China Securities Journal | Listed Companies Reach 20! The Fifth Set of Listing Standards of the STAR Market Facilitates the Growth of Key and Core Technology Companies

Translated from China Securities Journal

Chongqing Genrix Biopharmaceutical Co., Ltd was successfully listed on the STAR Market recently according to the Fifth Set of Listing Standards of the STAR Market (hereinafter referred to as "the Fifth Set of Standards").

Listing according to the Fifth Set of Standards of the STAR Market featured by "market value + R&D achievements" is highly attractive for innovative biopharmaceutical companies whose products are in the research and development stage, have not yet achieved commercialization, and have suffered losses for a long period. As of June 25, 2023, a total of 20 innovative biopharmaceutical companies have listed on the STAR Market according to the Fifth Set of Standards, raising a total of approximately RMB 42.9 billion yuan through IPOs.

According to experts, the STAR Market companies listed according to the Fifth Set of Standards have injected new momentum into the high-quality development of China's pharmaceutical industry by introducing capital for long-term research and development investment, and accelerating the commercialization process, which is a positive step in promoting the virtuous cycle of technology, capital and industry.

20 Companies Listed According to the Fifth Set of Standards

The Fifth Set of Standards of the STAR Market allows the companies that are in the research and development stage and have not yet reached certain income threshold to be listed, fully reflecting the inclusiveness of the STAR Market. The Fifth Set of Standards can be directly compared with similar rules at NASDAQ and the 18A rules of Hong Kong Stock Exchange (HKEX), providing a solid foundation for the high-quality development of China's biopharmaceutical industry.

It's learned that innovative biopharmaceutical companies are generally in a state of "three nos", namely, having no products, no revenue, and no profit, before their main products are approved to enter the market. However, "three nos" doesn't mean a "poor company" in the traditional sense. It just reflects that many technological fields are developing from scratch in China. It is the inherent requirement of the capital market to serve the national strategy of "key and core technology", and guide capital to invest in the earlier stage, thus facilitating the "key and core technology" companies in the critical development stage to accelerate the transformation and application of technological achievements and realize scientific and technological self-reliance.

Sycamore trees will definitely attract the phoenix. Data shows that as of now, a total of 20 innovative biopharmaceutical companies have listed on the STAR Market according to the Fifth Set of Standards, raising a total of approximately RMB 42.9 billion yuan in IPOs.

On the secondary market, the companies listed according to the Fifth Set of Standards have a total market value of over RMB 240 billion yuan in terms of A shares, among which 10 companies, including Shanghai Junshi Biosciences Co., Ltd. have a market value of over RMB 10 billion yuan in terms of A shares. Based on the IPO price of A shares, the stock prices of 10 companies have steadily increased after going public, with the return on investment (ROI) ranging from 8% to 148%, providing good returns for investors. Among them, Sinocelltech Group Limited, Chengdu Olymvax Biopharmaceuticals Inc., Suzhou Zelgen Biopharmaceuticals Co., Ltd., and Shanghai Yizhong Pharmaceutical Co., Ltd. provide an ROI of over 50%.

At the same time, the Fifth Set of Standards continues to attact high-quality biopharmaceutical companies listed overseas to come back. Up to now, five leading 18A companies at the HKEX, including Shanghai Junshi Biosciences Co., Ltd, Cansino Biologics Inc., RemeGen Co., Ltd., BeiGene, Ltd. and InnoCare Pharma Limited, have returned to the A-share market through the listing systems such as the Fifth Set of Standards and the red chip, and another eight 18A companies, including Akeso, Inc., have issued relevant announcements on their plans to list on the STAR Market.

Experts believe that innovative biopharmaceutical companies at the critical development stage are often able to realize outstanding performance soon after their products are approved to enter the market, with relatively high certainty for future development and strong performance growth after listing.

Capital Supports Parallel Development of "R&D + Commercialization"

The IPO raised funds of RMB 42.9 billion yuan help the innovative pharmaceutical companies break the funding bottleneck relying on the STAR Market and focus on R&D and innovation constantly.

Data shows that in 2022, the companies listed on the STAR Market according to the Fifth Set of Standards continued to increase their R&D investment, reporting a total R&D expenditure of RMB 21.379 billion yuan, with a year-on-year increase of 15.14%. Among them, four companies, including Chengdu Olymvax Biopharmaceuticals Inc., increased their R&D investment by more than 50% year on year. Their median R&D expenses accounted for 110% of their operating revenue, significantly higher than the overall level of the listed companies on the STAR Market.

Thanks to sustained and intensive R&D investment, the companies listed on the STAR Market according to the Fifth Set of Standards have continuously expanded their innovative product line. Currently, some companies listed on the STAR Market according to the Fifth Set of Standards have entered a period of performance gains.

It's noticed that more than 10 companies listed on the STAR Market according to the Fifth Set of Standards have successively obtained approval of sales for one or more kinds of products, and transferred their business focus from "product R&D" to "R&D + Commercialization".

In 2022, 20 companies listed on the STAR Market according to the Fifth Set of Standards achieved a total operating revenue of approximately RMB 17.551 billion yuan, an increase of 311% compared to RMB 4.267 billion yuan in 2019. Thirteen companies realized operating revenue of more than RMB 100 million yuan, of which, BeiGene Ltd. achieved nearly RMB 10 billion yuan, and Shanghai Junshi Biosciences Co., Ltd, Cansino Biologics Inc. and Sinocelltech Group Limited realized more than RMB 1 billion yuan, which has exceeded the median operating revenue of the listed companies on STAR Market in 2022 (about RMB 717 million yuan); the operating revenues of Shanghai Allist Pharmaceuticals Co., Ltd., RemeGen Co., Ltd., InnoCare Pharma Limited, and Chengdu Olymvax Biopharmaceuticals Inc. have also exceeded RMB 500 million yuan. With the sales of products, five companies, including Shanghai Allist Pharmaceuticals Co., Ltd, Shanghai Yizhong Pharmaceutical Co., Ltd., Jiangsu GDK Biological Technology Co., Ltd., Chengdu Olymvax Biopharmaceuticals Inc., and Shanghai MicroPort EP MedTech Co., Ltd., have already made profits in 2022.

Looking forward, the companies listed on the STAR Market according to the Fifth Set of Standards are expected to become an important force in the R&D of innovative drugs in China. Data shows that in recent years, the innovative drugs researched and developed by the companies listed on the STAR Market according to the Fifth Set of Standards account for more than a quarter of the annual approved innovative drugs in China, and most of the products have received special support from the National Major Scientific and Technological Project for "Major Drug Innovations" of China.

Strictly Control the Entry Barrier through Listing Review

Although the Fifth Set of Listing Standards of the STAR Market is known for its inclusiveness, it doesn't have a low threshold. In practice, most companies have much better R&D performance than required in the Fifth Set of Standards when applying for listing. The companies listed according to the Fifth Set of Standards are subject to stricter conditions than the 18A rules of the Hong Kong market.

It is reported that the companies applying for listing according to the Fifth Set of Standards have obvious technological advantages, with at least one core product approved for phase II clinical trials, and an expected market value of no less than RMB 4 billion yuan, presenting a large market space. However, the market value threshold of NASDAQ and the HKEX is only USD 160 million and HKD 1.5 billion, respectively. NASDAQ has no requirements on the drug's stage of research and development, and the 18A Rules of HKEX have no mandatory requirements on the companies' independent R&D capabilities or conditions for mandatory delisting.

It's learned from the Shanghai Stock Exchange (SSE) that considering the characteristics of the companies listed according to the Fifth Set of Standards, the SSE has also established relevant standards for delisting and reduction of holding, to effectively protect the interests of investors.

Specifically, considering that their main products are still in the R&D stage, the companies listed according to the Fifth Set of Standards will be provided with sufficient space and transition period for R&D and innovation and will only be restricted by financial delisting indicators in the fourth complete accounting year from the date of listing. Meanwhile, for unprofitable companies, their actual controllers and core personnel will be subject to stricter supervision for the reduction of shareholding.

It is worth noting that as of now, 12 companies applying for listing according to the Fifth Set of Standards have voluntarily withdrawn or been rejected, with an elimination rate of nearly 40%.