The Stock Exchange of Hong Kong Limited (The Exchange) adopted new rules on April 30 that for the first time enable pre-revenue companies in “emerging and innovative sectors” — including biotechnology — to submit formal applications to list on that exchange. This was the outcome of a careful four-year process aimed at making the Exchange more relevant and competitive as “a welcoming home for innovative companies.”
Under the new rules, companies seeking to list on The Exchange are no longer required to have three years of profitability before doing so. This new opportunity is therefore attracting a growing list of biotechnology firms, both established companies and earlier stage ones: as of July 8, at least 16 firms are reported to be pursuing IPOs, and a lot more have signaled their intent to do so. First up: Hangzhou-based Ascletis Pharma, which plans to launch a new drug treatment for Hepatitis C in China this fall, and is developing additional drugs against HIV and liver cancer specifically for the very large China market. WuXi Apptec, mainland China’s leading biotechnology firm, also announced plans to list its core small molecule CRO business spinout on The Exchange only two months after the company went public in Shanghai via a fast-tracked listing. Several other biotechs, including US-based Stealth BioTherapeutics and AOBiome, have joined the growing number of companies applying for a listing on The Exchange.
While the new framework offers unprecedented opportunities for pre-revenue companies to tap into a large pool of investment, it does come with significant risks as early-stage drug development is notoriously prone to failures. It will be extremely important to watch how the first companies listed on The Exchange grow and evolve, as well as what impact they will have on the biotechnology market and on The Exchange’s investors, who may have little prior experience investing in biotech.
Addressing some of the risk, The Exchange established certain safeguards affecting pre-revenue companies, including detailed criteria for determining the suitability of applicants, a higher market capitalization requirement, and enhanced disclosure requirements. In addition, fundamental changes to the company’s principal business will be scrutinized, and a streamlined delisting procedure is to be put in place to “address potential ‘shell’ concerns.” The Exchange is also forming a special Biotech Advisory Panel of industry experts to advise and assist The Exchange in reviewing listing applications from biotech companies.
Will companies continue to flock to The Exchange? Will it provide a useful stepping stone to further listings on more established exchanges? Is this Hong Kong IPO frenzy symptomatic of another biotech investment bubble? We’ll be watching.