Ascletis Pharma got its IPO across the line with a HK$3.6bn ($460m) sale on August 1. It was a deal that the Hong Kong Stock Exchange had been excited about since revising its rules to allow listings by pre-revenue biotech issuers in April.
But the mainland China company has turned out not to be a great opener for the sector, as its share price is down 18.9% since listing, having dived more than 30% after its first two days trading. Nonetheless, Hong Kong is this week set for its second listing from a pre-revenue biotech issuer, which is likely to be a much more telling measure of support.
BeiGene, a Chinese Nasdaq-listed drug maker, is scheduled to float shares on the HKEX on Wednesday through a HK$7.1bn secondary listing. The issuer is well-known and has tapped the US market a number of times since it was floated in early 2016. It has yet to report any revenue but has a series of drugs nearing approval.
The firm held a follow-on offering last week, which drew a strong response from new and existing buyers, most of which were outright investors.
If BeiGene’s stock performs well in the coming days it will show that the right company can win the necessary commitment from investors, despite market conditions. If it flops, the eight or so biotech firms expected to list this year could be in for a rough time.
Similar to BeiGene, the Ascletis IPO was largely placed with long-only funds. But different to BeiGene, the company is new and consequently some of those same buyers dropped huge portions of their stock when markets tumbled.
Those investors could be forgiven for reacting in such a way, as it could be chalked up to selling out of a risky position in a collapsing market. The Hang Seng Index fell by as much as 4% last week.
But for biotech stocks to succeed, investors will need to get to grips with the fact that the sector requires long-term commitment and they should not bail out the minute the market turns choppy.
The growing list of pre-revenue IPO hopefuls eyeing the HKEX comprises biotech names that are all new to the offshore market. And most are years away from generating any revenue.
For now, all eyes will be on BeiGene and how its first few days of trading pan out. But ultimately the majority of biotech companies in Hong Kong will not have the established reputation of a US-listed peer.
Issuers must take this into account when preparing and selling their IPOs, but so must investors when they are looking for an opportunity in the sector. Pre-revenue firms need long-term support, not short-term backing.