Cash-hungry Mabwell seeks financial tonic from Hong Kong investors

Despite already having three products on the market, unlike many of its Hong Kong-listed peers, the drug maker is struggling to cover its daily operational costs

Key Takeaways:

• Mabwell said it plans to make a Hong Kong IPO, seeking to replenish its coffers as its current cash is just enough to fund its operations for about two years
• The drug maker’s listing plan, combined with other similar applications, point to another bumper year ahead for pharmaceutical IPOs in Hong Kong in 2025

By Molly Wen

Most pharmaceutical startups would give just about anything to be in Mabwell (Shanghai) Bioscience Co. Ltd.’s (688062.SH) shoes. The innovative drugmaker went public on Shanghai’s Nasdaq-style STAR Market nearly three years ago, raising a mouth-watering 3.3 billion yuan ($452 million) just before investors began giving the sector the cold shoulder in early 2022.

Now, less than three years since that listing, Mabwell is returning to the trough with plans for a second listing in Hong Kong, pressured by big R&D spending and sustained losses. In its announcement to the Shanghai Stock Exchange this month, Mabwell said the Hong Kong listing was aimed at “meeting the financial needs of the company’s operations and development, ensuring its sustainable development, and building a stronger global presence.” No further details were provided, including potential fundraising targets or a timetable.

Unlike many of its money-losing peers who have listed in Hong Kong under a rule that relaxes requirements for innovative drugmakers with big potential, Mabwell already has three products for sale. Those include Adalimumab, a product jointly developed with Junshi Biosciences (1877.HK; 688180.SH), which hit the market in 2022. As the product’s manufacturer and marketer, Mabwell enjoys 50% of the profits from Adalimumab sales.

Mabwell also owns two Denosumab biosimilars, which were approved for sale in 2023 and 2024. One of those, whose Chinese name is Mailishu, is the second biosimilar for the drug Prolia, and was approved for sale for the treatment of osteoporosis in postmenopausal women with high risk of bone fracture. The other, whose Chinese name is Maiweijian, is the first biosimilar for the drug Xgeva, and is approved in China for the treatment of bone tumors.

The three approved drugs will give Mabwell a leg up over its peers, many of whom have no approved products when they list in Hong Kong. In the first three quarters of 2024, Mabwell generated 141 million yuan in revenue, up about 42% year-on-year. Drug sales made up 90.7 million yuan of that, up 287.1%. But since its products are still in their early commercialization stages, the company’s sales expenses were also high at 168 million yuan during the same period. Combined with the company’s 15 drugs in development, which cost it 481 million yuan in R&D expenses, Mabwell’s net loss for the nine-month period widened by 3% to 694 million yuan.

Although Mabwell has three products for sale, revenue from that trio is far from enough to cover its daily operational costs, including its heavy R&D spending, let alone create positive cash flow. At the end of September, the company’s cash fell by a sizable 211 million yuan from a year earlier to 1.6 billion yuan.

Adding to its obligations, Mabwell, together with the Administration of Chongqing Hi-tech Industrial Development Zone and Chongqing Big Health Fund, announced a plan on Dec. 15 to invest 2 billion yuan to launch the Mabwell Bone Health Innovation Drug Project. Among those investors, Chongqing Big Health Fund will provide 400 million yuan, while Mabwell will provide the remaining 1.6 billion yuan in the form of intangible assets.

While the project won’t require cash from Mabwell, its own cash flow will continue to come under pressure. And if the project fails to bring expected returns, Mabwell could also have to write down some of the investment.

Pharma IPO boom

While Mabwell successfully tapped China’s capital market with its STAR Market listing, its post-listing performance has hardly been impressive. The stock currently trades at around 22 yuan, down nearly 40% from the IPO price of 34.8 yuan. And it hasn’t raised any additional funds since then through new share placements. Thus, if it keeps losing money at its current rate, the company may only have funds for about two years of operations, making the Hong Kong listing plan into an important lifeline for Mabwell.

To further boost Hong Kong’s attraction as a major listing venue, the Hong Kong Securities and Futures Commission (SFC) and Hong Kong Stock Exchange issued a joint statement on Oct. 18 on efforts to speed up new listing applications. The statement mentioned the establishment of a fast-track approval channel for companies already listed on China’s A-share markets with market capitalization of at least HK$10 billion ($1.3 billion). Such a regulation would obviously make new Hong Kong listings attractive to A-share companies in need of funds.

The recent uptick for Hong Kong IPOs in general has attracted a number of A-share pharmaceutical companies like Mabwell. Biokin Pharmaceutical (688506.SH), Beijing-listed Health Guard and Hengrui Pharmaceuticals (600276.SH), have all announced plans for similar second Hong Kong IPOs, and around 20 biomedical enterprises currently enjoy such dual listings.

At the same time, unlisted drugmakers also continue to line up for Hong Kong IPOs. Since November alone, Xuanzhu Biopharm, HanxBio, B&K, Leads Biolabs and Innogen Pharmaceutical have all submitted prospectuses to the Hong Kong Stock Exchange. The combination of both types of companies is expected to produce a bumper crop of IPOs by pharmaceutical companies in Hong Kong next year.

Mabwell’s current market capitalization stands at just 8.3 billion yuan, which would fall below the 10 billion yuan cutoff for fast-track approval under the Hong Kong Stock Exchange plan. Mabwell’s price-to-sales (P/S) ratio stands at about 44 times, well ahead of the 2.2 for Henlius (2696.HK), another biosimilars specialist that is already making stable profits. That shows that biopharmaceutical company valuations in Hong Kong are generally much lower than similar companies listed on A-share markets.

While it may have to take a valuation discount with such a Hong Kong listing, Mabwell may not have much choice. Such an IPO would not only provide it with a new financing channel, but also build up its global presence. But a Hong Kong listing could also have an unintended side effect if it ultimately drags down Mabwell’s price in the A-share market.

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