Biotech Voices is a collection of exclusive opinion editorials from some of the leading voices in biopharma on the biggest industry questions today. Think you have a voice that should be heard? Reach out to Amber Tong.

On April 30th, the two-year an­niver­sary passed of the Stock Ex­change of Hong Kong’s (HKEX) im­ple­men­ta­tion of its new biotech chap­ter. As we re­flect on it two years lat­er, this piv­otal de­ci­sion has aged well with time and is de­liv­er­ing on its promise in a big way. While ca­su­al ob­servers might re­call that the new biotech era in Hong Kong start­ed off with some grow­ing pains, list­ings have strength­ened over time to the ex­tent that Hong Kong is right up there with New York and is ar­guably even the stronger mar­ket for biotech list­ings in ear­ly 2020. The tim­ing couldn’t have been bet­ter. Just as cur­rent events il­lus­trate how vi­tal our in­dus­try is to the world, biotech is start­ing to bloom in Asia. This wouldn’t be pos­si­ble with­out the pub­lic mar­kets.

In case you do not know, here is some his­to­ry.

HKEX was pre­vi­ous­ly miss­ing out on biotech com­pa­ny list­ings be­cause the ex­change had rev­enue and prof­it re­quire­ments that dis­qual­i­fied the typ­i­cal biotech com­pa­ny from look­ing to have an ini­tial pub­lic of­fer­ing there. Most biotechs are sole­ly fo­cused on re­search and de­vel­op­ment (R&D) at the time of list­ing and rarely have mean­ing­ful rev­enue, let alone prof­it, when they are ready to go pub­lic. With­out this abil­i­ty in Hong Kong, world-class Chi­nese biotechs like BeiGene and Zai Lab could on­ly look to New York as a list­ing venue in the past. Re­al­iz­ing biotech’s role in the new econ­o­my, HKEX changed its re­quire­ment for the sec­tor on April 30, 2018. There was much fan­fare about this de­ci­sion, but al­so some doubt about whether biotech could thrive in a mar­ket that had no ex­pe­ri­ence valu­ing R&D like this.

A rocky start – first im­pres­sions are hard to shake.

To be hon­est, it couldn’t have start­ed out worse. Aim­ing to max­i­mize the en­thu­si­asm, the first com­pa­ny to list, As­cle­tis Phar­ma, went off at an un­re­al­is­tic val­u­a­tion and fell hard im­me­di­ate­ly. To this day, it is still down 79% from the IPO price. The next list­ing, a sec­ondary IPO by BeiGene, was un­der­wa­ter for over a year. The third list­ing, Hua Med­i­cine, has al­so been a poor per­former since the be­gin­ning. With­out a doubt, if the ex­change and bankers could do this over again, I’m sure they would have cho­sen a dif­fer­ent line­up of com­pa­nies to start with and at low­er val­u­a­tions. First im­pres­sions are hard to shake, and you can’t blame some ca­su­al ob­servers (es­pe­cial­ly out­side of Asia) for los­ing in­ter­est af­ter this rocky start.

But the Hong Kong mar­ket for biotech has grown stronger over time.

What the ca­su­al ob­serv­er has missed since then is that the IPO mar­ket in Hong Kong has strength­ened over time to the ex­tent that it is cook­ing with gas to­day. The turn hap­pened in Oc­to­ber of 2018 when In­novent Bi­o­log­ics, a world-class and ex­pe­ri­enced com­pa­ny that was found­ed in 2011, went off at a rel­a­tive­ly rea­son­able val­u­a­tion. It is up over 200% since then and cur­rent­ly sports a $7B+ val­u­a­tion. In­novent has al­so sub­se­quent­ly com­plet­ed two fol­low-on of­fer­ings in Hong Kong, a key el­e­ment of a func­tion­ing biotech mar­ket. In my opin­ion, this com­pa­ny has all the char­ac­ter­is­tics of be­ing a glob­al leader one day and should have been the first com­pa­ny to go pub­lic un­der the new biotech chap­ter. Much of that is out of the ex­change’s hands, but a wink and a nod wouldn’t have hurt.

Since In­novent’s IPO, the mar­ket for biotech has been what I would de­scribe as ro­bust, while strength­en­ing over time. 13 com­pa­nies have of­fi­cial­ly gone pub­lic un­der the biotech chap­ter since In­novent. Some have gone up and some have been flat or down, a com­plete­ly nor­mal mar­ket. Suc­cess­ful ones that stand out in­clude CanSi­no Bi­o­log­ics (+870%), Jun­shi Bio­sciences (+120%), and Al­pham­ab On­col­o­gy (+125%). Hong Kong’s new biotech rule has fos­tered a cul­ture of in­vest­ing in life sci­ences, and that is very im­por­tant. An un­der­ap­pre­ci­at­ed ben­e­fit is that the IPO mar­ket for oth­er life sci­ences com­pa­nies there, while not tech­ni­cal­ly un­der the pre-rev­enue biotech rule, has al­so been very strong. These in­clude WuXi AppTec (+145%), Han­soh Phar­ma­ceu­ti­cal (+136%), and Vi­va Biotech (+55%).

To­day, you could ar­gue that the IPO mar­ket for biotech in Hong Kong is, at least for the time be­ing, just as strong and if not stronger than New York. The last five IPOs have all been big win­ners in their ini­tial trad­ing. Fur­ther­more, the amount of mon­ey raised has been im­pres­sive. Three com­pa­nies dur­ing this tur­bu­lent 2020 have al­ready raised a to­tal of over $900M and a fourth com­pa­ny (Kin­tor) is slat­ed to IPO this week. This com­pares to $1.35B raised through­out the en­tire of 2019. The pipeline of fu­ture list­ings is very strong. This is all while the rest of the mar­ket has faced sig­nif­i­cant chal­lenges. Biotech is the hottest sec­tor in Hong Kong, and Hong Kong biotech might be the hottest IPO sto­ry hap­pen­ing any­where in the world to­day. At the same time, Nas­daq has had one Chi­na biotech IPO in 2020 (I-Mab) and two oth­ers (Gen­etron Health and Leg­end Biotech) are on file.

Cur­rent events show how vi­tal of a move this was.

I think the ul­ti­mate val­i­da­tion of Hong Kong’s new biotech chap­ter is the tim­ing. COVID-19 has il­lus­trat­ed to the world how vi­tal bi­ol­o­gy is to so­ci­ety. Ours is like­ly to be a sec­tor of fo­cus for years to come. That the HKEX did this two years ago is key. I strong­ly be­lieve that if you don’t have a stock mar­ket for biotech, you can­not have a biotech sec­tor be­cause ours is one of the most cap­i­tal in­ten­sive in­dus­tries that ex­ists. Com­pa­nies need to con­stant­ly raise new mon­ey and that is not pos­si­ble with­out a healthy pub­lic mar­ket com­po­nent for fi­nanc­ing. The fact that HKEX had al­ready put this in place will no doubt help com­pa­nies in Asia rise to the chal­lenge dur­ing this piv­otal mo­ment. Since the time of the de­ci­sion, Shang­hai has made a sim­i­lar move with the cre­ation of its STAR Mar­ket and Shen­zhen’s ChiNext was al­so re­cent­ly giv­en ap­proval to do the same.

HKEX was al­so right when it made its ini­tial bet by rec­og­niz­ing that biotech is a vi­tal sec­tor of the new econ­o­my, and an en­gine of growth. To be a com­pet­i­tive glob­al ex­change of the fu­ture, it was im­por­tant for HKEX to get in on this busi­ness. The per­for­mance of biotech vs the rest of the stock mar­ket in Hong Kong since then has been strik­ing. My com­pa­ny has cre­at­ed the Chi­na Bio­Phar­ma In­dex, a bas­ket of 29 Chi­nese bio­phar­ma­ceu­ti­cal com­pa­nies, 83% of which are list­ed in Hong Kong. As of May 15th, the Lon­car Chi­na Bio­phar­ma In­dex is +10% YTD in 2020, +21% over 1 year, and +5% since the first biotech IPO hap­pened in Ju­ly of 2018. This com­pares to the Hang Seng In­dex (to­tal re­turn) of -15% YTD in 2020, -13% over 1 year, and -13% since the first biotech IPO in Ju­ly of 2018. The new econ­o­my has been a dri­ver of growth.

This is just the be­gin­ning.

While this suc­cess is re­al and im­pres­sive, it is im­por­tant to note that it is on­ly the be­gin­ning for biotech in Hong Kong. One big mis­take the naysay­ers made is that they ex­pect­ed every­thing to be per­fect on day one and passed judge­ment af­ter the first few list­ings were not great. In re­al­i­ty, the way to eval­u­ate a big change like this is over the course of many years. It is true that every­thing was not in place on day one (num­ber of buy-side and sell-side an­a­lysts cov­er­ing the sec­tor) and still is not, and it is al­so true that the list­ings got off to a rocky start. But they have since gained strength, and that is an en­tire­ly nor­mal course of events for some­thing new. The U.S. biotech sec­tor was not built overnight ei­ther. When you con­sid­er that Hong Kong is on­ly two years in­to its biotech chap­ter, I think you can on­ly view the present sit­u­a­tion as a great start and a re­sound­ing val­i­da­tion of the idea to do it.

There is one fi­nal is­sue that needs to be men­tioned. HKEX did make one big mis­cal­cu­la­tion two years ago when this was all start­ing. Back then, it was sug­gest­ed that the ex­change would go af­ter biotech list­ings from all over the globe, in­clud­ing from the Unit­ed States. In my view, that was bit­ing of more than they can chew and was not re­al­is­tic be­cause you have to earn that first. It is even less re­al­is­tic now in a world of COVID-19 and the po­lit­i­cal protests that have been tak­ing place in the city. While HKEX has not achieved (and might not for some time, if ever) this ag­gres­sive goal, to­day it has be­come with­out a doubt an ex­cel­lent home for Chi­na-fo­cused biotech com­pa­nies. There is great de­mand and mo­men­tum for that. This is a huge achieve­ment that HKEX, and all of Asia, de­serves to be proud of. The biotech chap­ter is off to a great start.

Digital therapeutics company Better Therapeutics announced on Thursday that it’s cutting 35% of its staff as it awaits FDA clearance for its first product.

The company, which launched eight years ago, is one of a growing group of companies seeking a digital alternative to traditional medicine. The space saw a record $7.5 billion in investments in 2021, according to Chris Dokomajilar at DealForma, with uses spanning ADHD, PTSD and other indications. However, private insurers have been slow to hop on board.

The FDA’s Oncology Center of Excellence has been a bright spot within the agency in terms of speeding new treatments to patients. That flexibility was on full display this morning as FDA released new draft guidance spelling out exactly how oncology drug developers can fulfill both the accelerated and full approval’s requirements with just a single randomized controlled trial.

While Congress recently passed legislation that will allow FDA to require confirmatory trials to be recruiting and ongoing prior to granting an accelerated approval, the agency is now making clear that the initial trial used to win the AA, if designed appropriately, can also serve as the trial for converting the accelerated approval into a full approval.