Hong Kong Exchanges and Clearing Ltd. (HKEX) released final rules for the listing of pre-revenue biotech companies, companies with weighted voting right (WVR) structures, and Chinese and international companies seeking a secondary listing in Hong Kong. The rules for biotechs -- set to go into effect April 30 -- are substantially the same as those announced in a February consultation paper, but clarify two of the paper’s undefined terms and amend a rule regarding public float requirements (see BioCentury, March 16).
As previously announced, the final rules for the pre-revenue biotech chapter will require companies to have a market cap of at least HK$1.5 billion ($191.2 million) and to have been in their lines of business for at least two financial years with substantially the same management. They must have completed Phase I testing of a drug candidate in humans with no objection from FDA, China FDA or EMA to start Phase II or later testing. After taking IPO proceeds into account, companies will be required to have working capital to cover at least 125% of costs for at least the next 12 months, including general, administrative, operating and R&D costs.
The rules require that listing companies have at least one "meaningful investment" from a "sophisticated investor." HKEX declined to give definitions of either, but instead gave examples. Sophisticated investors include dedicated healthcare or biotech funds, or established funds with a division or department specializing in biopharma investment; major pharmas or healthcare companies; venture funds affiliated with major pharmas or healthcare companies; and investors, funds or financial institutions with minimum assets under management of HK$1 billion ($127.5 million). Meaningful investment examples include investments of at least 5%, 3% or 1% of applicants’ issued share capital at the time of listing for applicants with market caps of HK$1.5-HK$3 billion ($191.3-$382.4 million), up to HK$8 billion ($1 billion), or more than HK$8 billion, respectively.
HKEX also amended its restriction on applying IPO shares purchased by “cornerstone” and pre-IPO investors to its 25% minimum public float requirement at the time of listing. Cornerstone investors are expert investors who receive guaranteed allocations in the IPO book building process, as well as pre-IPO investors who buy into the deal. The February document did not count shares bought by cornerstone investors toward the minimum at listing or during a six-month lock-up period, and stated that while pre-IPO investors could participate in the IPO, their shares would not count toward the minimum initial public float. The final rules will allow subscriptions by cornerstone investors and pre-IPO investors to count toward all but HK$375 million ($47.8 million) of the 25% minimum.
Last month, China’s State Council approved a pilot program by the China Securities Regulatory Commission to prioritize share issuances for high market cap companies in several tech fields, including biomedicine. Those rules do include revenue requirements, but may allow pre-revenue companies that show “rapid income growth” to qualify. Specific income growth rate requirements have not been released (see BioCentury, April 6).