Will China’s Capital Market Get Better in 2021?
Writer (Chinese): Sissi Xu
Translator: Yan Wu
Editor: Howard Fields
At the beginning of 2021, the performance of the healthcare industry in the capital market brought consistent encouragement to investors. As a weathervane of China Biotech, CES HK Biotechnology Index (CES HK Biotech) roseby 9.51% in January, By comparison, A-shares of the China Securities Medicine Index has been rising at 5.02%, the Shanghai and Shenzhen 300 Index had a growth rate at 2.7% and the Hang Seng Index (HSI) had a 3.87% growth. Will the performance of the healthcare industry follow suit this year? Chief industrial analysts from Citibank gave their answers in an investor conference call
Impacts of Covid-19 and volume-based procurement are considerably lessened
Analysts believe the China healthcare Industry will recover and show good prospects in 2021. The capital market will boost more and more biotech companies that have innovative drugs for which they are investing in R&D and seek more opportunities. Also, they believe new product sales by large pharmaceuticals will slow down due to the dual impacts of the Covid-19 pandemic and volume-based procurement (VBP). Therefore, 2020 was an extremely hard year for them, but those impacts are expected to fade away in 2021.
Meanwhile, the Citibank analysts showed more interest in companies with product-development capability in the biotech area regardless of whether the products are developed by their own platforms or they in-licensed them from others.
For biotech enterprises, it is becoming essential to have the capability of product development, innovation and internationalization. A good case in point is the Junshi Biosciences and Coherus strategic cooperation agreement for licensing its Junshi PD-1 product. Under the agreement, Chinese biotech companies created a cooperative model with overseas companies, beginning with the “China-only innovation” model, which led to overseas marketing and gaining FDA approval. Furthermore, Junshi’s cooperation with Lilly in Covid-19 neutralizing antibodies and development of the innovative target BTLA monoclonal antibody indicates the company’s long-term value.
During the investor conference call, two of the 2020-listed biotech companies, Everest Medicines and Antegene, were mentioned by the investors, particularly Everest’s in-licensing model.
Other drug candidates, including the anti Trop2 ADC drug sacituzumab govitecan (Trodelvy), introduced by Immunomedics, attracted special attention. Analysts consider ADC drugs as possibly the next hot spot. Everest has submitted an application to the Singapore government for sacituzumab govitecan for treating metastatic triple-negative breast carcinoma. It also has budesonide for nephropathy, and etrasimod for ulcerative colitis in its R&D pipeline. In the future, Everest expects to have opportunities for cooperating with large pharmaceuticals in those disease areas.
Antengene’s advantage is that it does not blindly chase hot spots, and instead has more consideration for synergism between its current R&D pipeline and its product portfolio. That is an important reason Antengene is appreciated by investors and analysts.
IPO trends in the new year
Recently, Sino Biopharmaceutical announced that it plans to list an IPO. Citibank also mentioned in the conference call that there would be a few other healthcare companies listing IPOs in 2021, along with spin-off listings and secondary listings. Also, in Hong Kong there are to be more A-share enterprises listed for flexible refinancing, valuation and mobility, andHong Kong-listed pharmaceutical companies can go to A-shares for an IPO.
Capital and company survey on attitude for 2021
At the end of last year, Pharma DJ started a survey of the “2021 Capital Market Forecast,” and received 40 Key Opinion Leaders (KOL) answers, including 20 investment institutions and 20 corporate executives. Of them, 55% were PE investors, 30% VC investors from investment institutions and 15% secondary market investment fund managers. Among corporate executives, 45% were COOs, 40% CEOs (Chairman /President) and15% CFOs.
When institutional investors were asked, “Were companies in which you have invested listed in 2020?” 75% replied yes, 25% no. Apparently, establishing the Science and Technology Innovation Board (STIB), expanding unprofitable biomedical companies in Hong Kong and reforming the select companies of the over-the-counter market for growth enterprises has been greatly enriched and shortened the listing schedule of the investment and financing market.
To the question, “In which market would you recommend an enterprise to have public fundraising,” as many as 70% of institutional investors suggested listing in the STIB with a higher valuation. Another 20% were for the A-share main board and only two investors (10%) suggested listing on the Hong Kong stock market.
Then, to the question, “Will the companies in which you invest have a plan for public fundraising in 2021,” 85% of institutional investors answered that companies have plans for listing and the other 15% said there were no plans. When we modified the question to “Will your company have a plan for public fundraising in 2021,” the answers were the reverse.
Although most investment institutions have successfully completed their invested companies list, institutional investors did not show much optimism when asked about the impact of the Covid-19 pandemic on the investment industry. For the question, “What impact has Covid-19 had on the whole pharmaceutical/healthcare investment industry?” only 60% of the participants thought the investment environment would get better, 30% thought it would get worse, the remaining 10% thought it will remain the same. To the question “Will Covid-19 impact their yearly investment plan?” 60% selected “Yes, they will be more actively engaged in the healthcare industry,” 30% selected “They will be more cautious on investments,” and 10% said there will be no impact.
Asked “What impact will Covid-19 have on the whole healthcare/pharmaceutical industry?” a surprising 55% of corporate executives thought it would bring more challenges to the industry, and only 35% thought it would have a positive impact on development.
The last question asked institutional investors and corporate executives to predict the capital market performance in 2021. Almost half predicted the performance of the capital market in the biopharmaceutical industry would be lower than in 2020. Corporate executives were more cautious than the investors.
With regard to the primary market investment outlook, 70% of institutional investors chose “It is easier for enterprises with higher certainty to obtain financing,” 25% thought it will be more difficult than in 2020 for the industry as a whole to obtain financing, and the remaining5% showed more optimism than for 2020. Notably, we added the question, “The U.S. has recently passed a bill requiring some Chinese companies to comply with U.S. auditing standards or be banned from listing on the U.S. stock exchange. Will that affect Chinese pharmaceutical companies listed in the United States?” Of institutional investors, 55% thought the impact would be minor and only 20% thought it would have a major impact. Among enterprise executives, 45% felt the impact would be minor, 35% major. The remainder said they did not know.