The Hong Kong investment community is eager to put money in the newly opened biotech sector, but for the market to thrive investors need to increase their industry knowledge and companies need to build stronger pipelines, executives from investment banks and a venture capital firm said.
Following the implementation of new listing rules on April 30, four companies — Ascletis Pharma Inc., Hua Medicine (Shanghai) Ltd., BeiGene Ltd. and Innovent Biologics Inc. — have completed IPOs.
But stocks of three of those companies — Ascletis Pharma, Hua Medicine and BeiGene — dropped following their debuts.

Shares tumbled after the opening day partly because of increasing uncertainty amid the ongoing trade dispute between the U.S. and China, with participants shying away from risky assets, two investment bank executives close to the new listing process told S&P Global Market Intelligence on condition of anonymity.
Hong Kong Exchanges & Clearing Ltd. Chief Executive Charles Li said at a press event in October that the listing process is like "delivering a baby, we don't get to choose the timing."
But timing is not the only challenge these new biotech companies face. The market also has to mature both in terms of investor education and quality of companies.
"Excluding the macro factors and noise, however, the market is ready, as investors are seeking new assets and new companies to invest in. We just need to wait for both the investment community and companies to grow," one of the banking executives said.
While there are more biotech funds in the region now, the lack of healthcare specialists still makes it hard for banks to sell biotech stocks, he added.
The second banking executive agreed, adding that there were not many analysts covering the sector and he found it challenging to sell the stocks.
Innovent's IPO takes a different path
According to data compiled by S&P Global Market Intelligence, Innovent Biologics bucked the trend, with its stock registering a positive return after its listing.
The first banking executive attributed the company's performance to a strong pipeline, saying: "Many companies and investors are watching Innovent."
Innovent has 17 drugs in its portfolio, including lead candidate sintilimab, which was co-developed with Eli Lilly and Co.
Sintilimab is part of a class of anticancer medicines that interfere with the interaction between certain proteins on the surface of immune cells and cancer cells. The drug works by blocking their interactions — such as the pairing of PD-1 proteins on immune cells with PD-L1 proteins on tumor cells — which enables the immune system to target the cancer cells. The immune checkpoint inhibitor is in the race to become the first one to be manufactured by a Chinese company.
Innovent also partnered with U.S.-based drug discovery company Adimab LLC to develop antibodies and bispecifics.
The Suzhou, China-based biotech also has strong backing from the investment community, including Fidelity-related investment units Eight Roads Ventures China and F Prime, Lilly Asia Ventures, Legend Capital Management Co. Ltd. and Singapore's sovereign fund Temasek, the company said in an Oct. 31 news release.

"Endorsement from those big names also add a bit of comfort for investors and banks," the first investment banking executive said.
As the investment community matures, the market needs to see more innovative biotech companies, he added.
Learning process
The investment community also needs to learn the market.
Unlike in the U.S., the investment community for biotech companies in Asia is still largely comprised of retail investors, the first banking executive said.
Nisa Leung, Hong Kong-based managing partner at Chinese venture capital firm Qiming Weichuang Venture Capital Management (Shanghai) Co. Ltd., agrees that investors in Asia need to gain more knowledge about the sector because currently, they mainly look at how soon a company can release the first drug, whereas in the U.S., investors usually look into the drugs under development.
"In Asia, investors prefer companies that have a little bit of revenue. That gives them a bit of comfort," Leung said.
But all that is set to change with the implementation of the new listing rules. The stock exchange, bankers, accounting firms and investors will need to learn more about innovative biotech companies, she added.
George Lin, CFO of Hua Medicine, said part of the reason why investors in Asia fail to appreciate innovation is because there aren't many innovative biotech companies in the region.
The Hong Kong stock exchange has set up a biotech advisory panel with 16 industry professionals to offer guidance and help in reviewing IPO applications.
"Any new policy will take some time to mature and develop. It took 30 years for the U.S. to mature, I think for Hong Kong, a five to 10-year maturity period will be required," Leung said.
