Biotech and Delisting Risk From China's Perspective with WisdomTree | ETF Trends

Liqian Ren, Ph.D., and director of modern alpha for WisdomTree, spoke with Dr. Peter Luo, Ph.D., co-founder and CEO of Adagene, regarding developments in the pharmaceutical industry and business practices abroad in the most recent China of Tomorrow podcast from WisdomTree.

Adagene is a biotech company developing new cancer antibody treatments through the use of its AI technology platform. It is headquartered an hour outside of Shanghai by high-speed rail as well as having a U.S. headquarters and businesses in Singapore and Australia. Adagene utilizes algorithms and the AI portion of its business to help develop better antibodies on a faster timeline than would otherwise be possible, explained Dr. Luo.

“With that kind of technology platform, this has a very good scalability, therefore it allows us to leverage a lot of scaled operations: for example, using our technology, we were able to develop one of the largest physical antibody libraries designed by AI power,” Dr. Luo said.

The library allows for better discovery of new antibodies through large-scale screenings that are used to detect things such as breast cancer. At a time when R&D has been on the decline for pharmaceutical companies in general, Adagene has been working to expand. The supportive ecosystem in China has allowed the company to flourish, much like the WuXi Apptec, a major pharmaceutical and medical device company based in China but with operations globally.

The onset of the COVID-19 pandemic highlighted the importance of productivity infrastructures within the biotech sector. Vaccines and new developments to combat variants are only as good as the ability to produce at scale. Adagene’s platform has made major developments within cancer antibody identification and development possible in a faster, more efficient, and scalable way than had previously been possible, a trend that has been seen across biotech with the importance and role of technology platforms coming to the fore since the onset of the pandemic.

Adagene is a global company that works in collaboration with other major pharmaceutical companies around the world. Dr. Luo discussed the considerations that go into such collaborations, such as the importance of the power of the platform and the role of data.

“Working with them, you really have to assess the science. Do you really have the right science and the global innovation to make your platform so attractive to them, to allow them to do something that otherwise is so difficult to do?” Dr. Luo explained.

How Chinese Companies View U.S. Delisting Risk

The discussion closes with how Chinese companies are approaching the risk of being delisted from U.S. markets as China and the U.S. regulatory agencies try and find a way forward that makes both sides happy. Largely, this has entailed the Chinese companies ensuring that they have a primary or secondary listing in Hong Kong if they do not already. Ren explained that 95% of the companies within WisdomTree’s Ex-State-Owned Index already have a secondary Hong Kong listing.

“If you look at the SEC rules and audits, they do have the rules and it strictly depends on your operational cost analysis,” which every company has to weigh, explained Dr. Luo. For Adagene, despite being a small-cap company, it has headquarters in the U.S. and runs trials globally, with supportive governments in Singapore in particular, and as a company it seeks to leverage the features that make it attractive.

“We have a very strong Chinese heritage but we also have a very global view and because we know the new innovations and we appreciate the U.S. market and the PIs (principal investigator) there, so that’s why we have this trial starting from the U.S./Austrialia, because the PIs really appreciate those kind of innovations,” Dr. Luo said.

Adagene and other companies like it have been partnering with investment bankers to help build out a financial plan for the long-term but relisting requirements in Hong Kong are fairly easy to meet. For many Chinese companies, while the risk is there, it is very low from their perspective in long-term impacts.

The WisdomTree China ex-State-Owned Enterprise Fund (CXSE) primarily trades in Hong Kong shares to reduce delisting risk for investors.

For more news, information, and strategy, visit the Modern Alpha Channel.