Biotechnology companies listed in the Hong Kong Stock Exchange's Chapter 18A segment are exhibiting a new set of characteristics.

Today (23rd), Frost & Sullivan, in collaboration with the Head & Panther Research Institute and others, released the "2024 Hong Kong Stock 18A Biotech Companies Issuance and Investment Activity Report" (hereinafter referred to as the "Report"). Since the Hong Kong Stock Exchange introduced Chapter 18A of the listing rules in 2018 (allowing pre-revenue biotech companies to list in Hong Kong), as of March 31, 2024, a total of 64 biotech companies have completed their listings based on this rule, covering various fields including small molecule drugs, nucleic acid drugs, antibody drugs, AI medical imaging, surgical robots, etc., and some companies have successfully removed the "B" designation.

The "Report" states that from the early rebound high point on January 30, 2023, to December 21, the Hang Seng Index fell by 26.74%. However, in the first quarter of 2024, the Hong Kong stock market first fell and then rose, followed by a narrow fluctuation. With the economic stabilization and a series of policy promulgations, there is hope to promote a rebound in the Hong Kong stock market, and the "Hong Kong Stock 18A segment is approaching a new turning point."

Specifically, among the aforementioned 64 companies, only 4 companies' stock prices remain above their issue prices, namely Innovent Biologics, Kanghong Bio, Kolon Bio-Therapeutics, and Quanxin Bio.

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In terms of revenue and profitability, the 18A-listed companies in 2023 achieved a total revenue of 50.41 billion yuan, breaking through the 50 billion yuan mark for the first time. The top three revenue-generating companies were BeiGene (17.41 billion yuan), Innovent Biologics (6.21 billion yuan), and Henlius (5.4 billion yuan). Among them, 4 companies achieved profitability, in the following order: Kanghong Bio, with a profit as high as 2.03 billion yuan, Henlius achieved a profit of 570 million yuan, and Bio-Therapeutics achieved a profit of 160 million yuan, and Pioneer Pharma achieved a profit of 10 million yuan.

In terms of cash reserves, the cash and cash equivalents of the 18A-listed companies in the Hong Kong stock market in 2023 totaled 78.93 billion yuan, a decrease from 97.93 billion yuan in 2022. However, leading companies still have sufficient cash reserves, such as BeiGene with cash and cash equivalents of 22.46 billion yuan, Zai Lab with 5.6 billion yuan, and 23 companies with cash and cash equivalents of less than 500 million yuan will face significant operational risks.

"The aforementioned companies with relatively stable revenue and profitability, such as Kanghong Bio, Innovent Biologics, and Henlius, are all companies focused on the innovative research and development of antibody drugs," said He Wanyi, a senior analyst in the medical industry at the Head & Panther Research Institute, to the First Financial Daily reporter. In fact, the vast majority of biotech products that have been commercialized are therapeutic drugs in the fields of solid tumors and hematological tumors. "For example, Kolon Bio-Therapeutics' SKB264 targets the trop2, which is a cutting-edge target internationally, and currently only one new drug is on the market globally; and Innovent Biologics' Masitinib, its new generation of dual-target GLP-1 agonist, has shown clinical data that significantly exceeds the only dual-target agonist on the market, Telmisartan. Good technology in the true sense will still be favored by the market."

The reporter noticed that among the aforementioned 64 companies, there are 48 in the pharmaceutical field and 16 in the medical device field; although small molecule drugs account for nearly 90% of commonly used drugs, the cell and gene therapy (CGT) track has the fastest growth rate. Data shows that China's CGT market size has increased from 300 million yuan in 2019 to 3.28 billion yuan in 2023, and is expected to increase to 51.37 billion yuan by 2028.

He Wanyi analyzed that the Hong Kong stock market provides financing channels for biotech companies with high growth potential but not yet profitable through the 18A rules, which helps cell and gene therapy companies that require long-term research and development and huge initial investments. In the first quarter of 2024, a total of 32 CGT therapies were approved for IND (clinical trial) in China, including 22 cell products and 10 gene therapy products, and the market prospects in this field are worth looking forward to.

"With the review and approval of the 'Full Chain Support for the Development of Innovative Drugs Implementation Plan', biotech companies and enterprises with strong innovation attributes will receive long-term policy support. However, the research and development of innovative drugs require extremely high capital investment, and cash flow tension will become a key factor restricting the survival and development of pharmaceutical companies. It is recommended that pharmaceutical companies carry out research and development for unmet clinical needs and develop innovative drugs with independent intellectual property rights. Medical device companies should enhance the technological content and added value of their products, and gradually increase market share from the perspective of domestic substitution," He Wanyi added.