Listing of Pre-Revenue Biotech Companies in Hong Kong – Latest Updates

February 27, 2018

Following the Consultation Conclusions on the New Board Concept Paper published in December 2017 (the “December Conclusions”), on February 23, 2018, the Hong Kong Stock Exchange (HKEx) announced a new round of consultations in relation to the proposed amendments to the Main Board Listing Rules (the “Listing Rules”), including, among others, the introduction of a new chapter in respect of listing of pre-revenue biotech companies.

The proposed new Chapter 18A for pre-revenue biotech companies is largely in line with the December Conclusions.  It has also clarified the meaning of biotech product which is eligible for listing under this new regime (referred to as the “Core Product” under Chapter 18A).


In line with the December Conclusions, a biotech listing applicant relying on the new Chapter 18A listing regime (a “Chapter 18A Applicant”) must fulfil the following requirements:

  • have a minimum market capitalisation of HK$1.5 billion at the time of listing;
  • have engaged in R&D of its Core Product(s) for at least 12 months before listing;
  • have developed at least one Core Product beyond the concept stage (see below section); if the Core Product is pharmaceutical (small molecule drugs) products or biologic products, it must demonstrate that it has a pipeline of those potential products;
  • have durable patent(s), registered patent(s), patent application(s), and/or intellectual property in relation to its Core Product(s);
  • have operated in its current line of business for at least two financial years prior to listing (Track Record Period);
  • have operated under substantially the same management during the Track Record Period;
  • have received meaningful third-party investment from at least one sophisticated investor at least six months before listing (the investment must remain at IPO) as an indication of market acceptance; for a spin-off, HKEx may accept alternative indication of market acceptance;
  • its primary reason for listing is to raise funds for R&D to bring its Core Product(s) to commercialisation; and
  • have sufficient working capital (after taking into account the IPO proceeds) to cover at least 125% of its capital requirements for the next 12 months after IPO; the capital requirements must substantially consist of R&D costs, production costs and general, administrative, and other operating costs.

While Chapter 18A Applicant is not subject to the listing requirements under Rule 8.05 of the Listing Rules, it must fulfil other listing requirements under Chapter 8, including the 25% public float requirement.

“Core Product”

Chapter 18A has defined Core Product as a biotech product regulated by a Competent Authority based on data derived from clinical trials on human subjects before it could be marketed and sold.  Currently, Competent Authority only includes the US Food and Drug Administration, the China Food and Drug Administration, and the European Medicines Agency.  However, HKEx may also consider other regulated bodies as Competent Authorities on a case-by-case basis.  

In this round of consultation, HKEx has classified biotech products into four categories, namely: (i) pharmaceutical (small molecule drugs) products, (ii) biologics, (iii) medical devices (including diagnostics), and (iv) other biotech products, and has set out the parameters for different categories of products.  In general, the Core Product must have successfully completed Phase I clinical trial and there is no objection from the Competent Authority to proceed to Phase II clinical trial.

Cornerstone Investments

In line with the December Conclusions, under Chapter 18A, shares allocated to a cornerstone investor during the IPO will not be counted as part of the public float.  In this round of consultation, HKEx has also proposed to allow existing shareholders of Chapter 18A Applicant and their close associates who are not eligible to subscribe for offer shares in the IPO under the current regime to subscribe for offer shares in the IPO as cornerstone investors.  This allows an existing shareholder who holds more than 5% shares of the Chapter 18A Applicant to participate as a cornerstone investor in the IPO.  Same as other cornerstone investors, shares subscribed by the existing shareholders as cornerstone investors are not counted as part of the public float, but pre-IPO shares already held by the existing shareholders would not be affected and can be counted towards the public float if it fulfils the “public” requirement under the current regime.

Enhanced Prospectus Disclosures

HKEx has proposed additional disclosure requirements for Chapter 18A Applicants, including technical, business, and regulatory details of the Core Product(s), relevant experience of the Chapter 18A Applicant and its key executives, terms of services with its key executives, and estimated costs related to R&D and clinical trials.

Post-Listing Continuing Obligations

To prevent a Chapter 18A Applicant from becoming a shell company after its listing, HKEx’s consent must first be obtained if any acquisition, disposal, other transactions, or arrangements are proposed that would result in a fundamental change in its principal business activities.

A Chapter 18A Applicant is further subject to specific progress disclosure in relation to its Core Product(s) development, as well as disclosure of its R&D expenditures in its interim and annual report.

These additional continuing obligations for Chapter 18A Applicants will cease to apply when the Chapter 18A Applicant can demonstrate its ability to meet the listing requirements (i.e. the profit/revenue test) under Rule 8.05 of the Listing Rules.


This round of consultation will end on March 23, 2018, after which, HKEx will publish its consultation conclusions and the final Rules for pre-revenue biotech companies.  Before that, HKEx will not accept any formal enquiry regarding the Rules interpretation or listing applications and will only respond to enquiries on an informal basis.  Any formal listing application may only be submitted after the new Rules have come into effect.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Edwin Kwok, an O'Melveny partner admitted to practice law in Hong Kong and qualified in England & Wales (non-practicing), contributed to the content of this newsletter. Other Asia capital markets partners in O’Melveny who practice Hong Kong IPOs include Geng Ke (Beijing), Portia Ku (Silicon Valley), and Kurt J. Berney (San Francisco, Shanghai). The views expressed in this newsletter are the views of the authors except as otherwise noted.

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