Within a relatively short time, Hong Kong has developed into one of the global hubs of biotechnology. Before 2018, the Hong Kong stock exchange (HKEX) had no biotech companies listed, the first being Ascletis Pharma in August 2018. The first few listed companies had limited success, underperforming due to unrealistic valuations. However, in the following years, 30 biotech companies have been listed, amassing a total of almost 13.5 billion USD in IPOs. As such, Hong Kong is threatening Wall Street’s grip on the lucrative biotech sector, with some even predicting the HKSX to overtake New York’s NASDAQ as the largest global hub of biotech within the next 5-10 years.
Regulatory change has been a key driver in this biotech transformation. Prior to 2018, the HKEX maintained profit requirements, which restricted Biotech companies from being listed. Biotech companies rarely generate profit at the time of listing as they largely focus on research and development for future returns. This fact, coupled with HKEX profit requirements, led to many high-potential Chinese biotech firms being listed elsewhere, namely in New York on the NASDAQ. However, in 2018 the HKEX changed its requirements for the sector, reducing the emphasis on profit, allowing companies such as CanSino Biologics to list themselves. CanSino Biologics went public with an IPO price of 22 USD per share and is currently valued at over 400 USD per share. Other successful biotech firms include Innovent Biologics and Junshi Biosciences.
Other factors have also contributed to the biotech sector boom, such as significant government funding. In 2016, the Chinese government launched its precision medicine initiative, with an investment of 9.2 billion USD over 15 years. The Chinese government has also allocated around 400 million USD for stem cell research projects and established 5 new national centres for Translational Medicine. The Chinese government also provides research grants for biotech, with one study showing that around one-third of agricultural biotech firms received government grants for research and development. An example is Origin Agritech, which was awarded a grant in November 2020 from the Ministry of Agriculture.
Aside from government funding, research capabilities in China are less restricted than elsewhere. Given there are no laws restricting the use of health data, it is significantly easier to collect and use patient data for research, compared with Europe and the US. This has allowed Chinese researchers to use data in order to train artificial intelligence algorithms to diagnose diseases, something that would prove more difficult to do elsewhere. Thus, access to this massive database has attracted foreign genetic research companies to China, further growing the biotech industry. Other ways in which China has increased its biotech appeal include reforming procedures and standards for Chinese pharmaceutical products in order to better align with international standards and improving its drug appeal process to increase efficiency. These changes make Chinese biotech products more viable for worldwide use and may become a point of emphasis moving forward for many firms.
However, there are also some limitations that may restrict the industry’s growth. For example, foreign firms are often at a disadvantage if they are not producing locally in China or helping Chinese firms produce. There is a strong government focus on the domestic growth of the industry. This has resulted in many foreign biotech firms being pressured into entering joint ventures in China, with some firms even having research facilities as well as manufacturing facilities in China. Pfizer is an example, having manufacturing facilities in Dalian, Suzhou and Wuxi, as well as research and development centres in Shanghai, Wuhan and Beijing. Moreover, China’s restrictions on the exports of data make it extremely difficult for genetic data to leave the nation. The country has even prosecuted a number of companies for publishing data in scientific papers. These factors may discourage further foreign investment in the industry.
A further threat to the growth of the industry is that China has also been accused of intellectual property (IP) theft, with Chinese scientists returning from the US to develop the IP in their own labs. As such, Chinese companies have been able to obtain foreign technology without paying market rates for it. Should the US government clamp down and prohibit this in the future, the future growth of the sector in China may be restricted.
Another challenge the sector might face is that the global pandemic may also serve to inflate the overall global biotech industry, as there is a high demand for medical research and expertise globally. This bubble may burst once the pandemic ends, and demand for biotech products will likely contract.
With Hong Kong currently showcasing a surge in Chinese biotechnology, the industry still has a lot of potential. With the help of so much government intervention regulation and incentives, the biotechnology industry is bound to keep growing. This will especially be the case if foreign biotech firms are kept on side by alleviating fears of IP theft. This, however, will depend on President Biden’s attitude to China, yet to be formally outlined.
By Hadi Ahmed
Sector Head: Jared Gibson