Consultation Paper on the Proposed New Listing Regime for Companies from Emerging and Innovative Sectors
Amendments to the Listing Rules
A new Chapter 18A of the Listing Rules that sets out the requirements for biotech companies will be introduced.
Types of issuers and eligibility requirements
Only biotech companies that are not meeting any of the financial eligibility tests are eligible to list on a pre-revenue basis. “Biotech company” is a company primarily engaged in the R&D, application and commercialisation of biotech products, processes or technologies (collectively, the Biotech Product). A biotech company is expected to have the following features:
- Product: must have developed at least one Core Product (Note 1) beyond the concept stage (Note 2);
- R&D: primarily engaged in R&D for the purposes of developing its Core Product(s) for a minimum of 12 months before its listing;
- Reason for IPO: primary reason for IPO is to raise capital for R&D to bring its Core Product(s) to commercialisation;
- Patents: must have durable patent(s), registered patent(s), patent application(s) and/or intellectual property in relation to its Core Product(s); and
- Sophisticated investor (Note 3): must have received meaningful investment (that is more than just a token investment) from sophisticated investor(s) at least six months before the date of the proposed listing and the investor(s) must remain at IPO.
There is no definition or guideline as to the size of the investment which may be considered as “meaningful investment”. Pre-IPO consultation with the Hong Kong Stock Exchange is encouraged.
“Core Product” means a Biotech Product that forms the basis of the listing application by a biotech company and that is required by applicable laws, rules or regulations to be evaluated and approved by a competent authority (being the US FDA, the China FDA, the European Medicines Agency or other equivalent national or supranational authorities recognised by the Hong Kong Stock Exchange with the prior approval by the SFC on individual cases) based on data derived from clinical trials (that is on human subjects) before it can be marketed and sold in the market regulated by the competent authority.
The following factors demonstrate that a Core Product has developed beyond the concept stage:
(1) Pharmaceuticals (small molecule drugs)
- it has completed Phase I clinical trials (for new pharmaceuticals) or has successfully completed at least one clinical trial conducted on human subjects (for previously approved pharmaceuticals (eg US FDA’s 505(b)(2) application process)); and
- the relevant competent authority has no objection for it to commence Phase II (or later) clinical trials.
- it has completed Phase I clinical trials (for a new biologic product) or has successfully completed at least one clinical trial conducted on human subjects (for a biosimilar); and
- the relevant competent authority has no objection for it to commence Phase II (or later) clinical trials.
(3) Medical devices (including diagnostics)
- it has a medical device (or diagnostic device) categorised as Class II medical device under the classification criteria of the relevant competent authority;
- it has completed at least one clinical trial on human subjects (which will form a key part of the application required by the competent authority or authorised institution (being an institution or a committee authorised by the competent authority for conducting, assessing and supervising clinical trials in the relevant clinical fields); and
- either the relevant competent authority or the authorised institution has endorsed or not expressed objection for the applicant to proceed to further clinical trials, or the relevant competent authority has no objection for commencement of sales of the device.
(4) Other Biotech Products
If the Biotech Product does not fall into the above criteria but has been developed beyond the concept stage by reference to the factors described above, and there are appropriate objective indicators for investors to make an informed investment decision regarding the applicant, the Hong Kong Stock Exchange (together with the SFC) may approve such an application on a case by case basis.
“Sophisticated investor” is an investor that the Hong Kong Stock Exchange considers to be sophisticated by reference to factors such as net assets or net assets under management, relevant investment experience, and the investor’s knowledge and expertise in the relevant field.
The above features are not contained in the proposed Chapter 18A itself and will be set out in formal guidance letter(s) to be published by the Hong Kong Stock Exchange.
Minimum market capitalisation at the time of listing
Not less than HK$1.5 billion.
The applicant has been in operation in its current line of business for at least two years before its listing under substantially the same management.
Working capital requirements
The applicant has sufficient working capital to cover at least 125% of the applicant’s costs over the next 12 months (after taking into account the IPO proceeds).
In addition, the costs must substantially consist of (a) general, administrative and operating costs (including any production costs), and (b) R&D costs. A substantial portion of the IPO proceeds will be used to cover such costs.
Shares held by cornerstone investors in a biotech company will not count towards public float at its initial listing and during any period in which the cornerstone investors are subject to a restriction on disposal of the shares.
Existing shareholders may subscribe for offer shares as cornerstone investors. However, such newly acquired shares will not count towards public float. The existing shares already held by such existing shareholders will still count towards public float as long as the existing shareholders are not core connected persons of the issuer.
Special risk managing measures
(1) Accelerated de-listing process
- If the biotech company does not have a sufficient level of operations or tangible assets of sufficient value and/or intangible assets for which a sufficient potential value can be demonstrated to the Hong Kong Stock Exchange after listing (Rule 13.24), and has failed to re-comply with the requirement within 12 months, the Hong Kong Stock Exchange may cancel the listing of the company.
(2) No change of principal business
- No acquisition, disposal or other transaction which will result in a fundamental change in the principal business activities will be permitted without the prior consent of the Hong Kong Stock Exchange.
(3) Stock marker
- A stock marker “B” will be used at the end of the stock names of biotech companies.
The following additional information has to be disclosed in the prospectus of a biotech company:
(1) its strategic objectives;
(2) the details of each Core Product, including:
(a) a description of the Core Product;
(b) details of any relevant regulatory approval required and/or obtained for each Core Product;
(c) summary of material communications with the relevant competent authority in relation to the its Core Product(s) (unless such disclosure is not permitted under applicable laws or regulations, or the directions of the competent authority);
(d) the stage of research and development for each Core Product;
(e) development details by key stages and its requirements for each Core Product to reach commercialisation, and a general indication of the likely timeframe, if the development is successful, for the product to reach commercialisation;
(f) all material safety data relating to its Core Product(s), including any serious adverse events;
(g) a description of the immediate market opportunity of each Core Product if it proceeds to commercialisation and any potential increased market opportunity in the future (including a general description of the competition in the potential market);
(h) details of any patent(s) granted and applied for in relation to the Core Product(s) (unless the applicant is able to demonstrate to the satisfaction of the Hong Kong Stock Exchange that such disclosure would require the applicant to disclose highly sensitive commercial information), or an appropriate negative statement; and
(i) to the extent that any Core Product is in-licensed, a clear statement of the issuer’s material rights and obligations under the applicable licensing agreement;
(3) a statement that no material unexpected or adverse changes have occurred since the date of issue of the relevant regulatory approval for a Core Product (if any). Where there are material changes, these must be prominently disclosed;
(4) a description of approved products (being a Biotech Product which has been approved for commercialization by the relevant competent authority) (if any) owned by the applicant and the length of unexpired patent protection period and details of current and expected market competitors;
(5) details of the biotech company’s research and development experience, including:
(a) details of its operations in laboratory research and development;
(b) the collective expertise and experience of key management and technical staff; and
(c) its collaborative development and research agreements;
(6) details of the relevant experience of the biotech company’s directors and senior management in the research and development, manufacturing and commercialisation of Biotech Products;
(7) the salient terms of any service agreements between the applicant and its key management and technical staff;
(8) the safeguards and arrangements that the applicant has in place, in the event of the departure of any of its key management or technical staff;
(9) a statement of any legal claims or proceedings that may have an influence on its research and development for any Core Product;
(10) disclosure of specific risks, general risks and dependencies, including:
(a) potential risks in clinical trials;
(b) risks associated with the approval process for its Core Product(s); and
(c) the extent to which its business is dependent on key individuals and the impact of the departure of key management or technical staff on the applicant’s business and operations;
(11) if relevant and material to the biotech company’s business operations, information on the following:
(a) project risks arising from environmental, social, and health and safety issues;
(b) compliance with host country laws, regulations and permits, and payments made to host country governments in respect of tax, royalties and other significant payments on a country by country basis;
(c) its historical experience of dealing with host country laws and practices, including management of differences between national and local practice; and
(d) its historical experience of dealing with the concerns of local governments and communities on the sites of its research and trials, and relevant management arrangements;
(12) an estimate of cash operating costs, including costs relating to research and development and clinical trials incurred in the development of the Core Product and costs associated with:
(a) workforce employment;
(b) direct production costs, including materials (if it has commenced production);
(c) research and development;
(d) product marketing (if any);
(e) non-income taxes, royalties and other governmental charges (if any);
(f) contingency allowances; and
(g) any other significant costs; and
Note:A biotech company must:
- set out the components of cash operating costs separately by category;
- explain the reason for any departure from the list of items to be included under cash operating costs; and
- discuss any material cost items that should be highlighted to investors.
(13) if the applicant has obtained an expert technical assessment and where relevant and appropriate, include such assessment in its listing document.