China biotech IPOs in Hong Kong to stay strong - AVCJ Forum

In the first 10 months of 2021, a total of 77 IPOs in Hong Kong raised a combined $38.3 billion, according to Dealogic data. Healthcare companies, including biotech, accounted for around one-third of the offerings and 19% of the proceeds.

Nisa Leung, a managing partner at Qiming Venture Partners, said the introduction of the Chapter 18A provision in April 2018, which allows pre-revenue biotech developers to list on the mainboard of the Hong Kong Stock Exchange, had played a pivotal role in the rising number of healthcare IPOs.

“We hope the upward trend will continue, though in the last few months the market dynamics have been volatile,” said Leung, adding that Qiming expects 20-30 IPOs from its portfolio in 2022.

Jireh Li, a managing director at Source Code Capital, noted that the boom in China healthcare IPOs in Hong Kong is a result of wider market recognition of Chinese entrepreneurship and emerging business models. This is reflected in increased investor coverage of the space.

Over the past five years, an increasing number of Chinese institutional investors, including China-focused mutual funds, hedge funds, and long-only funds, have been set up, Li said. She added that China allocations of US-based and other international institutional investors are also rising.

Despite the increasing number of biotech IPOs in Hong Kong, market volatility has resulted in some companies trading below their IPO prices. However, Leung argued that investors might find the valuations more attractive on revisiting those stocks, which could attract more capital.

Leung pointed to CanSino Biologics as an example of the importance of timing and appropriate valuation. The stock closed at HK$164.5 on November 18, up 647.7% from its IPO price in March. “This is probably the highest growth 18A [pre-revenue upon listing] company so far,” she said.

Earlier this month, the Cyber Administration of China (CAC) released a draft regulation requiring mainland Chinese companies seeking IPOs in Hong Kong to undergo cybersecurity reviews. It applies to businesses that handle data related to national security. The proposal follows another that stated companies holding data on more than one million users should be subject to pre-IPO vetting.

Leung and Li said more time is needed to study the proposed regulation – which is open for public consultation until mid-December – and the implications for portfolio companies. However, Leung said she expected it to have less impact on the healthcare sector.

“I believe the CSRC [China Securities Regulatory Commission] will issue more guidance at the end of the year or early next year,” Leung added.

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• Topics
• Greater China
• Healthcare
• IPO
• China
• Pharmaceuticals
• Hong Kong (China)
• Qiming Venture Partners
• Source Code Capital
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