STAR shines for innovative companies

Three months after Shanghai Allist Pharmaceuticals Co Ltd's successful initial public offering at the tech-focused STAR Market on the Shanghai bourse in December 2020, the biomedical company received marketing approval in China for its third-generation treatment innovation for non-small cell lung cancer.

Allist had been reporting losses for four consecutive years, including a loss of over 300 million yuan ($42 million) in the year of its listing. However, it was a totally different story for the company after its flotation on the STAR Market.

In 2021, Allist made a turnaround of about 18.3 million yuan, and it profits have skyrocketed ever since. In 2023, Allist announced to use a part of its 1.5 billion yuan IPO proceeds to build a new production line for one of its key products every year. One year later, the company's net profit surged to 1.43 billion yuan.

"The leapfrogging progress made by Allist is inseparable from the fifth (set of) listing rules of the STAR Market, which allow the IPO of unprofitable companies," said Du Jinhao, Allist's chairman.

The inclusiveness of the mechanism of the STAR Market has provided a better financing environment for quality but unprofitable "hard technology" companies which are dedicated to innovation, added Du.

In 16 years, Allist rolled out two innovative drugs. As Du understands, having a long-term vision is vital to technology advancement. This is especially true for biomedicine companies, as they encounter a lot of setbacks and difficulties, requiring much patience, the right talents, and of course, capital.

The fifth set of listing rules on the STAR Market, which are more inclusive, provide financing to biomedical companies that usually undergo a longer research and development timeline.

With the IPO proceeds, biomedical companies can step up on R&D and seek breakthroughs in key technologies, said Dong Zhongyun, chief economist of AVIC Securities.

More importantly, innovative sectors can attract long-term capital, deepening integration between capital and technologies. Industries will be able to seek sustainable development and the entire economic structure can be optimized, he said.

As of end-June, a total of 588 companies had been listed on the STAR Market. The majority — 80 percent — are from emerging industries such as new-generation information technology, biomedicine and high-end equipment.

"Over time, the STAR Market has become the first listing choice for China's hard technology companies. Providing more than 1 trillion yuan of IPO proceeds and refinancing, the board has supported the development of new quality productive forces and strengthened the Chinese capital market's capabilities in serving the real economy," said Li Zhan, chief economist at China Merchants Securities.

With the ongoing reform at the STAR Market, research results are industrialized at a faster pace, growing into new economic drivers. The entire ecosystem in the Chinese capital market is more innovation-centered, boosting entrepreneurship and stimulating more innovative attempts, said Zhang Yidong, chief global strategist at Industrial Securities.

According to the Health China 2030 Initiative released by the State Council, China's Cabinet, the market value of China's biomedical industry is expected to reach 8 trillion yuan in 2030, making it one of the most vibrant and promising sectors in the country.

Biomedicine has been elevated as one of China's strategic emerging industries in the 14th Five-Year Plan (2021-25).

Wang Enduo, an academician at the Chinese Academy of Sciences, said that the development of the healthcare sector is closely related to frontier technologies, among which biotechnologies make up a big part.

Ever since the STAR Market was launched in 2019, a total of 20 innovative biomedical companies have been listed on the board via the fifth set of listing rules, and 19 of them have introduced their core products to the market as of date.

Though approval for companies' IPOs based on the fifth set of rules had been suspended since 2023, Wu Qing, chairman of the China Securities Regulatory Commission, said at the Lujiazui Forum on June 18 that the rules will be restarted.

Soon enough, Wuhan Healthgen Biotechnology Corp became the first biomedical company to seek a public listing after the resumption of the rules, and its IPO application was approved by the Listing Review Center of the Shanghai bourse in July.

Founded in 2006, Healthgen has been specializing in plant-derived recombinant human serum albumin, which is widely used in vaccine production and supplements for cell culture media. As of 2024, the company reported combined losses of 851 million yuan. The losses between 2022 and 2024 came in at 144 million yuan, 187 million yuan and 151 million yuan, respectively.

As the company explained in the public circular, "complicated R&D procedures, strict approval standards, huge investment in new drugs, and high risks" can best describe companies of their kind. As there is limited income before the approval of a new drug, many new drug makers face losses due to highly intensive R&D.

Indeed, Healthgen directed 110 million yuan, 159 million yuan and 117 million yuan, respectively, toward R&D from 2022 to 2024.

Aiming to raise 2.4 billion yuan in financing via the IPO, Healthgen plans to build a recombinant human serum albumin production base with about 1.66 billion yuan, while another 642 million yuan will be used for R&D of new drugs.

"Financing has been a huge challenge for technology companies. Profitability usually takes place long after their inception. Opening the financing gate to unprofitable but rapidly developing companies can help them jump over the so-called 'death valley'," said Yang Chao, chief strategist at China Galaxy Securities.

More STAR Market reform policies were announced by the CSRC's Wu at the Lujiazui Forum.

The fifth set of listing rules, which used to apply to semiconductor and biomedical companies, will be applicable to frontier industries of artificial intelligence, commercial aviation and low-altitude companies, based on the CSRC's approval announced in mid June.

"It has been underlined that the new reform policies can only apply to companies with major technology breakthroughs, huge business prospects and continued huge amount of R&D. This is to make sure that the resources can precisely nurture the emerging industries that are in line with China's development strategies," said Tian Lihui, head of the Institute of Finance and Development at Nankai University.

Just like biomedical companies, commercial aviation companies also require huge R&D investments during their early stage. The long profitability cycle made commercial aviation companies highly reliant on the primary market in the past, said Zhao Lei, founder of Beijing-based satellite ground station service provider Emposat Co Ltd.

The latest STAR Market reform will help commercial aviation companies access the capital market more rapidly and lower financing costs. This is of much importance to the Chinese commercial aviation industry, which is now undergoing a transition from technology accumulation to explosive growth. A closed business loop made up by rockets, satellites and applications has been formed in China, with the costs of making these equipment increasingly lower. The Chinese commercial aviation industry is set to enter a golden age in the next few years, according to Zhao.

A similar logic can be applied to the low-altitude economy sector.

As the Civil Aviation Administration of China has estimated, the market value of the country's low-altitude economy will come at 1.5 trillion yuan at the end of this year, and is likely to surge to 3.5 trillion yuan in 2035.

According to Xie Ling, founder of VerTaxi, a Shanghai-based electric vertical takeoff and landing aircraft maker, the capital market's support for the low-altitude economy is not only about financing. An innovation ecosystem will be created amid higher resources allocation efficiency as more companies go public.

The recent reform policies are more than about giving the stock market a green light to unprofitable technologically-advanced companies. It has also introduced a pilot program under which quality tech firms can go through a pre-review for their initial public offerings.

According to the Shanghai bourse, this arrangement has addressed the requests raised by many tech enterprises. Premature disclosure of a company's technologies and IPO plans may have a major impact on operations. The pre-review mechanism can minimize such effects, said the SSE.

According to Zheng Jisha, chief nonbanking industry analyst at China Merchants Securities, similar practices have been adopted in mature markets. The United States passed the Jumpstart Our Business Startups Act in 2012 to accept confidential submissions from growth enterprises seeking to go public. This act was later expanded to all stock issuers to further lower the threshold for such public financing.

Likewise, a new confidential filing option has been opened to special technology companies and biotechnology companies at the Hong Kong bourse since May.

Premature disclosure of companies' operation strategies, core technologies and financing plans may impact their competitiveness, which have been the concerns of many technology companies about stock market debuts. The new reform measures at the STAR Market, which are in line with international practices, will help to remove such concerns and provide a more amiable environment for technology companies, said Zheng.