BIOTECH startups can expect more measured valuations should they list in Hong Kong, investors and bankers said, after shares of the first such firm to take advantage of rules allowing listings from pre-profit biotechs dropped 44 percent in the first month.

Hong Kong Exchanges and Clearing Ltd., operator of the city’s bourse, revised rules this year for dual-class share structures, secondary listings and early-stage biotech firms to attract so-called new-economy companies from the mainland.

At least 10 more mostly mainland biotechs plan to go public in the city this year, with some even dropping plans for U.S. share sales in favor of listing closer to home due to new rules for pre-revenue, pre-profit biotechs that took effect in April.

Maiden applicant Ascletis Pharma Inc., a pre-profit biotech developing Hepatitis C and HIV treatments, was valued at US$2 billion after its initial public offering priced at the middle of an indicative range. Its stock debuted Aug. 1 at HK$14 (US$1.78), but by the end of its fourth week of trade, was at HK$7.88.

The stock drop has left Singapore sovereign wealth fund GIC Pte Ltd., a cornerstone investor with a US$75 million stake, nursing losses of US$32.8 million, calculations showed.

“You want the first one to go well, and it’s gone terrible,” said chief executive Brad Loncar of Loncar Investments, whose Chinese biotech-focused exchange-traded fund has risen 8.2 percent since its Aug. 15 launch.

“You have to create value, and right now it [Ascletis] is trading on sentiment in front of a group of investors who don’t have experience with companies that don’t generate a profit.”

Some market participants said Ascletis’ share price drop was a wake-up call.

“With a surge in China’s biotech industry in recent years, everyone has been a bit overexcited,” said Kevin Xie, co-founder of investment bank China Renaissance.

“As market conditions have become more challenging than a year ago and investor sentiment has cooled, many biotech firms will have to adjust valuations in both primary and secondary markets.” (SD-Agencies)