.

When looking at the Hang Seng Composite Index industry performance during 2019, healthcare (including biotech and pharmaceuticals) was the best-performing industry, recording an increase of 36%. The Hang Seng Composite Index represents 95% of the Hong Kong stock market.

The financial community in Hong Kong is growing more accommodating to pre-revenue companies. On July 20, the Hang Seng Indexes Co. Ltd. said pre-revenue biotech companies can be included in the Hang Seng Composite Index if they meet certain eligibility criteria. After the announcement, seven pre-revenue biopharma companies, including Ascentage Pharma Group International, Cansino, and Venus Medtech Inc., were selected as constituent stocks of the index.

“Including these [pre-revenue biotech] companies in the index means a lot of funds that are following this index will get to further follow these companies, which directly expands the investor base,” Yiu explained.

Being included in the Hang Seng Composite Index is also a step closer to becoming eligible for trading through Stock Connect, a mutual market access program which allows investors in mainland China and Hong Kong to trade shares listed in Hong Kong, Shanghai and Shenzhen.

It remains to be seen at what point pre-revenue biopharma stocks may be traded through Stock Connect, though the HKEX said that this not currently planned.

Though the pre-revenue biopharma players listed on the HKEX are all from China so far, the bourse is also looking elsewhere to boost its IPO pipeline. Foreign companies that show an interest in expanding their businesses to Asia and China are the targets.

“The HKEX is working … to attract more companies from fast growing economies and markets such as Southeast Asia and Israel to our market in the field of biotechnology,” said HKEX’s chairman Laura Cha. “HKEX’s mission is to be the global market leader in the Asian time zone.”

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