As commonly raised, Hong Kong possesses the edge of being the second-largest biotech financing center in the world. However, there is a mismatch between Hong Kong’s capital market and information and technology market as capital does not flow into local I&T enterprises. We believe the Hong Kong Exchanges and Clearing can take up a more proactive role in the I&T supply chain and Hong Kong should unleash its potential through collaborating with Shenzhen in the Loop to establish itself as an international biotech innovation hub.
This year’s policy address of the chief executive highlights the development of health tech for the first time and pledges to establish a major infrastructure in the Loop. This rightly echoes the vision we put forward in July to foster Hong Kong-Shenzhen biotech collaboration.
Since the introduction of Chapter 18A under HKEX’s Listing Rules in 2018, which allows pre-revenue biotech companies to go public in the Hong Kong stock market, the city has become the second-largest biotech financing center in the world, second only to the Nasdaq Stock Market. The COVID-19 pandemic has no doubt contributed to the massive demand for and rapid development of biotech. According to HKEX figures, the value of the global biotech industry has increased by over 30 percent compared to last year.
Meanwhile, among the biotech listed companies in Hong Kong, only a few of them have set up research and development headquarters in Hong Kong while most are based on the Beijing-Tianjin-Hebei and Yangtze River Delta regions in the Chinese mainland. As of September, among the 40 biotech enterprises listed under Chapter 18A, only two of them have R&D headquarters in Hong Kong; among the 37 relatively mature healthcare enterprises not listed through Chapter 18A, only one of them has done so.
Despite this, we believe Hong Kong has massive potential to establish itself as a biotech innovation hub. The research capability of Hong Kong’s universities in medical and life sciences has always been outstanding; meanwhile, a handful of overseas biotech enterprises have chosen to conduct R&D in Hong Kong because of its internationalized scientific research environment and strengths in clinical trials.
Besides providing a secure financing platform for enterprises, HKEX plays a crucial role in the I&T value chain. In its Biotech Summit conducted in September, HKEX signed an agreement with the Hong Kong Science and Technology Parks Corp stating that the park will organize a biotech expert team to assist HKEX in reviewing the listing applications of biotech enterprises. We believe the interaction between the two parties can be further enhanced. For instance, the park should be more proactive in securing R&D investment by incentivizing locally listed enterprises to move into the park while HKEX should offer financing advice to over 160 biotech startups and enterprises in the park to help them raise capital by listing through Chapter 18A.
To realize the aforementioned vision for biotech development — with listed enterprises choosing to settle in Hong Kong and local startups successfully going public — the entire I&T value chain from upstream to downstream needs to be polished
Furthermore, the park has worked together with the two clinical trials centers under the University of Hong Kong and Chinese University of Hong Kong, and launched the “Clinical Trial Catalyst” program, helping enterprises in the Park to conduct clinical trials. This program is largely expandable. For example, once an enterprise in the park has successfully completed Phase I clinical trials under the supervision of a recognized drug regulatory body, thereby fulfilling the requirements of Listing Rules Chapter 18A, it can apply for listing at HKEX. The centers can provide clinical data for support, and the listed enterprise can conduct further clinical trials through post-initial public offering financing at HKEX.
In recent years, the central government has implemented many policies conducive to the development of I&T in Hong Kong. A comprehensive connection between the mainland and Hong Kong supply chains and markets is essential to the scaling up of Hong Kong I&T enterprises and therefore beneficial to enhancing the market value and financing capability of such enterprises.
We believe the Hong Kong Special Administrative Region government should seek more ambitious measures from the central government to connect the systems across the border. For instance, regarding market access, Hong Kong biotech enterprises registered in the Loop with a Hong Kong permanent resident of Chinese nationality as the legal person or substantial shareholder can be allowed to enter the mainland market directly and enjoy treatment and privileges equivalent to domestic enterprises. Regarding drug registration, the National Medical Products Administration can delegate the vetting and approval authority of new drugs to the Guangdong-Hong Kong-Macao Greater Bay Area branch situated in the Loop, thereby speeding up the approval process in the region.
To realize the aforementioned vision for biotech development — with listed enterprises choosing to settle in Hong Kong and local startups successfully going public — the entire I&T value chain from upstream to downstream needs to be polished. A promising prospect awaits Hong Kong to transform itself from a biotech financing center to a biotech innovation hub where international finance and scientific research will thrive together.
Kenny Shui is an assistant research director and head of economic development at Our Hong Kong Foundation. Arthur Tsang is an assistant researcher at the foundation.
The views do not necessarily reflect those of China Daily.