With Zero Revenue, Laekna Plays Chicken-And-Egg Game With Investors

Key Takeaways:

• Laekna is seeking a Hong Kong IPO to raise funds to accelerate the commercialize two core products licensed from Novartis
• The company currently is not generating any sale, with most of its products in early stages of development

By Tina Yip

For investors, Laekna Inc. is a bit of a chicken-and-egg problem. The biotechnology company is generating zero revenue because it has no product to sell. To speed up the development of products to sell, the drugmaker wants to raise funds through an IPO. But for investors, it’s a high-risk gamble to buy into a revenue-less business with no promise of success.

Laekna, founded just six years ago, is working on an IPO in Hong Kong, with China International Capital Corporation as the sole sponsor. The company is seeking to use the proceeds from the share sale to accelerate the clinical development and commercialization of two drugs licensed from Novartis, according to its IPO prospectus filed to the Hong Kong Stock Exchange last week.

With the IPO plan, Laekna is looking to join a long list of biotech companies that have gone public in Hong Kong in the past few years, luring abundant hot money. Although the sector’s IPO boom has cooled, there are still more than 30 companies in the pipeline, in addition to two that have successfully listed their shares in the city this year.

A common feature of these companies is that they are not generating revenue, let alone making profits. And Laekna is no exception. The company doesn’t have any product approved for sale and has lost more than 1 billion yuan ($149 million) in the past two years.

A large part of the loss is attributed to falls in the fair values of financial instruments but like other biotech firms, Laekna is in the business of burning cash for R&D. Last year, Laekna’s R&D spending more than doubled to 173 million yuan from 2020. And it didn’t help that its administrative expenditure also shot up nearly 170% to nearly 52 million yuan. 

Novartis-licensed drugs

Laekna has 14 products under development but the two Novartis-licensed drugs – one for the treatment of prostate cancer and the other for prostate and breast cancer – hold the most promise, as they are in the most advanced stages of clinical development, while the others are way behind.

This also means that a lot rides on the two products, codenamed LAE001 and LAE002, as the company’s existence can be in jeopardy if it fails to complete the clinical development of the drugs or obtain regulatory approval for them.

Laekna has received a total of about $220 million from institutions including Novartis in six rounds of fund-raising in the past six years. The last investment by State Development & Investment Corp. in April put the company’s value at $538 million.

One thing that has helped Laekna attract institutional investors is the credentials of its key executives. Lu Xiangyang, the founder and chairman of Laekna, has more than more than 20 years of experience. Most notably, he hailed from Novartis, where he led research for liver disease drugs, among other achievements. In addition, the company’s clinical operation director previously worked for Pfizer PFEand other large pharmaceutical companies, while its chief medical officer is an alum of GlaxoSmithKline GSK and Johnson & JohnsonJNJ.

But for ordinary investors, putting their money in Laekna involves a lot of risk. The two core products may look promising but it’s always possible something can go wrong, throwing a wrench in the company’s plan to commercialize them. And the rest of its product portfolio is too far from clinical development for the drugmaker to fall back on, in case it fails to commercialize the two drugs as planned for any reason. Plus, because most of Laekna’s products are in early stages of development, it doesn’t have a proven R&D capability that can give investors faith in the company. 

The performance of biotech stocks in Hong Kong isn’t inspiring confidence either. Among 44 such stocks, 40 are trading below their IPO prices, and some have lost more than half of their values since their listing. Jiangsu Recbio Technology (2179.HK) and Lepu Biopharma (2157.HK), the two biotech companies that completed IPOs in Hong Kong this year, are already in the red as well.

Timing isn’t so great for Laekna either, as rate hikes in the U.S. are flushing out hot money. If Laekna’s ability to successfully commercialize its two Novartis-lincesed products and start generating revenue hinges on whether it can raise new funds, the Hong Kong IPO is hugely critical for the company’s future. But a company without sales is a hard sell for investors, no matter how you slice it. Laekna’s IPO ambition seems to amount to squaring the circle.