In 2018, Hong Kong Exchanges and Clearing Limited introduced three new listing chapters to attract innovative companies with weighted voting rights structures, pre-revenue biotech companies, and secondary listings. Chapter 18A, which enabled pre-revenue biotech companies to list, has arguably had the most impact on the DNA of the Hong Kong market.

Chapter 18A has so far attracted 32 companies, raising HK$84 billion and, in the past three years, the sector has seen a compound annual growth rate of 61 per cent in its total market capitalisation. Issuers are increasingly diverse, including biotechnology, pharmaceuticals, medical devices, medical services and digital health.

A supporting ecosystem, including university programmes, government funding and biotech finance professionals, has grown, and developed unique Hong Kong characteristics. Hong Kong is now home to over 250 biotech businesses and the government has designated biotech as one of the city’s key areas of innovation and technology.

Investors, from private and public equity funds to sovereign wealth and hedge funds, have joined the market, along with large cornerstone investors and specialist funds, who bring health care expertise to the market. Covid-19 has also raised the profile of the biotech sector, helping retail investors become more familiar with the industry as they back the companies they think can shape the global health agenda.

Sell-side analyst coverage is expanding, helping investors distinguish strong companies from the weak. Thirteen of the 32 issuers under Chapter 18A have seen their share prices rise more than 50 per cent since their initial public offering.

The launch of the Hang Seng Hong Kong-Listed Biotech Index, which gained 49.5 per cent in 2020 versus the 3.7 per cent decline in the Hang Seng Index, was a validation of the maturing sector. Earlier this year, the ChinaAMC Hang Seng Hong Kong Biotech Index ETF became the first exchange traded fund to track the new index.

Exciting collaborations between companies, governments and universities have also helped. For example, in February, AstraZeneca and the Hong Kong Science and Technology Parks Corporation launched a programme to support start-ups working on integrated cancer treatment solutions.

This ecosystem reaches across the Greater Bay Area, helped by programmes such as the Mainland-Hong Kong Joint Funding Scheme, launched by the Hong Kong Innovation and Technology Commission and China’s Ministry of Science and Technology to support cross-border research and development projects.

The Hong Kong biotech sector is developing unique characteristics that further cement the city’s position as a long-term biotech hub.

Hong Kong’s role as a connector between mainland China and international markets has boosted the sector’s development. Eighteen Chapter 18A biotech companies are now eligible for inclusion in the Stock Connect scheme, giving mainland investors the opportunity to back their home-grown start-ups.

The Hong Kong market has become a hybrid of the production-and-sales model that addresses Asia’s growth potential and the innovation-driven model of the more developed US market. In particular, we lead the globe in hosting issuers pioneering medical AI applications, a growth trend driven by Chinese innovation.

Hong Kong’s markets have delivered impressive valuations for its biotech issuers, attracting both mainland and international investors, helping to underpin pricing and future growth.

To maintain the growth, high level of due diligence, and market quality of Hong Kong’s biotech sector, the market needs more bankers, analysts and lawyers with international health care and biotech expertise. Given the short history of Hong Kong’s biotech sector and the technical nature of biotech finance skills, the pool of home-grown talent is small, though growing.

Demand from Chinese biotech start-ups for finance professionals with international experience has meant that numerous health care bankers have joined start-ups ahead of their international capital market debuts. Investment banks are creating opportunities for more international talent to relocate, but a complex geopolitical backdrop makes movement of human capital more difficult.

HKEX itself has added scientists and biotech finance specialists to its listing and marketing divisions, but finding talent is not easy. Banks and buy-side research firms have dealt with this by sending biotech-related work to their US offices, or brought talent to Hong Kong on secondment. However, such secondments have become more difficult due to Covid-19 travel restrictions.

There is an opportunity for Hong Kong industry, academia, and businesses to collaborate on a long-term strategy to develop home-grown biotech finance talent. Progress is being made, with universities ramping up their biotech course offerings.

Capital markets have a critical role to play in the growth of biotech and in delivering the positive impact it can have on society. Hong Kong has seen rapid growth in its biotech ecosystem in the past three years, and the IPO pipeline looks promising.

However, more biotech finance talent is needed to build on this momentum. Hong Kong offers biotech finance professionals an opportunity to join an exciting new market and help fund life-changing innovations.