China biotech rally seen as too rapid, investors shift to clinical CROs - Macquarie

Investing.com - The recent rally in Hong Kong-listed biotechs, fueled by fund flows and outlicensing expectations, has been too rapid according to investors, with focus now shifting to clinical research organizations (CROs), Macquarie reports.

Macquarie analysts note that the recent biotech rally has primarily benefited thinly-traded small caps, deviating from traditional biotech investing which typically focuses on pipeline developments and regulatory catalysts.

While China biopharma outlicensing has attracted generalist investors due to high-profile deals, Macquarie cautions that predicting which companies will secure valuable licensing deals is "exceedingly difficult, if not impossible."

The firm highlights that most licensing deals from Chinese companies are small in value and rarely affect licensors’ long-term financial performance.

Additionally, most outlicensed assets ultimately fail in clinical trials, regulatory review, or commercial launch, further complicating investment decisions in the sector.

China’s domestic environment remains challenging for most biopharmacos, with tight national insurance budgets, price-cutting schemes, and anti-corruption campaigns creating ongoing pressure.

Macquarie does not expect these conditions to improve soon, recommending investors focus on proven long-term biotechs instead.

In response to market conditions, Macquarie has adjusted its recommendations, now favoring Hansoh at the top position, followed by BeOne and Akeso in dual second place.

The firm notes that some investors now view clinical trial outsourcing CROs as potential beneficiaries of licensing deals and the reopening of Hong Kong’s IPO window.

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