Biotech Companies Eye Hong Kong IPOs: Eight Experts Weigh In on Opportunities and Challenges

For biotechnology companies, the opening of the Hong Kong market undoubtedly presents a new opportunity, offering an additional choice beyond NASDAQ. However, we must acknowledge that there remain significant uncertainties regarding the future development of the Hong Kong market.

So, for entrepreneurs, is the Hong Kong market an opportunity or a challenge? And for investors, what changes will occur in investment here?

At the “2018 Healthcare Investment Excellence Summit” hosted by Joy Capital in March 2018, Zhao Qun, Partner at Yuanhe Yuandian, moderated a roundtable discussion titled “Hong Kong Market and New Opportunities in Biopharmaceuticals.” Eight leading investors and entrepreneurs in the biopharmaceutical sector, including Pan Wubin, Founder and Chairman of Conatus Therapeutics; Xu Yaochang, Founder and Chairman of Abbisko Therapeutics; Zhao Yining, Founder and Chairman of Eternity BioPharma; and Huang Lu, Managing Director of Morningside Venture Capital, participated in the discussion.

From both cultural and policy perspectives, there is little difference between Hong Kong and the Chinese mainland. Relatively speaking, Hong Kong has a larger proportion of overseas investors. It is well known that overseas investors in the U.S. market are more professional in their investments in biomedicine, and the United States also offers more preferential policies to biomedical enterprises.

Wang Yan, Securities Affairs Representative at Henlius, stated, “We are actively monitoring the U.S. market internally, and it is one of our options.”

However, for startups, going public is not the end goal. Xue Qun, Founder and Chairman of Canbridge Pharmaceuticals, stated, “What startups care more about is what happens after the IPO, rather than where they list. If going public is merely a means rather than an end, can the company continue to secure financing on a sustainable basis?”

From this perspective, Xue Qun is currently more inclined to adopt a wait-and-see approach, with Hong Kong being one of the options. He believes that final answers have yet to emerge regarding what types of companies the Hong Kong Stock Exchange hopes to attract and which mainland biopharmaceutical enterprises it encourages to list in Hong Kong.

He stated, “An initial public offering (IPO) is a means of fundraising, not an end in itself; we will choose to list wherever offers us the best financing channels.”

Zhao Yining, Founder and Chairman of Yi An Ji Shi, agrees with this view. Representing Yi An Ji Shi, he is an entrepreneur; representing the Lilly Asia Ventures Foundation, he is an investor.

“These two perspectives are sometimes contradictory, but I hope to reconcile them. Where is the reconciliation found? In the company’s fundamentals,” stated Zhao Yining. He believes that while an IPO represents an endpoint for some investors, it serves as a starting point for others. However, in terms of fundamentals, the two are aligned. The most critical factors are whether the product gains public acceptance and recognition within the pharmaceutical market.

Pan Wubin, founder and chairman of Kangnaide Biologics, continued, “Entrepreneurs tend to share a common mindset, placing greater emphasis on fundamentals. Those in the pharmaceutical industry are ultimately driven by the goal of delivering benefits to society and patients. In my view, going public is merely a refueling stop, by no means the final destination.”

In his view, regardless of where a company chooses to list, the post-IPO performance of its products, the ability to achieve expected objectives, and the capacity to generate returns for investors and the enterprise remain fundamentally unchanged.

“I believe that challenges and opportunities must coexist,” said Huang Lu, Partner at Morningside Venture Capital.

Over the past two to three years, Morningside Venture Capital has been deeply involved in discussions with the Hong Kong Stock Exchange (HKEX) and SSC regarding the launch of an IPO channel, participating in more than a dozen roundtable discussions. Huang Lu believes that, from an initial perspective, given the current state of global pharmaceutical economic development—particularly the rise of a large number of Chinese biopharmaceutical companies—it is untenable for the world to rely solely on Nasdaq as the single channel to support refinancing and investor exits for such a vast number of companies.

“Therefore, the emergence of this Hong Kong sector is undoubtedly a significant opportunity,” Huang Lu continued.

Hong Kong is itself the world’s third-largest stock market. Rather than launching a new Growth Enterprise Market or Innovation Board, the Hong Kong Exchanges and Clearing Limited (HKEX) and the Securities and Futures Commission (SFC) have directly integrated the listing channel into the Main Board, fully reflecting the Hong Kong market’s expectation that listed companies can truly become mainstream enterprises.

“Therefore, we feel this is a highly ideal market that bridges East and West, as well as domestic and overseas markets,” said Huang Lu.

Of course, this market is only just getting started, with no established base of investors or industry experts, nor any foundation of regulatory approval specialists. Therefore, whether the sector can perform well in the first year or two, become vibrant, instill confidence in investors, and enable listed companies to continuously raise capital is a major focus of attention for all stakeholders. As a result, everyone is adopting a wait-and-see approach.

“We also hope that the first batch of companies can represent China’s most outstanding biotechnology firms, thereby paving a smoother path for the many biotech enterprises that follow,” she added.

SDIC Innovation Partner Yin Zheng agreed, stating, “I fully concur with Mr. Huang’s earlier remarks. Internally, we view listing on the Hong Kong market as a double-edged sword.”

First, having an additional exit channel is certainly a positive development. Since 2017, there has been widespread discussion on exit strategies for investments in innovative enterprises. The Hong Kong market provides companies with a financing platform and offers investors an exit channel.

“This represents a significant boost for innovative investment within China,” said Yin Zheng. On the other hand, what the post-listing landscape will look like and whether the Hong Kong segment can become another Nasdaq remain uncertain.

“So we will wait and see, hoping that the Hong Kong Stock Exchange can become the Nasdaq of the Asia-Pacific region,” he said.

Nasdaq is a highly mature market, while the Hong Kong market has recently garnered significant attention. The Hong Kong market still faces considerable uncertainty; likewise, the Nasdaq market presents substantial challenges. For Chinese companies, since their operations and home base are not located in the United States, achieving valuation recognition on Nasdaq poses inherent difficulties.

“Overall, Nasdaq is a mature market, but there is uncertainty in valuation confirmation,” said Yin Zheng. “As for the Hong Kong stock market, while high expectations are held, it also carries uncertainties—particularly for the first batch of listed companies. Companies should make rational choices based on their own characteristics.”

The Hong Kong stock market has also been highly selective in choosing its first batch of listed companies. The true nature of this market will only become clear as it evolves. Therefore, developments in the Hong Kong stock market over the next 12 to 18 months deserve close attention.

“Over the past ten-odd months, the Hong Kong market has mobilized substantial resources to study this matter, with regulatory authorities, intermediaries, and various service providers all actively preparing. ‘For Hong Kong itself, this is a major event that will leverage the economic development of the entire region, extending far beyond the biopharmaceutical sector,’ said Huang Lu.”

Regulators have lowered listing standards in the hope of attracting more companies to go public. Investment banks and institutional investors have also actively allocated substantial resources to support this initiative. The companies in the first batch were certainly qualified to list on NASDAQ; why they chose Hong Kong instead is a question that even Hong Kong-based analysts may struggle to answer clearly, necessitating collaborative analysis by overseas analysts.

Liang Zicai, founder and chairman of Ribo Life Sciences, remarked, “Our company may differ from others in terms of its age; we have been established for 11 years.”

He revealed that when Ribo Life Science completed its Series A financing, it had considered listing on the NASDAQ. However, at that time, rumors about the launch of the Shanghai Strategic Emerging Board emerged, prompting the company to reconsider its plans. Yet, just one month after withdrawing its application, the Strategic Emerging Board was abruptly scrapped.

Subsequently, the New Third Board emerged. During the Series B financing round, the company was weighing whether to list on the New Third Board or NASDAQ. The Hong Kong market option was conceived and implemented within a year. For them, this added another alternative besides NASDAQ.

“But in my view, there is actually a potential third option. The opening up of the Hong Kong market could significantly promote the openness of mainland China’s market to the new economy,” he continued.

Next, Xue Qun analyzed the differences between NASDAQ and Hong Kong from an operational perspective. First, regarding financing costs, the time cost required for communication differs between listing in Hong Kong and on NASDAQ. Second, for companies listed on NASDAQ, the background of the Chief Financial Officer (CFO) is critical, as it determines the effectiveness of communication with U.S. investors; this consideration is particularly important during the private equity (PE) stage and differs from that for listings in Hong Kong. Finally, some companies engage frequently in cross-border transactions, which may involve mergers and acquisitions (M&A) activities.

“The company needs to consider both strategic and operational aspects when selecting a listing venue,” he concluded.

“Overall, the HKEX’s considerations are quite comprehensive,” said Xu Yaochang, Founder and Chairman of Akeso Biopharma.

Compared with the listing rules of NASDAQ, the Hong Kong Stock Exchange (HKEX) is relatively conservative. The primary purpose of HKEX’s latest opening-up initiative is to support clinical trials for start-ups, but it still comes with certain additional conditions. For some companies, these rules are somewhat conservative.

The Nasdaq market has evolved over more than two decades, with its current prosperity jointly driven by investors, participants, and Nasdaq management. This market is relatively stable, and corporate valuations become fairly clear once companies reach a certain stage of development. In China, however, there has long been a tendency toward herd behavior, where market participants either rush in to buy en masse or flee simultaneously. This makes it particularly challenging for analysts to perform their duties effectively.

“Nevertheless, the opening up of the Hong Kong stock market is undoubtedly a positive development,” he emphasized.

Pan Wubin agreed with this view, stating, “Hong Kong stocks do not have a comprehensive Nasdaq premium. I suppose multiple factors were taken into consideration.”

"Currently, the Hong Kong market is not as well-developed as Nasdaq in various aspects, but he personally remains optimistic about it. In the long run, this is definitely a positive development."

Following the Hong Kong Stock Exchange incident, Morningside Venture Capital, as an investment firm, organized several thematic meetings for its portfolio companies. Wherever possible, these companies discussed the matter at their board meetings: whether to proceed and, if so, when. Some of these companies may already be undertaking preparatory work.

Some companies are destined to be joined, as they possess sufficient strength in their own right; however, joining other companies may be somewhat premature, which is related to the personal styles of the founders and entrepreneurs.

“We have also engaged in much reflection. We previously invested heavily in technology-driven companies, but we now place greater emphasis on assessing whether entrepreneurs possess the managerial capabilities to steer their companies toward an IPO,” said Huang Lu.

Yin Zhengze stated, “From a portfolio perspective, the opening of the HKEX window will have a positive impact, and we will pay closer attention to opportunities in the Innovation Layer. From an investment strategy standpoint, there will be certain implications.” He further remarked, “Previously, we emphasized a ‘three-point, one-line’ approach: policy-driven, technology-driven, and innovation-driven. Now, we perceive greater opportunities in the innovation sector, so we will place more emphasis on it accordingly.”

However, he believes that from another perspective, investment will also face challenges. According to the standards of the Hong Kong Stock Exchange, many projects invested by SDIC Innovation have already met the IPO criteria. Much of the fundraising that originally occurred in the primary market may shift to the secondary market. This could lead to a forced advancement of their investment stages.

“But this will shift everyone’s focus to the essence of technology, seeking certain opportunities amid uncertainty. Thus, it is both a challenge and an opportunity,” said Yin Zheng.