How Hong Kong plays a central role in the biotech investment boom
- HKEX listing reforms have led to IPOs from a broader range of companies, turning the city into Asia’s largest biotech fundraising hub
- Hong Kong’s position in the Greater Bay Area enables companies to tap into vast pools of talent and funding in mainland China
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While many industries have struggled through the Covid-19 pandemic, the global biotech sector has gone from strength to strength, with Hong Kong helping to lead the way.
According to a report released earlier this year by consulting firm McKinsey & Company, venture capital (VC) activity in biotech firms grew 45 per cent between January 2020 and January 2021, with overall global investment for 2020 amounting to US$36.6 billion. The report also noted that although US biotechs are still leading on investments, Europe and China are not far behind.
At the same time, McKinsey found that IPO activity had grown at a faster pace than any other category of fundraising, with biotech companies raising US$34.3 billion in 2020 – an increase of 186 per cent from the previous year.
This increased investment interest has been great news for Hong Kong, which is now Asia’s largest biotech fundraising hub, and the second-largest globally behind New York’s Nasdaq.
But what is fuelling this biotech investment boom, and what does Hong Kong offer that makes it such an attractive location for biotechnology investors as well as companies looking to list?
Biotechs benefiting from listing reforms
Dr Alex Zhavoronkov, founder and CEO of Insilico Medicine, a Hong Kong-based biotech company, points to the city’s well-established investment environment. His company, which specialises in drug discovery powered by artificial intelligence, raised US$255 million in Series C financing this year.
“Hong Kong is perceived by global investors as a safe harbour,” he says. “Global investors have trust in the financial system there and the regulatory system, because the level of sophistication for listing in Hong Kong is much, much higher than in many other countries and cities.”
Nisa Leung of Qiming Venture Partners agrees. She is managing partner of what is one of China’s leading VC firms, which has invested in over 150 health care companies so far.
Leung points specifically to the listing reforms introduced by Hong Kong Exchanges and Clearing (HKEX) in 2018, which have attracted a broader range of biotech, new economy and innovative, high-growth companies.
One of those reforms is Chapter 18A, which enabled pre-revenue biotech companies to list. Three years on, it has made a huge impact. As of August 31, HKEX has welcomed 75 health care and biotech listings on the main board in Hong Kong, raising HK$231.4 billion (US$29.75 billion). This includes 33 companies under Chapter 18A, raising a total of HK$87 billion (US$11.18 billion).
“[Biotechs] are able to raise money a lot earlier in their cycle – in the clinical cycle – rather than raising more and more private rounds,” Leung says. “They’re able to tap into the public investor pool a lot earlier and raise a lot more money to fund additional R&D [research and development], as well as commercialisation and potential globalisation. So, we’ve seen an influx of these companies coming into Hong Kong to list, rather than going to the US.”
More established health care companies are also able to benefit from Hong Kong’s fundraising opportunities, from both the public and private sectors. “With the combination of already profitable health care companies, as well as pre-revenue companies, HKEX has become the exchange of choice for many Chinese health care and biotech companies,” Leung adds.
The ongoing potential of the Greater Bay Area
Besides listing reforms, another factor that is driving biotech investment in Hong Kong is its advantageous geographic location, particularly its close proximity to mainland China. On a practical level, this provides a more extensive ecosystem in which companies such as Insilico Medicine can grow and attract financing.
“Hong Kong is right in proximity to the mainland, where you’ve got a biotechnology boom, and many of the contract research organisations [CROs] located in Asia are right around the corner,” Zhavoronkov says. “So companies that are headquartered in Hong Kong will benefit from this massive CRO network, and also the huge talent pool in China.”
In terms of new funding opportunities, Hong Kong’s role in the fast-growing, high-potential Greater Bay Area (GBA) will be key. “Potentially, these companies can really continue to grow in the GBA and Hong Kong vicinities and be able to tap into the public market of HKEX, and then be able to raise money from international investors, public investors and so forth,” says Leung, noting the inherent opportunities for many biotech companies.
Zhavoronkov agrees. “The GBA is a phenomenal initiative,” he says. “My trust in what the government is doing in that area is absolute. I think that the deeper integration with the mainland and with the GBA is the key to Hong Kong’s future and success, because you can capitalise on the huge level of investment in Shenzhen and in Guangzhou, where there are massive CROs. There is also a lot of talent there, which means you can pursue the pathway of ‘designed in Hong Kong, made in the mainland’.”
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