Cancer drug maker Genfleet joins Hong Kong IPO influx

The biotech can boast a long list of big-name backers and has brought a promising drug to the market with its partner Innovent, but its cash reserves are dwindling

Key Takeaways:

• Genfleet has eight candidate drugs in the works and its co-developed therapy for lung cancer has been approved by Chinese medical regulators
• The firm has struggled with cash flow and logged no revenue in the first half of 2024

By Molly Wen

For many Chinese biotechs working on cutting-edge cancer drugs, the road to clinical and commercial success now passes through Hong Kong.

The firms are lining up to raise equity capital on the revitalized Hong Kong stock market to fund their ongoing discoveries, with GenFleet Therapeutics (Shanghai) Inc. becoming the latest biopharma business to file its IPO paperwork.

Hong Kong has exerted a magnetic pull for cash-strapped drug developers since a burst of Chinese stimulus jolted the city’s stock market out of an extended slump last year.

Genfleet will be hoping to stand out from a multitude of IPO contenders with a portfolio of novel drug candidates, several licensing partnerships and a product already approved in China for use against lung cancer.

The drug, which targets a tumor-related cell mutation, was co-developed with Innovent Biologics (1801.HK), which now owns the sales rights to the product in mainland China.

According to the IPO prospectus filed late last month, Genfleet was founded in 2017 to develop new drugs to combat cancer, autoimmune disorders and inflammatory diseases. It has eight drug candidates in the works, with five at the clinical trial stage. Fulzerasib, the drug developed in partnership with Innovent, gained Chinese regulatory approval in August last year as a treatment for an advanced form of non-small cell lung cancer.

The IPO filing said the drug was China’s first approved selective inhibitor targeting KRAS G12C, a mutated protein linked to the accelerated growth of cancer cells. Globally, the drug was the third product in this category to gain regulatory approval, Genfleet said.

The drug was originated by Genfleet but Chinese commercial rights were licensed out to Innovent in September 2021, along with a global option, for an upfront payment of $22 million (146 million yuan) and further fees of up to $50 million. But Genfleet also stands to gain up to $240 million in milestone payments and a cut of sales proceeds. Last January Genfleet bought back the rights over international sales outside of Greater China. Although approved in China, the drug is still undergoing Phase Two clinical trials overseas and is expected to enter the third stage of testing there for advanced non-small cell lung cancer in the fourth quarter of 2025.

KRAS mutations have been a big research focus for the drug industry, being implicated in a range of cancers.  KRAS inhibitors have proven to be more effective than some other treatments against severe types of lung cancer, and the mutations also show up in 90% of pancreatic cancer patients and 30% to 40% of colorectal cancer cases.

According to figures in the prospectus, the global market for KRAS G12C inhibitor drugs is projected to jump from just under $319 million in 2023 to $2.75 billion in 2032, a compound annual growth rate (CAGR) of 27.0%, as new treatments come on stream.

Multinational pharmaceutical companies Amgen (AMGN.US) and BMS (BMY.US) have already won U.S. approval for their own KRAS G12C inhibitors. Meanwhile, Chinese firms including InventisBio (688382.SH), Jacobio Pharmaceuticals (1167.HK), Suzhou Zelgen Biopharmaceuticals (688266.SH) and Hansoh Pharmaceutical (3692.HK) are also piling in, looking to capitalize on the rapidly growing market.

Aside from the deal with Innovent, Genfleet has entered into two other licensing-out agreements. In 2022 it sold the rights outside Greater China to develop, manufacture and sell a drug candidate for acute myeloid leukemia to the U.S. company SELLAS (SLS.US). That drug, GFH009, is going through Phase Two trials.  Another deal was struck in 2023 giving Verastem (VSTM.US) the option to develop and commercialize three Genfleet products, although the rights have not yet been exercised.

Cash flow challenges

With the proceeds from those deals, the company reported revenue of 105 million yuan in 2022 and 73.73 million yuan the following year. But without any product income  on its own account, cash flow has come under strain and Genfleet was not able to log any revenue at all in the first half of 2024.

With most of its drug discoveries not yet entering Phase Three trials, outgoings have been stable in recent years. R&D investment was 319 million yuan in 2022, 312 million yuan in 2023 and 186 million yuan in the first half of last year. By the end of June 2024, the company was sitting on just 279 million yuan in cash and cash equivalents.

At the current rate of spending, new financing would be needed to get more drugs over the commercial line. However, the company said sales of fulzerasib were expected to bring in more revenue over time. Genfleet also said it would actively explore cooperation deals with third parties to develop its drugs overseas to replenish its coffers.

The company built up its capital base in seven rounds of financing before its IPO pitch, raising 1.42 billion yuan from an array of prominent names in the healthcare, tech and pharmaceutical space. The rollcall of investors includes CSPC Pharmaceutical (1093.HK), Tigermed (3347.HK; 300347.SZ), the vaccines maker CNBG, the state-owned venture capital fund SCGC, healthcare investor Lake Bleu Capital and search engine giant Baidu (9888.HK; BIDU.US).

The last funding round in March last year, when sentiment was relatively weak, raised 195 million yuan, delivering a post-financing valuation of 3.12 billion yuan. The investors that time included Huajin Capital, acting under the Zhuhai municipal authorities, and Tailong Investment under Tigermed.

The company’s ability to attract illustrious supporters rests in large part on the drug industry experience of its management team. Co-founder Qiang Lu headed R&D efforts at multinationals Wyeth and Novartis, as well as serving as an executive at several Chinese drug companies such as WuXi AppTec (603259.SH; WUXIF.US) and Yangtze River Pharmaceutical.

However, there is no shortage of international experience at firms that listed in Hong Kong under relaxed rules for biotechs but have underwhelmed investors with their R&D progress. The prospects for Genfleet will likely hinge on its flagship cancer drug, meaning investors should pay close attention to the product’s performance from here.

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