Why HK 18A Loses Shine for Chinese Mainland biotech companies?
The Hong Kong Stock Exchange (HKEX) has long been a preferred venue for Chinese biotech companies, particularly after it changed its listing rules in 2018, which allowed pre-revenue tech companies to seek listings. These changes made it easier for biotech companies to go public in Hong Kong, offering more flexibility for companies in the early stages of development. This rule change resulted in a surge of biotech listings, with 2021 marking a record year.
However, in 2022, the biotech sector in Hong Kong saw a sharp decline in the number of listings, and the overall appeal of the HKEX’s 18A listing platform began to wane for several reasons:
Market Conditions: The global biotech sector has faced a cold market, in contrast to the soaring demand for tech sectors like artificial intelligence and semiconductors. Biotech companies, with their long development timelines and capital-intensive nature, became less attractive to investors compared to other industries.
Depressed Valuations and Liquidity Issues: Hong Kong experienced an exodus of U.S. capital, driven by geopolitical tensions and deteriorating relations between the U.S. and China. As a result, Hong Kong, once seen as a key bridge between East and West, has lost some of its global appeal as an investment hub. This reduced liquidity and contributed to lower valuations for biotech companies, making it harder for them to raise funds through public listings.
Capital Winter: The biotech sector, by its nature, requires long-term capital and patience from investors. In the current environment, venture capital funding is more scarce, and many Chinese biotech companies are shifting towards alternative funding models, such as securing upfront payments from Big Pharma through partnerships or deals, or by setting up NewCos to get funding for their assets. These options are becoming more appealing than attempting an IPO in a cooling market.
As a result, the rush to list on the HK 18A platform has diminished, and the original model of seeking public funding in Hong Kong is losing relevance. Many biotech companies are increasingly focusing on strategic partnerships and venture funding as a means of financing, signaling a shift in how Chinese biotech firms are approaching growth and capital raising.