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Hong Kong may see healthcare listings rise in 2020 as market develops

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Hong Kong may see healthcare listings rise in 2020 as market develops

Hong Kong will probably see a greater number of healthcare companies that are involved in a wide variety of therapeutic areas go public via its stock exchange in 2020 as the market matures, according to two bankers.

"Overall 2019 was a big year for healthcare IPOs in Hong Kong, and there are more companies interested in listing in Hong Kong in 2020 and forward," said one of the Hong Kong-based bankers who spoke to S&P Global Market Intelligence on the condition of anonymity.

The banker said U.S.-China trade tensions, the upcoming U.S. presidential election and ongoing anti-government protests in Hong Kong are among the factors that will influence market sentiment.

"The pharmaceutical industry, for example, will likely be discussed during the election," affecting the market in one way or another, he said.

However, the banker said healthcare will continue to be a leading sector in the Hong Kong market in 2020 as investors see it as a safer bet than more cyclical or volatile sectors because of high demand from patients for innovative therapies.

Christian Hogg, CEO of Hutchison China MediTech Ltd., or Chi-Med, told Market Intelligence in an interview in December that the pharmaceutical company, which sell products in China, is prepared for a Hong Kong IPO. The listing of Chinese e-commerce company Alibaba Group Holding Ltd. in Hong Kong in November increased Chi-Med's confidence in the market, Hogg said. Chi-Med, which is controlled by Hong Kong billionaire Li Ka-shing, postponed its Hong Kong IPO plan in June 2019.

Biotech boom

Twenty healthcare companies, including device-makers, drug developers and medical service providers, went public in Hong Kong in 2019, raising about HK$40.48 billion, compared to 14 listings and HK$38.56 billion in proceeds in 2018. Meanwhile, global healthcare IPOs dipped in 2019, raising $21.82 billion, down $2.4 billion from 2018, according to data compiled by Market Intelligence.

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In 2019, nine companies went public under the 2018 rule that allowed prerevenue biotech companies to list on the exchange, up from five in 2018, according to the Hong Kong Stock Exchange. These listing rules aim to attract more biotech IPOs in the city.

A lot of the companies that sold shares to the public after the rule change are focused on cancer drugs, said the banker. Among the 14 prerevenue biotech companies that listed in Hong Kong in 2018 and 2019, seven including Suzhou-based Innovent Biologics Inc., Shanghai Junshi Biosciences Co. Ltd. and BeiGene Ltd. are selling or developing treatments that belong to the PD-1 or PD-L1 class of checkpoint inhibitors — two similar types of drugs that can be used to treat a wide range of cancers.

BeiGene, which debuted on Nasdaq in 2016 and went for a dual-listing in Hong Kong in August 2018, was later approved for a regular listing, as opposed to a prerevenue listing, on the Hong Kong Stock Exchange in June 2019.

The banker said the Hong Kong market has seen some diversification in therapeutic areas in 2019, with listings including Sichuan-based infertility treatment service provider Jinxin Fertility Group Ltd. and contract research organizations such as Shanghai-based Viva Biotech Holdings and WuXi AppTec Co. Ltd.

He said investors may see IPO contenders focusing on other areas including autoimmune disease, rare disease, cell therapy and antivirals.

"It will be a trend as investors become more selective and want differentiation. In 2018, if you didn't have a PD-1 drug on your pipeline, investors weren't interested in you. But now, they won't take a look if you only have PD-1 drugs as core products," the banker said.

Beijing Continent Pharmaceutical Co. Ltd., for example, is developing treatments for rare diseases including pneumoconiosis, which is caused by the inhalation of dust, and pending to list in Hong Kong.

The majority of the healthcare listings in 2020 will still be biotech companies, although the market will see more diversification, according to a second Hong Kong-based banker who spoke on the condition of anonymity. Autoimmune treatments, cardiovascular therapies and medical devices may become popular with investors, the banker said.

The banker added that some large pharmaceutical companies in China are considering separating their biotech units for listings in Hong Kong, which would be a new trend.

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Getting more mature

Both bankers said the healthcare market in Hong Kong is maturing. More specialist investors are looking into the sector, and more early-stage companies are pursuing IPOs in Hong Kong, according to the bankers.

Many recently listed biotech companies have attracted long-term investors such as asset managers, venture capital companies and pension funds.

Financial institutions are beefing up their investment banks' healthcare expertise, said Qiming Weichuang Venture Capital Management (Shanghai) Co. Ltd. Managing Partner Nisa Leung.

"A few years ago, some of the big banks did not even have a healthcare banker," Leung said, adding that Western law firms are also likely seeing an opportunity in Hong Kong. U.S.-based Cooley LLP, for example, launched operations in Hong Kong in 2019, according to its website.

The first banker said the listing of companies like Suzhou-based Alphamab Oncology, whose core drug is still in phase 2 clinical trials, will encourage more young businesses to list in Hong Kong.

"That's getting close to the U.S. market, where most of the biotech listings are by companies at an early stage," he said.

Alphamab, listed Dec. 12, 2019, saw its shares rise about 37.3% to close at HK$14 apiece Dec. 31, 2019, compared to the issuance price of HK$10.20.

Despite potential investor interest, Leung said some companies may decide to sit tight for a while longer and focus on growing further before listing.

But Leung and the two bankers said banks as well as regulators need to be more selective as more early-stage companies pursue IPOs.

"If the banks and the stock exchange continue to only allow the high-quality companies to go out, it will make the Hong Kong market sustainable and thrive. But if they feel that they need to increase the number of IPOs and bring in a lot of not that qualified companies, some investors will lose confidence," Leung said.