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China tech

China biotechs accelerate expansion with Shanghai board's debut

New Nasdaq-style market and regulatory reforms fuel sector's global ambition

A researcher at Hutchison China Meditech lab in Shanghai. (Photo by CK Tan)

SHANGHAI -- Nearly 30 startups in China's red-hot biotechnology sector are looking to list in Shanghai or Hong Kong over the next few months, including the highly anticipated IPO of Suzhou Zelgen Biopharmaceuticals, which has a pipeline of 11 novel drugs to treat cancer and other diseases.

The growing list of Chinese biotechnology startups looking to raise capital on equity markets now has an alternative to Hong Kong and New York -- China's own Nasdaq-style tech board. Of the 28 companies listed on the Shanghai Stock Exchange's Star Market, three are biotech startups with a combined market capitalization of 59 billion yuan ($8.3 billion) as of Monday.

It is not a sector for the faint of heart. Shanghai MicroPort Endovascular MedTech has risen some 5% to date, and Micro-Tech Nanjing has improved 23%. Shenzhen Chipscreen Biosciences has dropped 42%. Even so, another 17 have applied for listing here and 10 in Hong Kong, according to filings with the exchanges.

Investors are watching these moves in biomedicine, one of 10 sectors that has support from Beijing under its Made in China 2025 plan. China has recently streamlined the regulatory process for drugs, and its companies often face fewer restrictions on using patient data in research than in the West.

"The developments in the China regulatory framework coupled with supportive governmental initiatives and an undertreated population in many disease areas make the Chinese health care market an attractive proposition," said Susie Jana, an analyst at U.K.-based Edison Group. "The explosion of China based biotechs exploring innovative areas shows the unmet need for Chinese patients."

Among the biotech startups in the IPO pipeline is Hutchison China MediTech, or Chi-Med, a drugmaker controlled by Hong Kong billionaire Li Ka-shing's CK Hutchison Holdings. The company is looking to raise about $500 million, Reuters has reported.

"China is our home, but our ambition is to be a global company," Christian Hogg, Chi-Med's chief executive, said in an interview with the Nikkei Asian Review.

The company, headquartered in Hong Kong but with manufacturing and research facilities in mainland China, focuses on oncology drugs, pursuing an industry trend to meet the country's unmet medical needs in cancer treatment.

Chi-Med is one of the few Chinese drugmakers that has licensed novel drugs to multinational pharmaceutical groups such as U.S.-based Eli Lilly & Co. and U.K.-based AstraZeneca.

While its Hong Kong listing plan has been put on hold partly due to protests against an extradition bill that could send suspects to China, Nasdaq- and London-listed Chi-Med is pushing ahead with development programs for other drugs following an early success with its colorectal cancer drug Elunate.

Before the Star Market opened in July, some Chinese biotech startups chose to float their shares in Hong Kong after listing rules were eased for the sector. But Hong Kong's stock market has been rocked in recent months by the protests.

Still, nine biotech companies have raised $4.1 billion in the past year, according to the Hong Kong Stock Exchange. In Shanghai, biotech companies are looking to raise an aggregate 16.5 billion yuan.

This group includes Beijing-based BeiGene, which, like Chi-Med, is a cancer drugmaker with ambitions stretching beyond China.

The Nasdaq- and Hong Kong-listed company has recently submitted its first new drug application in the U.S. after progress in clinical trials for zanubrutinib, a therapeutic drug that treats immune system cancer.

BeiGene, formed in 2010, is expanding globally in parallel with a development program in its home market. Investment bank Jefferies Group said in a research note that zanubrutinib, which is also undergoing approval review in China, has an $18 billion potential market and is slated to launch globally in 2021.

Room to grow

China's pharmaceutical market, the world's second largest after the U.S., has been growing at an average 8% clip the past four years to $236 billion in 2018, according to market researcher Frost & Sullivan. Still, China's $647 per capita spending on health care in 2018 trailed far behind America's $11,162, indicating room for growth.

To encourage local companies to develop new drugs, China's drug administration law since 2017 has undergone numerous revisions aimed at improving basic medical coverage.

Registering a drug for clinical trials used to take a year but that has been shortened, according to Wu Zhenping, Chi-Med's head of pharmaceutical sciences. He said drugmakers could now proceed with trials if there was no request for additional information 60 days after registration.

"Regulatory reforms have encouraged innovation," Wu said, and that might help local producers come up with affordable drugs.

Meanwhile, China's admittance in 2017 into a global body that sets pharmaceutical industry guidelines has reinforced Beijing's reforms in the sector. This has fueled the ambitions of local drugmakers looking to expand globally.

"Life science is the fastest-growing industry globally," said Tang Dajie, chairman of Shenzhen Qianhai Triwise International Capital Management, a 3 billion yuan fund with investments in the sector. "In China, R&D in life sciences is getting closer to international standards."

But as the marketplace becomes crowded, securing liquidity may get challenging, as reflected in Chi-Med's decision to hold back decision on its Hong Kong listing. Biotech companies will also face pressure on product pricing from heated competition and regulatory efforts to reduce drug prices.

"Competition in the future will intensify and increasingly drugs with differentiated profiles with meaningful supportive clinical data will set the bar, and for those me-too products pricing will be at the heart of the contest," said Edison's Jana. 

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