Professional Interpretation

Abstract：Ascletis Pharma has become the first company to seek to list (PDF) in Hong Kong under the exchange’s new, more relaxed rules on biotech IPOs. On April 30, 2018, the Hong Kong Stock Exchange (HKEX) unveiled changes to its new listings protocol, as an attempt to attract hi-tech and biotech companies to upscale its position in the battle with the Silicon Valley and mainland China, when it comes to high-profile IPOs. Now here is a first mover.

A. primary listing of biotech companies that do not meet any of the financial eligibility tests in Rule 8.05

According to 18A, 02 “An applicant that has applied for listing under this Chapter must, in addition to satisfying the requirements of this Chapter, also satisfy the requirements of Chapter 8 (other than rules 8.05, 8.05A, 8.05B and 8.05C)”.  In another word, The Exchange said biotech companies with products which have satisfied certain developmental milestones may be eligible for listing notwithstanding their inability to fulfil the financial eligibility tests in Rule 8.05.

These milestones are now set out in the proposed new Chapter 18A, breaking down by product individual milestones for pharmaceutical products (small molecule drugs), biologics, medical devices (including diagnostics) and other biotech products. These product milestones are set by reference to the regulatory regimes of “Competent Authorities”, which initially are limited to the Food and Drug Administrations of the US and China, and the European Medicines Agency.

Other than the developmental milestones, a biotech company should also satisfy following requirements:

Other than an above rules, guidance letter issued on April 2018 prescribe the suitability criteria:

B . how does Ascletis satisfy the HKEX new rules?

Ascletis Pharma Inc., a maker of HIV and liver-cancer drugs, has raised $400 million after pricing its initial public offering at the middle of a marketed range at HK$14 a share. Started just five years ago, it’s the first biotech company to take advantage of looser listing rules adopted in April by Hong Kong Exchanges & Clearing Ltd., paving the way for unprofitable firms in the industry to go public. The company is expected to begin trading Aug. 1. Ascletis though does have deep-pocketed and savvy investors. It has raised $155 million in two rounds of financing with backers including Goldman Sachs Group Inc. and C-Bridge Capital.

Ascletis meets the core product requirements. Guidance letter indicate: In the case of a Core Product that is a new pharmaceutical (small molecule drug) product, the applicant must demonstrate that it has completed Phase I 1 clinical trials and that the relevant Competent Authority has no objection for it to commence Phase II2 (or later) clinical trials. As demonstrated in its prospectus, Ascletis currently have five anti-viral drug discovery and development programs, including two HCV drug candidates at or near commercial-stage and one HIV drug candidate that has completed a phase IIa clinical trial. Also, it In addition, Ascletis has a liver cancer drug candidate that has completed phase I and phase I extension clinical trials. Thus it is safe to say that Ascletis have satisfied the minimum requirement of product.

Change perspective to see the profits of Ascletis. Ascletis reported a net loss of 86.9 million yuan ($12.8 million) last year, according to a prospectus, as the company has yet to generate sales. Although it doesn’t great on the balance sheet, it could be also suggest a promising prospect taking in to consideration that there is not product is commercialized yet.

Ascletis also meet the requirements of corner stone investor. As disclosed in the prospectus, BSIH and MBD are collectively called the Goldman Sachs Entities. BSIH is ultimately wholly owned by The Goldman Sachs Group, Inc. MBD is held by multiple employee funds of the Goldman Sachs Group.