Developing World Healthcare Blog

So Where to List? An Update

On December 15 Hong Kong Exchanges and Clearing Limited issued the press release “HKEX Proposes Way Forward to Expand Hong Kong’s Listing Regime” (link: announcing its plan “to expand Hong Kong’s listing regime to facilitate listings of companies from emerging and innovative sectors”. As discussed in our August 2017 post “So Where to List?”, “pre-commercial” biopharmaceutical companies based in Asia have limited options for listing their securities, so this news is quite important.


In summary, the exchange decided to modify the Main Board Listing Rules to allow the listing of “Biotech issuers which are pre-profit / pre-revenue” if they have

  • a market capitalisation of at least HK$1.5 billion (US$191.7 million);
  • registered or applied for multiple patents; and
  • have at least one product with regulatory approval to start a Phase 2 clinical trial

Interestingly, the exchange also proposed “to modify the existing Listing Rules in relation to overseas companies to create a new concessionary secondary listing route to attract issuers from emerging and innovative sectors with primary listings on the New York Stock Exchange, NASDAQ or the “premium listing” segment of the London Stock Exchange’s Main Market.” This option offers currently listed companies a tool to tap the Chinese capital markets, but relatively few secondary listings have justified the costs.

The proposals should take effect later this year.

Chinese Healthcare Companies Evaluating Their Options

The South China Morning Post has run several articles recently that quote the CEOs of private companies such as Hua Medicine, Arrail Dental, and Ascletis stating that they are considering (or will consider) both Hong Kong and New York for listings.

The emergence of an additional option is positive for “pre-commercial” Chinese biopharmaceutical companies that want to tap the public markets for capital. In particular, the Shanghai-Hong Kong Connect and Shenzhen-Hong Kong Connect are avenues for Mainland investors (institutional and high-net worth individuals) to invest in Hong Kong-listed companies. Based on our conversations with several managements, there are important trade-offs to consider.

Hong Kong Versus New York: The Major Considerations

Hong Kong claims that it has an advantage of investors who understand the local (Mainland) context. Product launch curves in China differ significantly from the US and Europe. Data on disease incidence and market potential need additional scrubbing. The successful listing of CRO/CMO WuXi Biologics (+159% since listing and trading at 109x forward earnings) has increased interest in the market. Note that WuXi Biologics met the existing listing rules (had been profitable for several years) and the valuation assumed continuously explosive growth in revenue and profits through 2021.

New York’s advantage over Hong Kong is deep expertise in analyzing and valuing early-stage biopharmaceutical companies. Many firms (both investment banks and asset managers) have MDs and PhDs on staff who fully understand the underlying science and the drug development process. Swings in sentiment remain a significant driver of share prices in the short-term (fun on the way up, but not so much on the way down). Even so, the benefit for issuers is a pool of investors who understand the potential value of compound; are willing to buy when sentiment is negative; and can distinguish a bump in the road from a catastrophe in the development process.

This discussion is only an overview. There are important considerations regarding governance, corporate legal structures, and disclosures that play into the process. Most importantly, you have to take a long view with these decisions.