Biotech Company Listing Rules in Hong Kong: Can Pre-Revenue Companies Apply

The Hong Kong Stock Exchange (HKEX) has tightened its enforcement of Chapter 18A of the Main Board Listing Rules, with a specific focus on the “meaningful operations” condition for pre-revenue biotech applicants. In a 2025 consultation paper, the HKEX proposed amendments requiring biotech issuers to demonstrate a minimum of 12 months of post-IPO cash runway based on a detailed clinical development plan, a shift from the previous 12-month working capital requirement. This change, coupled with the SFC’s 2024 guidance on sponsor due diligence for novel drug mechanisms, directly impacts the viability of pre-revenue listings. For investment banks structuring Chapter 18A deals, the question is no longer simply “can a pre-revenue company apply,” but rather “what quantum of clinical data and cash runway is now non-negotiable.”

The Core Framework: Chapter 18A and the Pre-Revenue Pathway

Chapter 18A of the HKEX Main Board Listing Rules, effective since 30 April 2018, explicitly permits pre-revenue biotech companies to list. The rule was designed to attract innovative drug developers that have not yet generated commercial revenue from their core products. As of 31 December 2024, 68 biotech companies had listed under Chapter 18A, raising a cumulative HKD 120.3 billion in primary proceeds, according to HKEX data.

The fundamental eligibility criteria are codified in Listing Rules 18A.03 to 18A.07. A pre-revenue applicant must satisfy a market capitalisation threshold of at least HKD 1.5 billion at listing (Rule 18A.03(2)). The company must also have been in operation for more than two financial years under substantially the same management (Rule 8.05). Critically, Rule 18A.06 requires the core product to have progressed beyond the concept stage—specifically, it must have completed Phase I clinical trials and, where the regulator does not object, have commenced or be about to commence Phase II trials.

The “Core Product” Definition and Regulatory Gateway

The definition of a “core product” under Rule 18A.01 is central to the application process. The product must be a “biotech product” as defined by the HKEX, which includes pharmaceuticals, biological products, and medical devices that are subject to regulation by a recognised competent authority. The HKEX’s Guidance Letter HKEX-GL92-18 (updated in November 2023) provides a non-exhaustive list of recognised authorities: the US FDA, China’s NMPA, and the European Medicines Agency (EMA).

A pre-revenue applicant must demonstrate that its core product has been the subject of a clinical trial application (CTA) or an investigational new drug (IND) application that has been accepted by at least one of these authorities. The HKEX will not accept a company whose core product is solely at the pre-clinical stage, regardless of market capitalisation. For example, in the 2024 listing of a cell therapy developer, the HKEX required the sponsor to confirm that the lead product’s Phase I trial had been fully enrolled and that the data safety monitoring board (DSMB) had recommended continuation to Phase II, not merely that the trial had been initiated.

The “Meaningful Operations” Condition and Cash Runway

The most significant recent development is the HKEX’s 2025 proposal to codify the “meaningful operations” condition. Previously, Rule 18A.07 only required a statement that the applicant had “meaningful operations” without a quantitative definition. The proposed amendment, published for public consultation in March 2025, introduces a specific requirement: the applicant must demonstrate that it has sufficient working capital to cover at least 125% of its projected cash requirements for the 12 months following the date of the listing document.

This is a departure from the existing Practice Note 18, which only required a working capital statement covering 12 months from the date of the prospectus. The new requirement is tied directly to a detailed clinical development plan, which must be included in the listing document. The sponsor must opine on the reasonableness of the plan’s assumptions, including patient recruitment rates, trial site costs, and manufacturing scale-up expenses. For a pre-revenue company, this effectively means the minimum IPO size must be large enough to fund the next 12 months of operations at a 125% coverage ratio, which for a late-stage clinical trial could translate to a minimum raise of HKD 500 million to HKD 800 million, based on 2024-2025 market data from Dealogic.

Eligibility Criteria for Pre-Revenue Biotech Applicants

A pre-revenue biotech company must meet a layered set of requirements that go beyond the simple “no revenue” condition. The HKEX evaluates the applicant’s stage of development, the regulatory pathway, and the independence of its management and ownership structure.

Stage of Development and Clinical Trial Requirements

Rule 18A.06 sets the minimum clinical development threshold. The core product must have:

1. Completed Phase I clinical trial: The applicant must provide evidence of completion, typically a final clinical study report (CSR) from the principal investigator.
2. Regulatory non-objection to Phase II: The relevant competent authority must not have raised any clinical hold or safety concerns that would prevent the initiation of Phase II trials.
3. Commenced or imminent commencement of Phase II: The HKEX will require confirmation that an ethics committee has approved the Phase II protocol and that the first patient is expected to be dosed within a reasonable timeframe, generally 3-6 months from the date of the listing hearing.

The HKEX does not require the core product to have received any form of accelerated approval or breakthrough therapy designation. However, in practice, sponsors have noted that the HKEX’s Listing Committee views such designations favourably when assessing the product’s commercial potential. In the 2023 listing of a gene therapy company, the FDA’s Regenerative Medicine Advanced Therapy (RMAT) designation was cited in the listing document as a key risk mitigant.

Market Capitalisation and Public Float Requirements

The minimum market capitalisation of HKD 1.5 billion at listing (Rule 18A.03(2)) is a hard floor. However, the HKEX’s 2024 annual report on IPO applications shows that the average market cap for Chapter 18A listings in 2024 was HKD 3.2 billion. The public float requirement under Rule 8.08(1) applies: at least 25% of the total issued shares must be held by the public at the time of listing. For pre-revenue companies, the HKEX may accept a lower percentage, down to 15%, if the market capitalisation is exceptionally large (above HKD 10 billion), but this is rarely granted for biotech issuers.

The minimum number of public shareholders is 300 (Rule 8.08(2)). This is a significant hurdle for pre-revenue biotech companies, which often have a concentrated shareholder base of venture capital and private equity funds. The sponsor must demonstrate that the placing and top-up placing mechanism will achieve this threshold, which typically requires a retail tranche or a significant cornerstone investor group.

Management Continuity and Ownership Structure

Rule 8.05 requires the company to have been under substantially the same management for at least the three financial years preceding the listing. For a pre-revenue biotech, this means the CEO, CFO, and chief scientific officer (CSO) must have been in place for that period. The HKEX will scrutinise any changes in senior management within the 12 months prior to the filing, and may require a detailed explanation and a new sponsor opinion on management stability.

Ownership concentration is also a factor. The HKEX’s Guidance Letter GL68-13, which applies to all issuers, requires that the top three shareholders do not hold more than 60% of the listed shares at the time of listing. For pre-revenue biotech companies, this is often a structural challenge because early-stage investors hold large blocks. The sponsor must structure the placing to ensure the public float and ownership dispersion requirements are met, which may involve a secondary sale by existing shareholders.

Practical Considerations and Sponsor Due Diligence

The sponsor plays a critical role in validating the pre-revenue biotech’s eligibility. The SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, specifically paragraph 17.6, requires the sponsor to conduct reasonable due diligence on the core product’s regulatory status and clinical data.

Sponsor’s Role in Clinical Data Verification

The sponsor must verify the clinical data presented in the prospectus. This is not a simple review of summary results. The SFC’s 2024 thematic inspection report on biotech sponsors found that 40% of reviewed files had inadequate documentation of the sponsor’s verification of the raw clinical data. The report specifically cited instances where sponsors relied on the issuer’s management summary without cross-referencing the actual case report forms (CRFs) or the independent data monitoring committee’s (IDMC) reports.

For a pre-revenue company, the sponsor must also opine on the reasonableness of the clinical development timeline. The HKEX requires a detailed timeline in the listing document, showing key milestones for the next 24 months. The sponsor must confirm that the timeline is consistent with the clinical trial protocol and the regulatory feedback received from the competent authority. If the timeline shows a gap of more than six months between the completion of Phase II and the initiation of Phase III, the sponsor must provide a specific justification.

The Impact of the 2025 Cash Runway Proposal

The proposed 125% cash runway requirement has direct implications for the IPO pricing and structure. For a pre-revenue company with a projected 12-month cash burn of HKD 400 million, the minimum IPO proceeds must be at least HKD 500 million (HKD 400 million x 125%). This figure does not include underwriting fees, legal fees, and listing expenses, which for a Chapter 18A deal typically range from 4% to 7% of the gross proceeds, according to 2024 data from the HKEX.

This effectively sets a floor on the IPO size. A pre-revenue biotech with a market capitalisation of HKD 1.5 billion would need to issue at least 25% of its shares to the public, implying a minimum IPO size of HKD 375 million. However, the cash runway requirement may force a larger issuance. If the company needs HKD 500 million in net proceeds, and underwriting fees are 5%, the gross proceeds must be approximately HKD 526 million, which represents 35% of the HKD 1.5 billion market cap. This would exceed the standard 25% public float requirement, but the HKEX may accept a higher public float percentage if the cash runway justification is robust.

Cross-Border Structure and VIE Considerations

Many pre-revenue biotech companies are PRC-domiciled but use a Cayman Islands or BVI holding company structure for listing. The HKEX’s Guidance Letter GL94-18 specifically addresses the use of variable interest entities (VIEs) for biotech companies. For pre-revenue biotechs, the VIE structure is permissible only if the core product’s development or commercialisation is subject to PRC foreign investment restrictions under the Special Administrative Measures (Negative List) for Foreign Investment Access (2024 edition).

The sponsor must obtain a PRC legal opinion confirming that the VIE structure is necessary and that the company has obtained all requisite approvals from the NMPA and the Ministry of Commerce. The HKEX will require the VIE to be disclosed prominently in the prospectus, and the company must include a risk factor addressing the potential for the PRC government to invalidate the VIE structure. In the 2024 listing of a PRC-based gene sequencing company, the HKEX required the sponsor to confirm that the VIE’s equity interests were held by PRC nationals who were independent of the listed issuer’s directors and senior management.

Market Trends and Recent Pre-Revenue Listings

The data from the last 24 months shows a clear bifurcation in the Chapter 18A market. Pre-revenue biotechs with late-stage clinical assets (Phase III or pivotal trials) have been able to list, while those with only Phase I data have faced significant headwinds.

The 2024-2025 Listing Data

According to HKEX data, 12 pre-revenue biotech companies listed under Chapter 18A in 2024, raising a total of HKD 18.7 billion. The average post-IPO market capitalisation was HKD 3.8 billion, well above the HKD 1.5 billion minimum. The median cash runway disclosed in the prospectuses was 18 months, exceeding the proposed 12-month requirement by 50%.

However, the failure rate for applications has increased. In 2024, the HKEX returned 4 pre-revenue biotech applications, citing insufficient clinical data to support the “meaningful operations” condition. In two of those cases, the core product had only completed Phase I with a small sample size (fewer than 30 patients), and the HKEX determined that the data did not provide a reasonable basis for the company’s valuation. The SFC’s 2025 enforcement action against a sponsor for inadequate due diligence on a pre-revenue biotech’s Phase II protocol further underscores the heightened scrutiny.

The Rise of 18C and the Impact on Pre-Revenue Biotechs

The introduction of Chapter 18C in March 2023, which covers specialist technology companies (including advanced materials and AI), has not directly affected Chapter 18A biotechs. However, the HKEX’s 2025 consultation on aligning certain disclosure requirements across both chapters suggests a potential convergence. For pre-revenue biotechs, the key takeaway is that the HKEX is moving towards a more standardised, quantitative assessment of “meaningful operations” across all pre-revenue listings.

The market has also seen a shift in investor sentiment. Institutional investors, particularly long-only funds, have become more selective. In 2024, the average cornerstone investment in a pre-revenue biotech IPO was HKD 150 million, down from HKD 220 million in 2022, according to Bloomberg data. This has forced issuers to rely more heavily on the public placing, increasing the risk of undersubscription and price volatility.

Actionable Takeaways

1. Pre-revenue biotech applicants must now demonstrate a minimum 12-month cash runway at 125% of projected burn, tied to a detailed clinical development plan, under the HKEX’s 2025 proposed rule change.

2. The core product must have completed Phase I and received regulatory non-objection to Phase II from a recognised authority (FDA, NMPA, EMA), with the sponsor verifying raw clinical data against case report forms.

3. The minimum market capitalisation of HKD 1.5 billion is a floor, not a target; the average 2024 pre-revenue biotech listing had a market cap of HKD 3.2 billion, requiring a minimum IPO size of approximately HKD 500 million to meet the cash runway requirement.

4. A VIE structure for PRC-based biotechs is permissible only if the core product is subject to foreign investment restrictions under the 2024 Negative List, and must be supported by a PRC legal opinion and a prominent risk factor in the prospectus.

5. Sponsors must conduct independent verification of clinical data and timeline assumptions, as the SFC’s 2024 thematic inspection found 40% of biotech sponsor files had inadequate documentation of this due diligence.