20% Of Pharmaceutical Companies Listed In Hong Kong

On October 27, Xiansheng Pharmaceutical Group Co., Ltd. (Stock Code: 2096. HK) was officially listed on the Hong Kong stock exchange. The global offering of 261 million shares by Xiansheng Pharmaceutical Co., Ltd. is expected to raise about HK $3.39 billion.

This is after the privatization of NASDAQ in 2013, Xiansheng Pharmaceutical Co., Ltd. once again entered into the capital market. However, its performance on the first day was not satisfactory: it fell at the beginning of the trading, and fell more than 25% during the session. As of the closing, it closed at HK $10.98/share, down 19.85%.

Xiansheng has attracted much attention due to the introduction of seven cornerstone investors including Hillard capital. Other investors include Jiangbei hi tech, Shenzhen Venture Capital, Qingchi capital, Aubo capital, sharp capital and Jericho funds.

According to its prospectus, Xiansheng pharmaceutical is engaged in drug research and development, production and commercialization. At present, it is mainly engaged in generic drug business, and has a variety of product portfolio in tumor diseases (including cell therapy), central nervous system diseases and autoimmune diseases. According to frost Sullivan's data, in terms of drug sales revenue, the above three treatment fields together accounted for 24.7% of China's drug market in 2019, and the growth rate from 2015 to 2019 was faster than that of the overall Chinese pharmaceutical industry. It is expected that this trend will continue in the next few years.

Although the first day was unfavorable, in 2007, as China's first biological and chemical pharmaceutical company, it landed on the New York Stock Exchange. After that, due to its long-term undervalued situation in American stocks, it was privatized and delisted from Nasdaq in 2013.

From 2017 to 2020, Xiansheng's revenue increased from RMB 3.868 billion in 2017 to RMB 5.037 billion in 2019, with an annual compound growth of 14.1%. The proportion of R & D investment in revenue increased from 5.5% in 2017 to 14.2% in 2019, and reached 23.6% in the first half of 2020.

In Xiansheng's current product portfolio, sales of 10 major products (including seven generic drugs, two class I innovative drugs and one modified new drug) accounted for 85.1%, 83.0%, 81.9% and 78.9% of the total revenue for the years ended December 31, 2017, 2018 and 2019, and for the six months ended June 30, 2020, respectively. Endostatin and endostatin injection were used.

In recent years, it has been the first to expand foreign cooperation. In 2020, two new innovative drug products were approved and put on the market: enryshu, a biological drug for the treatment of rheumatoid arthritis, which was developed in cooperation with BMS, and the self-developed new drug for neuroprotective treatment of stroke, xianbixin (concentrated solution of Edaravone and dextrocampol for injection).

With the supplementary cooperation agreement between Xiansheng and Kangning Jierui and thinkingdemai, we obtained the exclusive commercial rights of kn035, a kind of subcutaneous injection PD-L1 inhibitor, in China.

"The main purpose of our listing on the Hong Kong stock exchange to raise funds is: to focus on the research and development of products in the field of treatment, strengthen sales and marketing capabilities, invest in pharmaceutical or biotechnology companies with significant commercial value and are expected to solve unmet medical needs, so as to broaden the product portfolio and repay loans," said Xiansheng pharmaceutical

Hong Kong stock pharmaceutical enterprises

Since the new rules of the Hong Kong stock exchange, Hong Kong has become a new choice for many Chinese biomedical companies to "fight" in the capital market.

"Hong Kong has become the largest biotechnology funding centre in Asia since the introduction of chapter 18a in 2018, which allows biotechnology companies without income to come to Hong Kong for listing," said Mr. Smith, chairman of the Hong Kong stock exchange

Li Xiaojia, chief executive of the Hong Kong stock exchange, said that "looking forward to the next five to 10 years, Hong Kong is expected to become the world's largest market for raising new biotechnology shares".

Baiji Shenzhou and Xinda bio became the first two companies to be incorporated into Hong Kong stock connect after listing in Chapter 18a. "This is not only a milestone in the development process of enterprises, but also a more mature development of the biotechnology ecosystem of HKEx."

According to the data of the Hong Kong stock exchange, by the end of September this year, 21 18a medical and health companies had been listed in Hong Kong, with a total capital of HK $53.6 billion. Since the beginning of 2020, the average share price of these companies has increased by 61% on average since the beginning of 2020. The average daily turnover in the first month of 2020 is HK $2.67 billion, which is HK $1.69 billion in the first month of 2020.

Huang Yifei, managing partner of Baiao wealth fund, recently wrote in the fourth issue of "Hong Kong Stock Exchange and Biotechnology". From the perspective of two fundamental driving factors, the continuous growth of the number of new enterprises and the demand for global asset allocation will help to achieve the above objectives of Li Xiaojia.

"The United States is the largest biotechnology IPO market at present. In the past five years, there have been about 45 biotech IPOs each year, with a total fundraising of about US $5 billion. If we also want to raise US $5 billion on the Hong Kong stock exchange, which is equivalent to the total market value of about US $20 billion at the time of IPO (assuming the average listing volume is 25%), can we expect the biotechnology companies listed on the Hong Kong stock exchange to reach this scale in the future

At a deeper level, market value reflects the income and profit potential of an enterprise. For the medical and health enterprises, this ultimately comes from the individual health needs and willingness to pay. Most investors understand that the medical and health industry is defensive, that is, the correlation between personal health and business cycle is not high. It should be noted that the medical and health industry in emerging markets has a unique growth dimension - with the construction or modernization of hospitals and treatment infrastructure in various countries, the consumption of medical services and products by people of all ages will generally increase.

In fact, in many emerging market countries, diagnosis and treatment are far from saturated, and the shortage of products and services will continue to generate new enterprises. As a result, emerging market medicine and health sector shows unique and attractive defensive growth characteristics, which is quite different from mature markets.

Huang Yifei believes that China's medical and health industry has clearly shown a defensive growth trend. At present, the total market value of the pharmaceutical and health sector in the US market is US $5.5 trillion, while that of the Chinese market is about US $1.5 trillion (about US $450 billion of companies listed on the Hong Kong stock exchange, plus about US $1 trillion of the market value of enterprises listed in China). China's population is four times that of the United States, and it is still in the early stage of market development.

In 2009, when the Hong Kong Stock Exchange ushered in the first large-scale pharmaceutical IPO, the total market value of the Hong Kong Stock Exchange's pharmaceutical and health sector was only US $5 billion. Since then, the Hong Kong Stock Exchange has created more than US $400 billion of new medical and health sector market value, mainly Chinese enterprises.

On the other hand, international investors lack defensive growth assets to invest in. From a technical point of view, international investors can only invest in enterprises listed on the Hong Kong Stock Exchange and domestic listed enterprises in the list of Hong Kong stock connect (Shanghai and Shenzhen). The investable market value of China's pharmaceutical and health sector, which is only equivalent to about US $500 billion, is less than the sum of the market values of Johnson & Johnson and GSK.

"The demand for global asset allocation has formed a strong concern for China's high-quality medical and health enterprises, and this will continue to strengthen. Unlike other technology companies, most Chinese pharmaceutical and health companies do not choose to list in the US, so this is not a competition between the US and the Hong Kong stock exchange. The Hong Kong Stock Exchange has opened up a new way to effectively meet the financing needs of Chinese medical and health enterprises. At the same time, it is also the only platform for global investors to lay out an attractive Chinese pharmaceutical and health investment sector. This exclusive medical and health sector capital pool will eventually attract more Chinese (and even global) pharmaceutical and health enterprises to list on the Hong Kong stock exchange. "