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Zelgen Biopharma to Become First Pre-Revenue Firm Listed on China's Mainland
COVID-19 and China
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The North American tech circles are hotly debating Alphabet-backed primary care unicorn One Medical's prospectus (in Chinese) filed with the United States securities watchdog on January 3; the startup intends to have a Nasdaq stock. China also has a biotech IPO barn-burner for the very beginning of 2020.

Zelgen Biopharmaceuticals (泽璟制药, 688266:SH), a new medications producer that, to date, hasn't sold any product, is about to become the first company to select the fifth listing standard on the Star Market (read more about the set of criteria on the Shanghai exchange's sci-tech board in our latest report). In other words, the market valuation of over CNY 4 billion (USD 576.34 million) made the drug developer eligible for raising money from public sources.

Zelgen is seizing the opportunity. Up to 60 million shares, which, combined, must exceed 25% of Zelgen's total market value, will be issued in a few weeks (usually, it takes around 10-15 days, under the new 'registration-based' system). Obviously, the stock is likely to become an object of consideration only for investors that set little store by a company's financial results. What's more, this (so far) unique case will be an acid test for China's whole financial system.

As mentioned above, the firm hasn't happened to make money yet. Its net loss was CNY 441.9 million (USD 63.7 million) in 2018 – three times that of the previous year. In the first half of 2019, it spent CNY 341.15 million (USD 49.14 million) on various cost categories from the outsourced lab experiments to the salary expenses. With nearly 60% of the regular personnel directly involved in research and development in 2018, one-third of the total expenditure went to R&D in the same year. What for?

According to the prospectus, Zelgen is currently carrying out 29 research projects that are meant to yield breakthroughs in complex fields such as tumor treatment and hemorrhage control. Two out of 11 drugs that its one-hundred-strong team is working on have already reached the second phase of clinical trials. Another two are in the third phase, expected to bring operating income as early as 2020.

American biotech veteran ZymoGenetics, the originator of blood-stopping solution Recothrom – which is an alternative (or a role model) for some of Zelgen's future products – is among the most famous direct competitors of the company. Other names on the 'counterpart list' are Sanofi's (SNY:Nasdaq) subsidiary Genzyme (acquired in 2011) as well as an enormous bunch of cancer startups such as Shanghai-based I-Mab Biopharma (天境生物), Swiss ADC Therapeutics and Israeli Ayala Pharmaceuticals.

Editor: Luke Sheehan
ANALYST
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