China’s Booming Biotech IPOs

We have earlier commented on the sharply accelerated venture capital activity in the biotech sector in China. From around 2-3 deals a month, aggregating maybe USD100m 2-3 years ago, China is now witnessing close to USD1B of venture capital investments in biotech sector on a  monthly basis.

Keeping company is the increase in Initial Public Offerings (IPOs) by China’s biotech companies.

In the 6 months of 2020 (Jan-Jun’20), 9 Chinese biotech companies have completed successful IPOs. On a cumulative basis, they have raised ~USD2400m. As the following table shows, there is fair degree of diversification in terms of where these IPOs are happening.

4 out of the 9 companies have raised money at Nasdaq. Hong Kong has seen 3 IPOs, while Shanghai Star has seen 2. In June, when the rest of the world is grappling with Covid, Chinese companies have managed to close 3 IPOs, 2 of these at Nasdaq. In fact, the IPO of Legend Biotech (Nasdaq ticker LEGN) is rated as the second largest biotech IPO of all time. Legend Bio priced its IPO at USD23, it is now trading at USD40, an appreciation of 70% in less than a month. Its market cap currently is around USD5B.

Most of these companies are pre-revenue companies.

LEGN is yet to generate revenue from product sales. Its current revenue run rate of around USD10m per quarter is from recognition of upfront and milestone payments. It gets this from Janssen, an arm of Johnson & Johnson (J&J). LEGN is loss making, its accumulated losses at the time of the IPO were USD171m, including a USD133m loss in 2019.

Other companies are similar. Zai Labs (ticker ZLAB), which did an IPO in Jan’20, reported USD8m revenue in 2019, and no revenue in 2018. It reported a loss of USD 139m in 2018, and USD195m in 2019. At the same time, it has raised a total of USD960m since its inception in 2014. The company is targeting launch of 2 products in 2020, so could be headed towards revenues soon. ZLAB’s IPO price was USD18, now, 6 months after listing, it is trading at USD80 per share. Its market cap is USD6B+.

Indian biotech sector can only gape and wonder at this.

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