In April 2018, the Hong Kong Stock Exchange added Chapter 18A 'Biotechnology Companies' to its Main Board listing rules, allowing biotechnology companies that are not profitable and have no revenue to submit listing applications.
Recently, the 'Investment Activity Report on Hong Kong 18A Biotech Companies Issued by Frost & Sullivan and Other Institutions' (hereinafter referred to as the 'Report') released by institutions such as Frost & Sullivan stated that since the implementation of the new 18A rules on the Hong Kong Stock Exchange, 18A biotech companies have mainly concentrated in three areas: pharmaceuticals, medical devices, and cutting-edge medical technologies, accounting for 66.2%, 28.2%, and 5.6% of the total number of 18A enterprises respectively. The 'Report' may be of reference value for biotech companies planning to go public in Hong Kong.
First Finance
With the surge in biopharmaceutical companies going public in Hong Kong, which other tracks are worth paying attention to?
Recently, the 'Investment Activity Report on Hong Kong 18A Biotech Companies Issued by Institutions such as Frost & Sullivan' (hereinafter referred to as the 'Report') stated that since the implementation of the new 18A rules on the Hong Kong Stock Exchange, 18A biotech companies have mainly concentrated in three areas: pharmaceuticals, medical devices, and cutting-edge medical technologies, accounting for 66.2%, 28.2%, and 5.6% of the total number of 18A enterprises respectively. The 'Report' may be of reference value for biotech companies planning to go public in Hong Kong.
In fact, the support for the biopharmaceutical industry by top-level policies is continuously increasing. On December 30, 2021, the National Medical Products Administration and seven other departments jointly issued the '14th Five-Year Plan' for national drug safety and promoting high-quality development, which also proposed goals such as 'approving a batch of innovative drugs urgently needed in clinical practice', 'accelerating the market launch of clinically valuable innovative drugs', and 'bringing globally applied innovative drugs and medical devices to market in China as soon as possible'.
Biotechnology innovation continues
The 18A mentioned in the Report refers to Chapter 18A of the 'Main Board Listing Rules' under the new Hong Kong Exchange's 'Listing Rules', which allows biotech companies that are not profitable or generate revenue to go public. This rule came into effect on April 30, 2018.
As of December 31, 2021, a total of 48 companies, including Gilead Sciences-B, BeiGene-B, CanSino Biologics-B, Regeneron Biologics-SB, Clover Biotechnology-B, and MicroPort Robotics, were listed through the 18A rule, raising a total of HK$112.6 billion from IPOs.
From the tracks selected by Company 18A mentioned above, biopharmaceuticals mainly focus on liver cancer, lung cancer, gastric cancer, hemangioma, lymphoma, etc. Medical device companies primarily deal with heart valve diseases, vascular diseases, and AI medical imaging diagnosis. In addition, AI diagnostic and auxiliary diagnostic equipment is also an important sector.
For instance, in the biopharmaceutical sector, there are 35 listed companies with a total market value of HK$737.43 billion. Sixteen, nine, and three companies have market values exceeding HK$100 billion, HK$200 billion, and HK$500 billion respectively. Another example is the medical device sector, where there are 12 listed companies with an overall total market value of HK$137.05 billion. Among them, MicroPort Robotics ranks first on this sector with a total market value of HK$56.13 billion, accounting for as high as 41% of the total medical device market value.
From the data of the issuance stage, the Report shows that companies in the 18A category had a high frequency of financing before issuance. The majority of companies had 2 to 6 rounds of financing before listing, with Qiming Medical-B, Beihai Kangcheng-B, and Xinda Biotech-B all exceeding 10 rounds; in addition, the time from the submission of the prospectus to issuance for these 18A companies is generally shorter than that of other companies, ranging from 61 days to 301 days.
Li Zheng, the dean of LeadLeo (Shenzhen) Research Institute, said in an interview with CBN that against the backdrop of the country's encouragement for biotech innovation, the report makes comparisons between the valuation of listed companies during the issuance phase, intermediary institutions, and the popularity during the issuance period. It also lists the valuation growth rate of listed companies under their respective tracks and the amount of capital invested by cornerstone investors in these tracks. These are of certain reference value to investors.
Li Zheng also stated that regarding the company's issuance structure (an important information point rarely mentioned in the secondary market), the Report has analyzed the proportions of cornerstone investors, anchor investors, and public offering investors after the company went public, as well as made trend judgments on key indicators such as turnover rate.
New tracks in biotechnology
In biopharmaceuticals, medical devices, and cutting-edge technology fields, what other tracks are worth paying attention to?
Hao Shichao, Chief Analyst of Healthcare at LeadLeo (Shenzhen) Research Institute, told reporters, "Firstly, attention should be paid to the cell immunotherapy track. This is because, against the backdrop of a steady increase in cancer incidence over the past few years and limited effective cancer treatment methods, once new treatment solutions such as CAR-T cell therapy demonstrate outstanding efficacy in treating solid tumors, it will drive the development of cell immunotherapy."
Data from Frost & Sullivan shows that in June 2021, China's first CAR-T therapy, axilelimab injection, was approved for marketing. With the approval of more cell immunotherapy products, the market size in this field is expected to reach 584 billion yuan by 2030, with a compound annual growth rate of 21.6% from 2026 to 2030.
"Secondly, we need to pay attention to cutting-edge medical technologies. For example, Yingpeng Technology, the first stock in the healthcare AI sector, went public on the Hong Kong Stock Exchange in November 2021. In the future, the AI + healthcare industry will accelerate its development," said Hao Shichao. "The potential applications of AI diagnostic and treatment devices include multiple fields such as cancer, infectious diseases, cardiovascular and cerebrovascular diseases, and trauma. After hospitals introduce AI medical devices, they can significantly improve the efficiency of clinical workflows and fill the gap in diagnostic resources."
The Report also shows that in the medical device sector, vascular intervention is currently the sub-industry with the most corporate layout, with a total of 12 listed companies involved in this area.
In this regard, Hao Shichao analyzed that 'from the perspective of China's major vascular interventional medical devices (coronary, peripheral and neurointerventional) market, its market size has increased from 6.72 billion yuan (RMB, the same below) in 2016 to 11.26 billion yuan in 2020, with a compound annual growth rate of 13.8%. It is expected that the compound annual growth rate from 2021 to 2025 will be 14.9%.'
He stated that, affected by factors such as the intensification of population aging, the improvement in residents' affordability, and the strengthening of domestic substitution, the demand for vascular interventional surgeries will continue to grow in the future. The market penetration of related medical devices in third- and fourth-tier cities is expected to continue to increase.
*This article is reprinted from 'CBN Financial', authored by Zou Zhenjie, with the original title 'Hong Kong Stocks 18A Companies Raise Over HDB 100 Billion, What Other Potential Tracks are There in Biotechnology?'.
