The Hong Kong Stock Exchange became a hot new destination for biotech companies this year when it relaxed its rules for early-stage, prerevenue biotechs. But the fate of Ascletis Pharma, the first to list there under the new rules, may serve as a wake-up call for other firms looking to follow in its footsteps.
After a month on the HKEX, Ascletis’ shares have dropped 44%, from HK$14 to HK$7.88. The Hangzhou, China-based company filed for its Hong Kong IPO in May, pricing at HK$14 on Aug. 1, the middle of its range. The offering raised $400 million and Ascletis was valued at $2 billion.
Ascletis has noted the movement in share price and that its “fundamentals remain very strong and unchanged since the IPO,” Reuters reported. The company has put together a pipeline of antivirals by raising $155 million in venture capital and then buying up assets from Western drug developers. Ascletis wants to spearhead a change in how hepatitis C is treated in China.
The stock’s slump could be chalked up to a relatively high pricing, said people involved in the IPO to Reuters. And who could forget the growing trade war between the U.S. and China?
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The company, understandably, is putting a brave face on its performance, but investors and bankers spoke of bubbles bursting and said to expect lower valuations for future IPOs in Hong Kong.
“With a surge in China’s biotech industry in recent years, everyone has been a bit overexcited,” said Kevin Xie, who co-founded and heads the healthcare division at the investment bank China Renaissance, Reuters reported.
“As market conditions have become more challenging than a year ago and investor sentiment has cooled, many biotech firms will have to adjust valuations in both primary and secondary markets,” Xie said.
And it’s not a bad thing, said Jonathan Wang, senior managing director and co-founder of the Asia fund at healthcare investor OrbiMed Advisors.
“It’s actually good news to have everyone cooled down after months-long hype and excitement around the industry,” Wang, who also sits on an advisory panel to the HKEX, told Reuters.
Investors backing biotech companies regardless of high valuations “is very dangerous and could either create bubbles in the industry or depress it in the long term,” he said.
According to Reuters, there are at least 10 more biotechs aiming to go public in Hong Kong this year. Some of them even forwent plans to do so in the U.S. thanks to the new, friendlier rules for early-stage biotech companies. Grail might be one of them—according to a Bloomberg report in April, the company is considering raising another billion-dollar funding round before going public in Hong Kong.