JHL Biotech, a Taiwan developer of cheaper alternatives to patent-protected biological drugs, has raised US$106 million from a convertible bond issue, ahead of its planned Hong Kong initial public offering (IPO) aiming to raise some US$250 million.

Attracted by Hong Kong’s proximity to and familiarity with mainland China – the world’s second largest pharmaceutical market – and its depth of funding pool.

JHL is among at least two other non-mainland companies that have been preparing or mulling to tap the Hong Kong stock exchange’s equity-raising channel, that was recently broadened to allow pre-revenue biotechnology firms to list for the first time.

A biological drug is a substance made from a living organism or its products and is used in the prevention, diagnosis, or treatment of cancer and other diseases

JHL, based in Zhubei, Hsinchu county, delisted its shares in February from the Taipei Exchange after listing there in 2015, and is seeking to relist in another exchange that provides higher trading liquidity and better valuation for its shares that will allow it to raise funds for its expansion plans.

The firm has research facilities in both Hsinchu and Wuhan, in Hubei province, and is aiming to raise US$250 million through a re-listing, its chief executive Racho Jordanov told the South China Morning Post in an interview in March.

The bulk of the funds raised from the convertible bond issue will be for funding “clinical trials, working capital needs and further development of its robust pipeline of biosimilar treatments,” the deal’s sole financial adviser, Hong Kong-based merchant bank Ion Pacific, said in a statement on Monday.

Hong Kong-based private equity firm VMS Investment Group was the biggest subscriber to the convertible bond issue, with “robust participation” from existing shareholders and drew “strong interest” from large global and Asia-based private equity firms, it added.

JP Morgan is a sponsor of the impending Hong Kong IPO, said two sources familiar with JHL’s plans. A formal listing application has not been lodged.

A small portion of the convertible bond proceeds will be used to repurchase shares from JHL’s minority shareholders who wanted cash instead of continuing to hold its delisted shares, said one of the sources, adding the firm has decided to pursue a listing in Hong Kong after also considering New York as a venue.

With the mainland market expected to see the world’s highest growth rate for biologic drugs and biosimilar drugs, JHL is expected to see keen investment interests from Asia-based fund managers familiar with the growth trajectory of the Chinese drug market, the source added.

Biosimilar medicines must achieve at least the same safety and efficacy levels compared to the original biological drug, and can only be commercialised after the original’s patent expires.

Biological drugs can comprise sugars, proteins, nucleic acids or cells and tissues, unlike conventional drugs made of pure chemicals that are much cheaper and less complicated to develop and replicate.

Other non-mainland biotech firms with plans for a Hong Kong listing include California-based cancer detection start-up Grail, while Singapore-based cancers treatment developer Tessa Therapeutics has been mulling one as well.

JP Morgan and Ion Pacific declined to comment and JHL officials did not respond to an emailed query.

JHL floated 3 per cent of its shares on the over-the-counter market operated by the Taipei Exchange in September 2015.

It did not raise any funds from the listing, since the shares were given to underwriters which sold them to public investors to pay for the listing expenses.

JHL have several biosimilar drugs that are either currently in or are expected to be in clinical trial this year in Europe and mainland China.

Biosimilar drugs cost US$100 million to US$200 million per product and take eight years or more to develop, compared to US$800 million and over a decade for original new drugs, according to JHL’s latest available annual report.