Currently, China’s economy is transitioning from high-speed growth driven by factor input to high-quality development and innovation-driven growth. Similarly, the innovative pharmaceutical industry is shifting from following innovation to adopting an independent innovation strategy. Boosting market confidence and streamlining financing channels have become key elements in solving the long-term development of China’s pharmaceutical innovation and realizing the national innovation strategy. Hong Kong, as the world’s third-largest financial center, also serves as a bridge connecting Mainland China with global capital. On December 1, the 9th China BioMed Innovation and Investment Conference (CBIIC) Hong Kong Capital Market Forum was successfully held in Guangzhou, focusing on leveraging financial instruments to empower pharmaceutical innovation, and building a communication platform between government, industry, academia, research, and finance.

The forum was moderated by Laura Zhong, Executive Director of the CICC Investment Banking Division Healthcare Team.

Winnie Han, Senior Vice President and Head of China Issuer Services at Hong Kong Exchanges and Clearing Limited (HKEX), delivered the opening speech on behalf of the organizers. Winnie Han noted that since the implementation of the 18A listing reform in 2018, the HKEX has seen the listing of 67 biotech companies. As of September this year, more than 130 healthcare companies have conducted initial public offerings (IPOs) on the HKEX, raising over HK$270 billion. She highlighted that the HKEX has continuously pursued reforms, including the recent amendments to the listing rules under 18B and 18C, which adjust the regulations on SPAC mergers and acquisitions and introduce arrangements to maintain normal market operations during adverse weather conditions. At present, 20 healthcare companies are undergoing IPO applications, indicating the continued growth of the biotech industry. 

Ba Shusong, Managing Director and the Chief China Economist of Hong Kong Exchanges and Clearing Limited, discussed the topic of leveraging comparative advantages to form positive interaction between offshore and onshore markets, enhancing Hong Kong’s pharmaceutical ecosystem, and promoting the innovative development of China’s pharmaceutical industry. Ba Shusong emphasized that Hong Kong is currently the only global financial market capable of connecting China’s vast onshore and offshore capital pools. Looking ahead, Hong Kong will attract more domestic and foreign CNY investors to participate in trading, strengthen the interconnection of offshore and onshore markets, and become a crucial incubator and connection point for the global pharmaceutical industry.

Michael Chiu, Managing Director and Co-Head of AEJ Healthcare Group at Goldman Sachs, and Member of the Listing Committee of the Hong Kong Stock Exchange, gave a report on “The Strategy and Outlook of the Biotech Financing” Michael Chiu noted that Chinese innovative pharmaceutical companies are facing challenges such as tight funding and limited financing channels. On the other hand, China’s innovation capacity is steadily improving. Statistics show that China’s clinical trial numbers have seen double-digit growth for the fourth consecutive month, the average time for drug discovery has shortened by 30-50% compared to industry averages, and patient recruitment in clinical trials has accelerated by 2-5 times. Despite these advancements, investors are becoming more cautious. Michael Chiu introduced the preferences and focuses of current investors and emphasized that excellent clinical data is key to enhancing company value and securing financing. He illustrated with practical cases that investors are more inclined to release more funding after milestone events to unlock product value. As innovative achievements go global, Chinese pharmaceutical companies are exploring more international experiences. Michael Chiu introduced recent typical cases of the NewCo model and other global cooperation models, highlighting associated equity and risks. He expressed confidence that with continuous optimization of IPO policies and the evolving macroeconomic and healthcare policies, the innovative pharmaceutical industry will overcome the current cold period and emerge stronger.

Liao Yixing, Head of Investment Banking/Healthcare Division of Huatai United Securities, gave a presentation on “The Development of Innovative Pharmaceutical Industry and Capital Tide” Liao explained that China’s innovative pharmaceutical industry has reached new heights and is now the second-largest source of approved new molecular entity (NME) drugs globally. However, with a decline in the valuation of medical health sector indices and stocks, the market for equity financing in the innovative pharmaceutical sector has dropped to levels seen in 2018-2019. Liao discussed how the market has faced difficulties, such as low stock prices and the challenge of sustaining high R&D investments, but pointed to new policies launched this year to improve the attractiveness of Chinese assets. He expressed optimism about the industry’s future, especially with the ongoing adjustments in healthcare and insurance policies.

At the invitation of the China Pharmaceutical Innovation and Research Development Association (PhIRDA), a discussion and sharing session on the topic “Adjustment of the Threshold for the Hong Kong Stock Connect: Market Opening and Opportunities for Investors” was moderated by Chen Li, Vice-Chairman, PhIRDA Drug R&D Specialty Committee and CEO of Hua Medicine (Shanghai) Co., Ltd. The panelists included Jason YANG, CEO & President of R&D, Executive Director of the Board CStone Pharmaceuticals, Wang Luyao, Senior Director of IR & PR at Jacobio Pharma, Zhang Jing, Chairman and CFO of 3D Medicines Inc., Zhang Hanwen, Head of Corporate Development at Harbour BioMed, and Zhang Jinyang, Assistant Director and Chief Analyst of Guosheng Securities Research Institute.

As is well known, the Hong Kong Stock Connect, an important bridge linking the mainland with global capital, plays a vital role in consolidating Hong Kong’s position as a global financial center and supporting the high-quality development of innovative entities. Especially after the introduction of Chapters “18A” and “18C”, the Hong Kong Stock Connect has provided strong financial support for the cross-integration of the pharmaceutical and artificial intelligence sectors, which is crucial for early-stage R&D and innovation in the pharmaceutical field. Finance is a key national asset, and venture capital plays a critical role in technological innovation, industrial upgrading, and high-quality development. The pharmaceutical industry, as an emerging pillar sector that concerns public health and well-being, is characterized by high R&D costs, long cycles, and low success rates, requiring “patient capital” to provide continuous support.

The panelists unanimously agreed that the current global macroeconomic situation is complex and ever-changing, with an intensifying tech war. In addition, special factors such as biopharmaceutical industry negotiations with medical insurance and product entry into hospitals have led to the “capital winter” in the biopharmaceutical field, with industry market expectations generally falling by 60%. However, enterprises have not stopped their R&D efforts, and R&D expenses remain at a high level. The current Hong Kong Stock Connect’s “outflow” mechanism, which uses static market capitalization as a single criterion, has created a new contradiction with the current complex global external environment. This has made enterprises cautious about innovation and R&D, posing challenges to their investment activities and sustainable development. On the other hand, Hong Kong’s capital market liquidity is lower compared to A-shares, with the average daily trading volume of the Hong Kong Stock Connect accounting for about one-third of the Hong Kong capital market. After being removed from the Stock Connect, the market’s pessimistic sentiment, driven by institutional issues, further weakened the value of enterprises. Mainland investors can no longer purchase shares via the Stock Connect, resulting in a vicious cycle that deprives Southbound funds of the opportunity to invest in biopharmaceuticals and harms early investors’ interests. Over time, outstanding global market participants are more likely to choose to list and raise funds on more attractive platforms such as NASDAQ. The Hong Kong Stock Connect will lose its practical function for financing biopharmaceutical enterprises, deviating from the original intention of encouraging financial capital to promote technological innovation, enhance market expectations, and stabilize the economy. The panelists unanimously called for the urgent restoration of the trading status of enterprises that were removed from the Stock Connect. Further optimization of the Stock Connect’s delisting criteria should be carried out, linking them to the overall index of biopharmaceuticals, forming a new dynamic adjustment mechanism.

The panelists also agreed that these suggestions will help bring the dividends of the interconnection between the two markets to more market participants and investors, significantly enhancing the attractiveness of Hong Kong’s capital market and solidifying Hong Kong’s position as a global financial center. On the other hand, this would also provide a more stable, predictable, inclusive, and attractive financing environment for innovative entities in high-tech sectors such as biopharmaceuticals, ensuring that the capital market plays a vital role in supporting the real economy and driving the transformation and application of technological innovations.

PhIRDA will continue to contribute to building a healthy ecosystem for the health industry with market participants!

The second phase of the thematic discussion was moderated by Ally Huang, Partner of Junhe LLP. The theme was “High-Quality Development of the Industry and Enhancement of International Competitiveness under New Regulations.” Panelists included Lin Weidong, Executive Director and Deputy General Manager of Qyuns Therapeutics, He Kuanhua, Chairman of GF Qianhe Investment Co., Ltd., Wilson Xu, Head of International Business, Healthcare Coverage, Global IBD Committee at CITIC Securities, Zhang Qian, Chief Operating Officer of Guangzhou Magpie Pharmaceutical Co., Ltd., and Fion Xu, Assurance Leader at EY South China. This year, China has introduced a series of specific measures to boost the economy and implement a package of incremental policies, sending a strong signal of financial support for high-quality economic development and boosting market confidence. The panelists shared their observations on recent market changes from their respective perspectives, focusing on the “Eight Guidelines for the Sci-Tech Innovation Board”, the “Six Guidelines for Mergers and Acquisitions”, and the newly revised “Management Measures for Strategic Investments by Foreign Investors in Listed Companies”. They also exchanged relevant transaction experiences with the audience. The panelists shared their observations on recent market changes from their respective perspectives and exchanged transaction experiences with the audience. They noted that the merger and acquisition market is active, and biopharmaceuticals are expected to experience a “big year for M&A” in the next 2-3 years. They also mentioned that the stability of policies has a significant impact on the capital market and innovative pharmaceutical companies. Recently, the pace of IPOs has slowed, and with the economic cycle’s impact, market investment enthusiasm for startup companies has gradually decreased. The “window period” created by policies has become an important opportunity for companies intending to list. The panelists expressed hope for more policies that encourage innovation to be introduced in the future, opening up reasonable return channels for innovative pharmaceutical companies and improving exit channels, helping the Chinese innovative pharmaceutical industry reach new heights.

The Hong Kong Capital Market Forum concluded successfully with the support of the participants. This forum focused on how Hong Kong’s capital markets and financial services can better support the sustainable and high-quality development of the pharmaceutical industry. Financial services leaders, representatives of the HKEX, investment banks, and investment institutions, along with pharmaceutical innovation industry leaders listed under Chapter 18A and senior experts in legal, financial, and audit services, gathered together to bring an intellectual feast for the audience, winning unanimous praise.