International investors including BlackRock and Fidelity are anchoring a boom in Hong Kong biotech listings, with Chinese healthcare companies raising a record $21.1bn from share offerings in the city this year.
Hong Kong is seeking to supplant New York’s Nasdaq as the world’s largest biotech fundraising centre by 2025. The rush of interest from western investors follows reforms two years ago that allowed biotech groups with no revenue to go public in the Asia finance hub for the first time.
Those listings have been backed by so-called cornerstone investors from the US and elsewhere, which in return for a large allocation agree not to sell their shares within six months following an initial public offering.
This year, non-Asian cornerstone investors have on average bought up a record 46 per cent of the shares of each biotech IPO in Hong Kong, according to Dealogic. That compares with 10.5 per cent in 2019.
Bankers said a rise in the number of large, high-quality biotech deals helped to land cornerstone backing from American healthcare specialists including Rock Springs Capital, RA Capital and Logos Capital. US fund managers including Fidelity and BlackRock have also been more willing to act as cornerstones.
Cornerstone investing is a common practice in Hong Kong and it can help generate interest in listings and reassure local investors.
The surge in cornerstone funding comes as Chinese biotech and healthcare listings in Hong Kong have jumped almost 200 per cent to $21.1bn this year, according to Bloomberg data. That is far higher than the 118 per cent rise in money raised via healthcare IPOs worldwide.
Asia has become “the heart” of capital markets activity for the healthcare sector, said Aaron Arth, head of the financing group at Goldman Sachs in Asia.
Big investors are “aggressively acting as cornerstones to endorse deals by committing to buy and hold large stakes and [are] benefiting handsomely from [the] risk-taking”, he added.
Boston’s RA Capital and BlackRock backed the HK$3.49bn (US$450m) IPO of Everest Medicines in October, one of the year’s biggest biotech listings. Chinese biopharmaceutical company RemeGen, which went public in a nearly $600m November listing, won interest from Fidelity, while San Francisco-based investment firm Matthews International Capital and Baltimore-based Rock Springs served as cornerstones in the HK$2.2bn debut of Chinese cancer drug developer InnoCare in March.
Rock Springs and US asset management group Oaktree Capital were cornerstones for Chinese cell therapy developer JW Therapeutics, which raised HK$2.325bn in its November IPO.
US interest has been piqued as deals by Chinese healthcare groups have grown in scale and are “increasingly by more established or less speculative issuers”, said Philippe Espinasse, an independent financial consultant in Hong Kong.
Shares in the 29 biotech companies that have listed in Hong Kong since mid-2018 until December 13 this year — 27 of which are Chinese — have risen by 53 per cent on average from their IPO prices, according to Dealogic.
Elvina Lee, investment specialist for the JPMorgan Global Healthcare Fund, said a growing number of Chinese companies had innovative business models and were spending more on research and development. That meant the fund, which currently has limited exposure to Chinese healthcare groups, “will be spending more time in China”, she added.
Additional reporting by Hudson Lockett in Hong Kong