Biopharma firms ride Hong Kong and Shanghai bull markets

Print 21 April 2015
Cornelia Zou / BioWorld

HONG KONG – China-focused biopharmaceutical stocks have not been left out of the bull markets in Hong Kong and Shanghai, which are being powered by an influx of capital and strong company performances. The Hong Kong market in particular has been pushed up over the last week as the Shanghai-Hong Kong Stock Connect Scheme, launched in November 2014, facilitated an influx of capital from Mainland China into the market. Since March 30, the Hang Seng Index in Hong Kong has risen almost 13 percent from 24,855 points to 28,016 at the close of the market on Monday, including a rise of 2.73 percent on Monday alone.

Lee’s Pharmaceutical Holdings Ltd. (HK: 0950) has risen from HKD10.60 to HKD14.20, a 34 percent increase in less than two weeks.

Luye Pharma Group (HK: 2186) has risen from HKD9.20 (US$1.19) to HKD11.20 in the same period, an increase of almost 22 percent. Luye’s stock price spike could be influenced by the marketing approval in Austria last week of the company’s duodenal and gastric ulcer treatment pantoprazole enteric-coated tablet. The approval will help with other product approvals and sales in Europe.

The bull run underscores the ongoing potential for growth of Chinese companies. Developments such as new stem cell regulations and biosimilar guidelines could lead to the emergence of new companies and the expansion of existing markets.

“The guideline won’t impact the market in the near term since most biosimilars are still in early development stage and they account for very small portion of the drug market right now. But we expect the guidelines to be a catalyst for the development of biosimilars,” said Li. “We will see accelerating pace of growth of biosimilars in coming years.”

“Chinese biopharma stocks were up in 2014, but not as much as 2013, due to the sector correction in December 2014 after an interest rate cut that triggered a sector rotation and money flowed to cyclical sectors,” said Bin Li, managing director and senior research analyst at Morgan Stanley.

The bull market compounds some solid profits that companies in the space have reported.

Walvax Biotechnology Co. Ltd. (SZ: 300142), of Kunming, Yunnan Province, reported a 23 percent jump in revenues in 2014 to ¥720 million (US$116 million). Total profits rose to ¥142 million. The company lost some vaccine market share due to competition but the monoclonal antibody (MAb) sector is looking up. The company said sales of the major vaccine products were greatly influenced by its competitors.

R&D efforts at the company are starting to produce results. The company’s pneumococcal vaccine polyvalent and adsorbed tetanus vaccines have completed clinical studies and are undergoing reviews for manufacturing approval. Its ACYW135 meningococcal polysaccharide vaccine received clinical trial approval in February. Subsidiary Genor Biopharma Co.’s biosimilar trastuzumab has entered phase II trials and biosimilar infliximab antibody also received clinical trial approval in February. In addition, Genor’s biosimilar adalimumab received Korean Food and Drug Safety’s clinical trial approval. (See BioWorld Today, Oct. 30, 2013.)

Walvax now has applications for 21 products, 12 for clinical trials. The company also has 10+ products in preclinical stage.

Across the market, “R&D spending has risen steadily in the last few years, around 20 percent year-on-year, outpacing the growth of industry sales,” Li told BioWorld Today.

Another Chinese pharmaceutical major, Shanghai Fosun Pharmaceutical (Group) Co. (SH:600196, HK:2196) also reported fast growth on March 25. Fosun’s revenue grew 20 percent to ¥12 billion (US$2 billion) in 2014 with net profits of ¥2 billion (US$322 million), a 34 percent jump year on year.

Through its biosimilar branch Henlius Biopharmaceuticals, Fosun has a robust biosimilar portfolio as well. The company has five biosimilar MAbs for which it has already submitted clinical trial applications and its biosimilar rituximab is undergoing clinical studies.

Fosun’s R&D expenditure in 2014 grew 29 percent to ¥564 million (US$91 million) with biosimilar and novel drugs as the focus. Together with the company’s novel drugs, generic drugs and vaccines, Fosun has 125 ongoing R&D projects, 26 drugs candidates are expected to enter clinical studies while 11 are undergoing clinical trials. Another 41 drugs candidates are waiting for their marketing approval. More than 20 drugs are anti-cancer biologics and novel chemical drugs.

Stocks of both Walvax and Fosun have also risen and both spiked after their results announcements.

Walvax’s stock climbed 7.2 percent to ¥50.00 (US$8.04) after the results were released in February and has since risen further to ¥59.34 (US$9.55) on Monday.

Fosun’s stock price climbed 2.2 percent to ¥25.33 (US$4.07) when the results where announced, but has been suspended from trading since March 30 at ¥24.79 (US$3.99) as it waits for regulatory approval to announce details of a new issue.

The rising profits and share values could spur more companies to tap into the markets in Hong Kong and Mainland China in the next few years.

Brokerage BOC International forecast that about ¥100 billion (US$16.09 billion) will be raised by mainland fund managers and become available for Hong Kong investment as early as May, according to Reuters, which added that China recently allowed mutual funds to buy Hong Kong stocks under the Shanghai-Hong Kong Stock Connect scheme.

The next likely listing is 3SBio Inc., of Shenyang, which is planning to raise $500 million in a Hong Kong offering later this year. Such a listing would follow the footsteps of Luye, which raised $764 million in Hong Kong in July 2014, two years after delisting in Singapore. Luye’s issue was one of the most successful of the year.

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