HKEX SVP Reflects on Two Years of Pre-Revenue Biotech IPO Listings in Hong Kong


It has been just over two years since the Hong Kong Stock Exchange (HKEX) revised its listing rules to allow pre-revenue biotechs to IPO as long as they met certain criteria. In May 2020, during the first in a series of webinars organized by the HKEX to celebrate the second anniversary of this Biotech Chapter, Head of Listing Bonnie Chan highlighted that 18 companies had since IPOed under this Chapter, raising a total of HKD 44 billion (USD 5.67 billion), emphasizing that many of them were not simply mainland Chinese or even regional players but companies harbouring global aspirations. All this activity pushed HKEX to become the world’s second-largest biotech fundraising hub – after the NASDAQ – in 2019.


The HKEX has also taken the second anniversary of the Chapter as an opportune moment to reflect and improve its operations. As Michael Chan, SVP of Global Issuer Services, contextualized, “the introduction of our biotech chapter [did] not represent the completion of a mission, but rather the start of a long and exciting journey. We are seeking to continuously enhance and upgrade the listing regime to keep pace with the rapid development of the biotech and life sciences industry, which is becoming ever more complex and diverse.”


The introduction of our biotech chapter [did] not represent the completion of a mission, but rather the start of a long and exciting journey

Michael Chan, SVP, Global Issuer Services, HKEX


Even since before the launch of the Biotech Chapter, HKEX has made active forays into the global investor community to canvas insights, support and investment, and two years on, Chan stressed, “we have received great support and very positive feedback on our biotech chapter from both Chinese and international investors, issuers, market participants, and experts. The biotech chapter is a great and timely addition to the vibrant and rapid development of biotechnology in China and Asia. [Notably], at the IPO stage, issuers have access to both Chinese and international investors. During the IPO process, these biotech companies were not only able to secure access to funding, but also to put in place important partnerships and alliances to further their business strategies.”


That being said, HKEX is also open to constructive criticism. Chan revealed, “moving forward, the feedback is that the market would like to – and indeed expects to – see more diversity in terms of different subsectors, including medical devices, diagnostics, biologics, genomics, artificial intelligence, and other therapeutic areas. Greater diversity in terms of geography is also expected. Companies that list on the Hong Kong market expect to see themselves listed alongside other reputable international peers,” adding, “[we] expect the entire ecosystem to accelerate in terms of maturity.” Indeed, of the 18 companies* that have IPOed so far, all except one are headquartered on mainland China with the outlier being based in Hong Kong, and all except one are biopharma companies.


2020 has also seen a number of headwinds buffet HKEX, from the outbreak of the global COVID-19 pandemic, chilly U.S.-China relations, and the escalation of tensions in Hong Kong. In addition, in May 2020, HKEX CEO Charles Li, who has steered the HKEX adeptly to its current height of success, announced that he would not seek reappointment once his current contract term ends in October 2021, putting the wheels in motion for a succession plan to be developed.


At the same time, HKEX might benefit inadvertently from recent moves by NASDAQ to discourage IPOs from Chinese companies as a result of a number of concerns, ranging from political pressure, controversies like the extensive fraud subsequently discovered in Chinese company Luckin Coffee (which IPOed in the U.S. in 2019), as well as the low liquidity of the shares of such companies post-IPO. HKEX CEO Li stated in the recent Piper Sandler industry conference that he expects 2020 to be “a big year for IPOs, including both huge IPOs from China but also very substantial returnees … from the U.S. [as] the atmosphere in the U.S. is becoming less friendly.” Here he was referring to the Chinese legislature’s passage of controversial national security legislation for Hong Kong on 28 May 2020, which was quickly met with an announcement by U.S. President Donald Trump that he would eliminate Hong Kong’s privileged trade status.


Nevertheless, in terms of regional competition, SVP Chan struck a rather sanguine note about staying ahead of the game as other Asian biotech hubs like Taiwan, Singapore and South Korea also look to boost their stock exchanges. “Rather than competition, we see a positive feedback cycle from other stock exchanges, including those of Shanghai, Shenzhen, and other Asian markets. We are all working towards the same goal: to develop Asia’s capital markets as a whole and facilitate the flow of capital between East and West and West and East. There are numerous synergies between the exchanges to be leveraged on.”


Chan’s final message to biotech companies was unequivocal: “if you are interested in diversifying your investors and tapping the Asian market, especially the Chinese market, you should consider listing in Hong Kong.”


Chan elaborated, “the formation of CES HK Biotech was driven by increasing demand in the capital markets for benchmarks that track and reflect the development of the whole biotech sector. Biotech stocks are prone to volatility as most of companies’ products are still at the R&D stage and to a large extent stock prices are subject to the results of clinical trials. Therefore, there was a real need for an industry benchmark to help investors diversify the risk of investing in biotech stocks.


In terms of performance, as of March 2020, the three-years annualised return of CES HK Biotech reached 31.43 percent. The constituent total market capitalisation was HKD 410.6 billion (USD 53.0 billion).”


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