Zelgen Biopharmaceuticals Becomes First Company Listed on STAR Market Under Rule Set Five, Shares Surge 84.24% at Midday

On January 23, 2020, Zelgen (688266.SH) was listed on the Shanghai Stock Exchange, officially debuting on the STAR Market. The company’s issue price was RMB 33.76 per share, with an opening price of RMB 67.52. During the IPO subscription period, Zelgen emerged as a highly sought-after new stock, receiving oversubscription by 584.59 times.

As of the morning session close at 11:30 a.m., Zelgen rose 84.24% to RMB 62.2, with a market capitalization of RMB 14.93 billion.

Zelgen, established in 2009, is an innovation-driven pharmaceutical company dedicated to the research and development of novel chemical and biological drugs across multiple therapeutic areas, including oncology, hemorrhagic and hematologic disorders, and hepatobiliary diseases. Its core product, donafenib, is a Class 1 innovative drug indicated for various cancers such as hepatocellular carcinoma, colorectal cancer, and differentiated thyroid cancer. It is also the first domestically developed targeted new drug in China to initiate a Phase III clinical trial for the first-line treatment of advanced hepatocellular carcinoma.

After several rounds of financing, Zelgen’s shareholder roster is also packed with institutional investors. Dozens of well-known PE/VC firms, including Minsheng Life Insurance, Northern Light Venture Capital, Fenxiang Investment, and Shenzhen Capital Group, have clustered in, alongside listed companies. Among them, Dongwu Innovation, a wholly-owned subsidiary of Soochow Securities, holds nearly 1.1% of the shares, while China Nonferrous Metal Industry’s Foreign Engineering and Construction Co., Ltd. (CNFC), Legend Holdings, and New Hope Group hold a 2.8% equity stake in the company through Minsheng Life Insurance.

Donafenib is a Class 1 novel chemical drug and a multi-target kinase inhibitor. It is currently undergoing clinical trials for multiple indications, including advanced hepatocellular carcinoma (first-line), advanced colorectal cancer, advanced thyroid cancer, advanced nasopharyngeal carcinoma, and advanced gastric cancer. Furthermore, Zelgen has transitioned from a single-product to a multi-product portfolio, establishing a product lineup that encompasses both small-molecule and large-molecule drugs. The company is progressively upgrading its domestic Class 1 novel drugs to global first-in-class status, demonstrating strong sustained R&D capabilities, with several other novel chemical and biological drugs at various stages of clinical development.

Allowing pre-profit companies to go public is one of the key features of the STAR Market. Zelgen was the first applicant on the STAR Market to list under the fifth set of listing criteria, marking a milestone. This criterion is the only one among the five sets that does not involve financial performance requirements, and it has long been regarded by the industry as a standard tailored specifically for unprofitable biotechnology companies.

This standard is characterized by the abandonment of rigid requirements for operating revenue, profit, and cash flow, in favor of more flexible criteria such as “an estimated market capitalization of no less than RMB 4 billion, main businesses or products approved by relevant national authorities, substantial market potential, and achievement of phased results (e.g., Phase II clinical trials) with clear technological advantages,” which effectively significantly lowers the listing thresholds for enterprises.

The establishment of the fifth set of listing criteria for the STAR Market has made it possible for start-up innovative drug companies to access China’s capital markets at an early stage of their development. Once this pathway is proven viable, it will significantly stimulate investment enthusiasm from private equity (PE) and venture capital (VC) firms in this sector. It can be said that the fifth set of listing criteria has substantially broadened the financing avenues for innovative drug enterprises and improved their fundraising landscape.

Although listing on capital markets in regions such as Hong Kong, China, and the United States offers an alternative pathway for innovative drug companies, the STAR Market (Science and Technology Innovation Board) possesses significant inherent advantages. First, its more market-oriented price-to-earnings (P/E) ratio for initial public offerings enables these companies to raise substantial capital. Second, the A-share market’s characteristics of high valuations and high liquidity facilitate growth in corporate market capitalization. Third, listing on the STAR Market enhances the visibility of innovative drug companies, thereby supporting the subsequent launch and promotion of their products.

The launch of the STAR Market has broken down the “profitability requirement” barrier in China’s A-share market, opening the door for biomedical enterprises that require substantial R&D investment and innovative technologies. Deng Feng, founder of Northern Light Venture Capital, stated in an interview: “The healthcare sector is poised for significant transformation in China over the next two to three decades. Many future companies valued at tens of billions of dollars will emerge from the life sciences and healthcare fields. China’s biopharmaceutical industry is rapidly transitioning from generic drugs to innovative therapeutics, with an increasing number of pharmaceutical companies participating in international competition.”

Left: Song Gaoguang, Vice President of Investment at Aurora Venture Capital

CN: Sheng Zelin, Founder of Zelgen

Right: Deng Feng, Founder and Managing Director of Northern Light Venture Capital