Stock Prices Of 20 Non Revenue Earning Companies In Jicheng, The World'S Largest Biotechnology Funding Center, Rose More Than 40% In The Year

Since the new listing rules came into effect in April 2018, Hong Kong has become the second largest biotechnology financing center in the world in just two years.

Li Xiaojia, chief executive of HKEx, said at the Hong Kong Stock Exchange biotechnology Summit on September 1 that he hoped Hong Kong would become the world's largest Funding Center for biotechnology enterprises in the next five to ten years. In his view, Hong Kong has the relevant conditions, mainly because the mainland of China is facing the problems of health and aging of 1.4 billion people, which has become the driving force for the development of medical and biotechnology.

Compared with traditional industries, biomedical enterprises are characterized by high investment, high output, high risk and high technology intensive. Equity financing is an important financing method to promote the growth of biomedical enterprises. In recent years, the main international securities markets have gradually established the securities market rules applicable to the listing of biotechnology enterprises, which has thrown olive branches to many biomedical enterprises which are excluded from the traditional market.

Since the introduction of chapter 18a of the new rules of the Hong Kong Stock Exchange (HKEx), which refers to the provisions that allow biotechnology companies without income to meet certain conditions to be listed, the Hong Kong Stock Exchange has had a complete and mature IPO and refinancing system.

Chen Yiting, director of listing Department of the Hong Kong stock exchange, said that at present, 20 biotechnology companies with no income have been listed in Hong Kong, raising a total of 48 billion Hong Kong dollars. The refinancing scale after listing reached 46 billion Hong Kong dollars, which shows that biotechnology stocks have formed a "aggregation effect" in Hong Kong.

She revealed that at present, there are still many potential non revenue biotechnology companies planning to come to Hong Kong for listing, and more and more industries are involved, including stem cell medicine and medical devices for in vitro diagnosis.

The "bio tech stocks" in Hong Kong have been formed. People's vision

Investors need long-term belief

Zhang Lei, founder and chief executive officer of Hillhouse capital, revealed at the meeting that the company is firmly committed to the big health sector and has invested about 120 billion yuan in this field. He said that the biotechnology industry has become the focus of the market in the near future, which is "favorable for the time, place and people, and involves the development of science, ecology and capital markets".

He frankly said that investment in biotechnology enterprises should not be short-sighted, but should have a long-term belief. "When we started to invest in related industries in 2012, such as Baiji Shenzhou, its valuation was less than 100 million US dollars. Now it is more than 20 billion US dollars. We have invested for eight consecutive rounds, and the first three or four rounds have no income. This reflects that we can't do a good job in investment without long-term belief."

For a long time, biotechnology companies are considered as "a game of a small group of people" because of their long R & D cycle, large capital investment and low success rate of listing. Zhang Lei said frankly that this is a misunderstanding. The new share reform launched by the Hong Kong Stock Exchange has opened a door for biotechnology enterprises to connect with the capital market in advance. According to experience, it usually takes about six years for Internet companies to move from the earliest stage to the capital market, while it takes as long as 10-20 years for biotechnology companies.

"These enterprises need different investors at different stages. For example, in the earliest pre-A round, we set up Hillhead venture capital. The minimum investment amount of a single company was 2 million yuan. In the past, the investment amount of single target of Hillhouse capital was about 20 million to 30 million US dollars. In the growth period, different institutional investors, including private placement, can participate. " He said.

In addition, he said that the United States, Hong Kong and Mainland China have their own characteristics. The United States is a mature capital market, while the Hong Kong Stock Exchange has made a lot of good innovations. As for the mainland market, it also has its advantages, including innovative talents, customers and environment. The development of the three markets can produce a "positive sum" effect.

As a result, many biotechnology companies have chosen to be listed in both places. On August 13, this year, kangxinuo biological Co., Ltd. was listed on the science and technology innovation board, becoming the first "a + H" vaccine stock landing on the science and technology innovation board. In March 2019, kangxinuo was listed in Hong Kong. Wang Jing, the company's chief financial officer, revealed that the company's original choice for listing in Hong Kong stock market was the H-share structure, "I hope to return to A-share listing in the future. In addition to the consideration of capital, the vaccine industry is very special and involves national public health safety."

Significant increase in sector valuation

Orb capital is the world's largest investment company focusing on biomedical field, with total net assets under management of more than 14 billion US dollars. Wang Ting, managing director of orb capital, said frankly that the valuation of the whole industry has been greatly improved compared with that of last year. The valuation of some biotech companies with no income before clinical practice has been at a premium compared with similar assets in developed countries. "This is also a process of value discovery. There are limited quality targets for listing, and there is a situation that capital pursues these targets."

However, she believes that the premium is reasonable to some extent. "These companies can open up financing channels in the capital market through chapter 18a of the new rules of the Hong Kong stock exchange. Considering the huge domestic market in China, they will become an important part of the global biotechnology industry in the future. Moreover, China has advantages in terms of production costs. In the future, these companies are expected to export innovative drugs to markets such as the belt and road initiative. "

Yao Jiaren, managing director and market director of the Hong Kong stock exchange, said frankly that many companies would choose 25% IPO size when listing. At the same time, some large investors have always been the old shareholders of the company, resulting in insufficient tradable shares in the secondary market. Therefore, listed companies need to formulate a reasonable issuance structure and investor allocation, so as to realize market price discovery more effectively.

He revealed that the stock prices of 20 biotechnology companies have risen by 70% since their listing, and 40% since this year. The average daily turnover has soared from HK $270 million in 2018 to HK $1.4 billion in the first eight months of this year. "These transaction data show that the whole biotechnology sector has long-term development potential, and funds continue to flow in."

Take Xinda biopharmaceutical, which was listed in Hong Kong in October 2018, its share price has nearly doubled so far this year. Yu Dechao, chairman and President of Xinda biopharmaceutical, said that the stock price changes had an important impact on the company's refinancing after listing. "Before listing, we considered the proportion distribution of long-term funds and short-term funds for a long time, and the company's basic operating conditions also had a great impact on the performance of the stock price in the secondary market."

It is understood that at present, there are 7 unprofitable biotechnology stocks, together with the two transfer board shares of Baiji Shenzhou and Xinda biology, a total of 9 companies have been included in the Hang Seng Composite Index, laying the foundation for these companies to become the target of "Hong Kong stock connect". Mr Yao said a large number of funds tracking the index helped these companies deepen their investor base.

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