Hong Kong biotechs IPOs face lower valuations after Ascletis flop

Biotechs taking an advantage of new Hong Kong exchange rules have been told to expect lower valuations, after Chinese pioneer Ascletis Pharma’s shares plunged nearly 45% in the first month of trading.  

The first Chinese applicant Ascletis Pharma (1672.HK) debuted under new rules on the Hong Kong exchange on 1 August.

Ascletis, a pre-profit biotech focusing on the development of Hepatitis C and HIV treatments, was valued at $2 billion after its initial public offering (IPO) priced at the middle of an indicative range.

The firm started trading with shares priced at HK$14, raising $400 million, but after just four weeks registered a plunge of nearly 45% to HK$7.75.

The firm spoke to Reuters, noting the share price movement, insisting that its “fundamentals remain very strong and unchanged since the IPO.”

Market analysts indicated that the massive share price drop is a wake-up call for investors who were overexcited by a sudden rise of Chinese biotech companies in recent years.

Kevin Xie, co-founder of investment bank China Renaissance and head of its healthcare division, commented: “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.”

The majority of analysts think that the relatively high pricing of Ascletis’ IPO heavily contributed to the stock pricing decline.

They also indicated that the Chinese biotech’s debut in Hong Kong coincided with vaccine scandals and the US/China trade dispute might have negatively impacted investors.

Under the new rules, in place since the end of April this year, biotechs without revenue or profit can apply to list in Hong Kong.

The exchange requires new applicants to have developed at least one product that has proceeded beyond the concept stage, to have been primarily engaged in R&D and to have registered patents among other financial requirements.

More than 10 companies - including Innovent Biologics, backed by Singapore state investor Temasek Holdings, and Shanghai Henlius Biotech - plan to list, with some intending to drop their plans to list in the US and use Hong Kong’s exchange instead.