City’s financiers have limited experience with science
HONG KONG: When Hong Kong unveiled plans last year to encourage biotech companies to list in the city by loosening listing rules, the financial industry and investors cheered.
Hong Kong was an obvious financing centre for a growing number of Chinese companies developing new drugs. But as the new rules come into effect today, at least one problem has become evident: Hong Kong’s limited expertise in the biotech field.
Biotech companies without revenues, let alone profits, will now be allowed to apply for listings in the city under the new rules. Some 10 companies – mostly Chinese, including the Temasek-backed Innovent Biologics and Shanghai Henlius Biotech – are already planning floats and some have dropped US initial public offering (IPO) plans in favour of listing closer to home.
The result, however, is a scramble for experts in a city whose financiers have limited experience with science.
Just 3% of all Hong Kong-listed stocks, by capitalisation, come from so-called “new economy” sectors – tech as well as biotech – according to a report last year by Hong Kong Exchanges and Clearing, the bourse operator.
That compared with 60% for Nasdaq and 47% for the New York Stock Exchange.
Several bankers, investors and industry executives estimated that the city currently had fewer than 20 experienced biotech and biopharma bankers.
“It’s not easy to hire the right professionals,” said Kevin Xie, head of healthcare and co-founder of China Renaissance, a boutique investment bank. “There’s a limited pool globally who truly understand the industry.”
Leading investment banks are touting their ability to transfer bankers from the United States to plug gaps in Hong Kong. But lacking local licences, those seconded to Hong Kong can only advise their colleagues, not work on deals themselves.
Li Hang, head of Greater China equity capital markets at CLSA, said: “We really need sector specialist bankers to run biotech deals, otherwise everybody will say we don’t know how to do the due diligence.”
Difficulties around talent go beyond the banks. Charles Li, chief executive of HKEX, said last month that it was tough to hire biotech professionals. “All financial institutions in town have been seeking such talent,” he said.
Nonetheless, Li said that HKEX had found a dozen experts, primarily scientists or employees of pharmaceutical companies, to serve on a board advising a listing committee that approves each IPO application.
Hong Kong’s appeal to would-be IPOs rests largely on its familiarity with Chinese firms, its convenient timezone for mainland executives and its new rules.
“On Nasdaq, the main investors for biotech stocks are mainly US funds, but, in Hong Kong, we can better tap Chinese and Asian investors as we are closer to them,” said Yang Dajun, chairman of Ascentage Pharma, a Chinese biotech company.
JPMorgan analysts forecast that China’s biologics industry will double in size to US$52bil by 2021 compared with a global growth rate of 60%. Biologics are the products produced by biotech and biopharma firms.
While US companies have been the largest capital-raisers, accounting for 44% of industry funds raised through IPOs in the past five years, Chinese groups were next, accounting for a fifth, according to Thomson Reuters data.
All that has sparked interest in Hong Kong.
Last June, shares in the drug developer Wuxi Biologics rose 39% on their debut and now stand 167% higher.
However, industry insiders and market participants warn of risks in the sector, saying that many biotechs are reliant on a handful of early-stage new drugs, making them vulnerable if one fails. — Reuters
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