Looking retrospectively over the shifting capital markets in June and July, the healthcare industry has emerged as an unofficial leader: Legend Biotech and Burning Rock Biotech were listed on the NASDAQ stock exchange respectively on June 6 and on June 12; SinoCellTech Group launched its IPO on the SSE STAR Market on June 22; and Immunotech Applied Science Limited and Honliv Healthcare were listed on the Hong Kong Stock Exchange (HKEX) respectively on July 10 and on July 13. These healthcare and life sciences companies comprised much of the growth in the capital markets, and Jingtian & Gongcheng’s lawyers worked alongside our clients, assisting them at each step in completing their projects.
In this section, we will discuss Jingtian & Gongcheng’s Healthcare team as it compares to “great music that is soundless”. We will interview a number of partners and ask them to share their stories.
Flying with the Tailwinds
The events behind this story occurred nine years ago. At that time, when Charles River, the world’s fourth-largest Contract Research Organization had offered USD 1.6 billion to buy WuXi AppTec, many industry insiders believed that it would be a good deal. However, Charles River’s shareholders strongly objected to this deal, as they deemed it cost-prohibitive and the deal was cancelled. In 2015, WuXi AppTec delisted from the New York Stock Exchange (NYSE) and, at that point, its market value was approximately USD 3.3 billion. On January 4, 2017, WuXi Biologics, one of the three major enterprises under WuXi AppTec, officially made public its prospectus for listing on the Hong Kong Stock Exchange. After WuXi AppTec’s privatization, many market participants were keenly interested in how the company would direct its subsidiary, WuXi Biologics, to access the capital markets and which stock exchange it would select for its public listing. In this respect, Jingtian & Gongcheng had a voice behind the scene.
In respect of WuXi Biologics, Partner Zejia Chen takes great pride in its listing. After WuXi AppTec’s privatization, its subsidiary, WuXi Biologics, was evaluating a proposed domestic listing on the Strategic Emerging Board of the A-share market against the overseas listing on the Main Board of the Hong Kong Stock Exchange. To inform this high-stakes decision, WuXi Biologics’ management team contacted its trusted legal advisor, Shanghai Partner Zejia Chen, a versatile player in the capital markets who had an abundance of experience in domestic and overseas listing transactions. According to Mr. Chen, since the Strategic Emerging Board had not yet been launched, there was considerable uncertainty for the company in terms of policy implementation, listing rules, and their specific applicability to the company. In contrast, the Hong Kong Stock Exchange listing was more transparent and required a relatively shorter examination and approval timeframe. More importantly, the market valuation and financing amount of fast-growing, biomedical enterprises like WuXi Biologics in HKEX would be on par with that in the A-share market. Through repeated discussions and a thorough examination of the pertinent factors, WuXi Biologics made a prudent decision: it would list on the Main Board of the Hong Kong Stock Exchange. Following this strategic decision, WuXi Biologics has maintained an impressive market performance and its market value grew from HKD 20 billion to HKD 140 billion, leading all other biomedical enterprises in the Hong Kong market. Within that context, HKEX is currently researching reform policies. WuXi Biologics was a precursor to the reform of the policy relating to Hong Kong-listed biotechnical enterprises, which is of positive significance to the formulation and approval of Chapter 18A of the HKEX, according to Mr. Chen.
In June 2017, the company’s Hong Kong Stock Exchange listing received China Law & Practice’s Equity Deal of the Year, making WuXi Biologics one of the largest players in China’s biomedical industry. WuXi Biologics exceeded the market’s expectations in terms of its overall valuation and amount of public capital raised. At the end of 2017, the Hong Kong Exchanges and Clearing Limited conducted a comprehensive review of its listing policies, particularly those impacting emerging industries and innovative enterprises. The previous listing requirements were more stringent than those in other regional stock exchanges. Following detailed discussions with Wuxi Biologics, the Hong Kong Exchanges and Clearing Limited made significant reforms to Hong Kong listing policies, and broadened the listing limitations, for example, “it permits biotechnical enterprises without income to go public in Hong Kong, and the minimum market value is expected to reach HKD 1.5 billion”, which has been viewed as the most significant listing reform in the Hong Kong market over the past two decades.
Prior to this, most biotech companies had chosen the United States as their main destination for overseas listings during the research and development phase. Following the implementation of the new policies, a large number of high-quality, biotech companies began to focus on WuXi Biologics’ strong performance in the Hong Kong market and they later launched their own Hong Kong listings. Jingtian & Gongcheng has also successfully assisted the Hong Kong listing of CStone Pharmaceuticals, a biomedical enterprise. In addition, Jingtian & Gongcheng has helped TASLY Holding Group (an A-share listed company) to spin-off its subsidiary TASLY Biologics and apply for its Hong Kong H-share listing.
It would be a mistake to think that Jingtian & Gongcheng’s success in healthcare-related legal services only depends on novelty. In fact, as early as 1996, Jingtian & Gongcheng served as A-share issuer’s counsel for Northeast Pharmaceutical Group, marking its official entry into the healthcare and life sciences sector. Aside from being creative and new, Jingtian & Gongcheng also maintains many “first-of-its-kind” transactions as illustrated in its work with Phoenix Healthcare Group.
Blue Sky Opportunities
On November 29, 2013, just half an hour after the Hong Kong Stock Exchange opened, Phoenix Healthcare Group’s stock (01515,HK) jumped from HKD 7.38 to 10.00, achieving the highest IPO-related Price-Earnings ratio over the past two years. When it was first established, Phoenix Healthcare Group initially focused on the reform of public hospitals. Upon its listing, it was the largest hospital funded by social capital and also the first Chinese hospital group listed in the international capital market. The successful listing of Phoenix Healthcare Group highlighted the international capital markets’ acceptance of Chinese private hospitals, and also led to a number of leading medical institutions like Harmonicare Medical and New Century Healthcare to publicly list in Hong Kong. Throughout all of these milestones, Jingtian & Gongcheng’s lawyers worked alongside our healthcare and life sciences clients to complete their capital market transactions.
Beijing Partner, Ren Wei, commented during the interview that when listed, Phoenix Healthcare benefited from a policy that encouraged social capital to establish medical institutions. At the same time, it breached foreign capital restrictions on the equity ratio of medical institutions as set out in the Interim Measures for the Administration of Sino-foreign Equity Joint and Cooperative Joint Medical Institutions[31] ). In addition, in relation to the operation of non-profit medical institutions, Phoenix Healthcare developed the “trust + supply chain” model as a creative alternative to traditional public hospital reforms. As the first pure-play medical institution listed in Hong Kong, Phoenix Healthcare’s IPO has become a case study for many to emulate.
Harmonicare Medical was the largest private hospital for obstetrics and gynecology in China and it did not historically fall under public hospital reform. However, in the preparation stage leading up to its listing, Harmonicare Medical encountered a policy change where medical institutions were subsequently included in the list of restricted industries for foreign investment. Since Harmonicare Medical completed the corporate restructuring prior to the introduction of the policy, there was no impact on Harmonicare Medical’s red-chip structure. However, during New Century Healthcare’s subsequent listing and restructuring, the relevant authority tightened its supervision over medical institutions with foreign indirect shareholding. The increased scrutiny over the shareholding structure is now a trend. The foreign indirect shareholding is still subject to the limitations over the ratio provided in the Interim Measures for the Administration of Sino-foreign Equity Joint and Cooperative Joint Medical Institutions, following which a contractual arrangement was adopted for partial rights without equity. Based upon Jingtian & Gongcheng’s experience in these three medical projects, the keys to success include a detailed understanding of current regulations and industrial policies, compliance with the legal, regulatory and commercial policies, and proactive communication with the relevant authorities for clearer guidance. As a lawyer, one should not only provide clients with timely, pragmatic legal and compliance advice, but one should also develop creative solutions to help clients when policies change.
China is constructively promoting reform within the healthcare and life sciences industry, which is highly complex in comparison to other industries. It not only involves various factors such as the healthcare system, healthcare administration, and doctor-patient relationships, but it is also closely associated with drug circulation and medical insurance policies, which are subject to stricter regulatory oversight. The relevant policies in the medical sector are continually evolving and many of the sector’s challenges driven by social forces need to be further clarified and resolved. Healthcare organizations that plan to publicly list on a stock exchange will continue to face a number of challenges and uncertainties alongside the opportunities they identify. Partner Ren Wei, who participated in these listing transactions noted that although the healthcare and life sciences industry has received much positive attention from financial institutions, current laws and regulations as they relate to healthcare organizations need to be clarified. On one hand, the public welfare aspect of healthcare organizations as well as the policies relating to for-profit and non-profit entities will not change in the short term. On the other hand, although various policies continue to be introduced for society to encourage healthcare services, there are still no specific rules on implementation. In practice, there is a wide disparity in the recognition of and supervision over medical institutions by local government agencies. When providing legal advice to clients, it is essential to clarify the core legal issues. Only after the fundamental issues have been clarified, practically and pragmatically, can we further resolve the alignment between medical institutions and domestic and foreign capital markets.
In addition, Partner Ren Wei noted that not only should lawyers keep abreast of legal and policy changes, but they should also monitor current industry trends, particularly in the current legal and regulatory environment and its background and the future development of the healthcare and life sciences industry, which is subject to strict regulatory oversight. Only by thoroughly understanding the intent behind the legislation and regulatory decisions can lawyers grasp the evolving trends that impact future policies, identify problems, mitigate risks, and resolve problems for clients’ projects in a timely fashion and help them remain on the leading edge of the industry.
Sector Specialization and Enhancing Ethical Conduct
3SBio is well-known to many industry insiders. A pioneer in China’s bio-pharmaceutical industry, the company possesses deep experience and a high degree of market recognition in terms of its R&D, manufacturing, and distribution of biotechnical products. In 2007, 3SBio was listed on the NASDAQ stock exchange in the United States. In 2013, the company was privatized and was subsequently delisted. In August 2014, 3SBio officially launched its IPO and Hong Kong Stock Exchange listing and completed the process within 10 months. Throughout its historic transformation, Jingtian & Gongcheng served as a trusted advisor to 3SBio at each key milestone. Since 2001, Jingtian & Gongcheng has partnered with 3SBio and helped the company in its long-term growth objectives. Beijing Partners Zhang Zhiqiang, Ling Tezhi, and Zhang Xin and their respective teams provided 3SBio with China-based legal services throughout the entire process from its US listing to its privatization, to its Hong Kong listing. Jingtian & Gongcheng also assisted 3SBio in completing its overseas bond issuances in 2017 and 2020.
According to Partner Zhang Xin, when he first became acquainted with 3SBio a decade ago, it was already the first Chinese bio-pharmaceutical company listed on a US stock exchange. Subsequently, Mr. Zhang assisted 3SBio in completing its privatization and delisting from NASDAQ, as well as launching its Hong Kong Stock Exchange listing. Mr. Zhang also assisted 3SBio in the acquisition of industry peers where there would likely be operational synergies, including Guojian Pharmaceutical and Wansheng Pharmaceutical. These transactions infused the company with additional opportunities for the long-term, stable growth of 3SBio.
With the development of the legal sector, the consensus is that there is a growing need for a combination of legal and commercial insight within the industry. Lawyers are expected to be well-versed in industry characteristics and product features, which are considered critical success factors in helping clients meet regulatory compliance requirements and listing review standards. This also requires lawyers to invest in continued learning, not only to become experienced legal practitioners but also to become industry generalists. In this respect, Mr. Zhang continues to be a role model.
Since the start of his career, Partner Zhang Xin has been involved in numerous transactions including company listings, mergers, and restructurings. He has also made significant contributions to the healthcare sector. In the course of his work with healthcare institutions, Mr. Zhang continued to enhance his core skills sets to better enable companies to realize their strategic goals such as private equity financing, IPOs and listing transactions, and M&A. He focused on enhancing his knowledge of the healthcare industry through the dedicated study of company business plans, prospectuses, industry reports and technical subject matter.
Jingtian & Gongcheng’s lawyers are guided by the firm’s motto - “We place clients first and provide them with the highest quality services we can deliver.”. This motto accurately reflects the firm’s culture and the responsibility it bears toward each new client. Every firm employee is dedicated to fulfilling the motto in daily practice, through their hard work and dedication. Behind the awards and accolades lies an unwavering commitment to diligence and client centricity. The best way to meet challenges head on is to invest in continual learning and this is also emblematic of the legal industry.
What Makes Our Healthcare Team Professional “Generalists”?
It is widely understood that the bio-pharmaceutical industry is strictly regulated and these regulations are tightening through further reform and refinement. For example, the enactment of relevant policies and measures like the State Council’s guidelines on a “two invoices” system[32] and the “sunshine procurement” program[33] helps reduce the gray area in the sale and distribution of medicine. Simply put, bio-pharmaceutical enterprises are facing more stringent compliance requirements.
“As our clients’ trusted legal advisor, our objective is to minimize the adverse impact on them due to changes in policies and legal regulations while ensuring compliance with their respective requirements. This is also the starting point for providing our clients with recommendations. Firstly, we should conduct an in-depth analysis of the background of the policies and legal regulations; and secondly, we should maintain constant communication with our clients to keep them updated on the latest developments.” Jingtian & Gongcheng Partner, Ye Yusheng, has extensive experience in the healthcare and life sciences sector and a substantial track record.
In respect of the high-risk, industry barriers in managing healthcare projects, Mr. Ye noted that healthcare and life sciences is a strictly regulated industry. While providing legal services for clients in this sector, the starting point for all major decisions is to ensure compliance with current healthcare laws and regulations. In addition, when ambiguities arise in interpreting laws and regulations, or when no regulations exist on the relevant issues, Mr. Ye typically advises clients to proactively communicate with the relevant authorities to better understand their perspective and opinion on these issues. In this way, he can assist clients in making more prudent decisions.
What knowledge and professional experience should an experienced lawyer in the healthcare and life sciences industry have? Mr. Ye noted:
Firstly, the healthcare and life sciences industry is subject to strict regulation in China. From pre-clinical research to the marketing of pharmaceuticals and medical devices, all products fall under the purview of relevant government agencies and related laws and regulations. Because of this, healthcare lawyers should have an intimate knowledge of the relevant industry laws and regulations as well as a thorough understanding of how the government regulates, monitors and enforces action in this sector.
Secondly, with the launch of A-shares on the science and technology innovation board of the Shanghai Stock Exchange (SSE STAR Market) and enactment of Chapter 18A by the Hong Kong Stock Exchange, healthcare and life sciences companies have ushered in an era of unprecedented growth in the capital markets. Although Chapter 18A is a Hong Kong-based law and mainland Chinese lawyers are unable to advise on Hong Kong listing rules unless they are Hong Kong-qualified, all corporate and capital markets lawyers should still maintain a deep understanding of the regulations related to Chapter 18A.
Lastly, one efficient way for lawyers to better understand the healthcare and life sciences sector, as it relates to corporate restructuring and typical compliance issues, is to read individual company prospectuses. One motto frequently mentioned within Jingtian & Gongcheng is that “Success is earned” and this is instilled into our lawyers that we must not only focus on providing timely legal advice but we must also invest in longer-term development of companies in this sector.
Shared Decisions and Shared Achievements
“Why did you decide to join Jingtian & Gongcheng?” This was a question posed to Beijing Partner Zhou Hanshuo by her colleagues. Ms. Zhou specializes in investment, M&A, and legal compliance specific to healthcare and life sciences companies (such as R&D, production, commercial development, clinical trials and product registration, and healthcare data-related services) but she does not focus on listing services.
“Do you specialize in the healthcare and life sciences industry? Is there sufficient market demand to support this specialization? What differentiates you from other lawyers?” Ms. Zhou often receives these types of questions from clients.
Ms. Zhou responded: “At Jingtian & Gongcheng, we collaborate and scale with our people and our clients. Based on our extensive technical knowledge in this sector, we focus on research and innovation on frontier issues and emphasize professionalism, which helps us to attract like-minded individuals with a shared interest in forging strong relationships.” The firm’s supporters and collaborators include both colleagues and clients. Jingtian & Gongcheng’s core strengths in capital market transactions are transparent to those we work with and the Healthcare team’s practical experience often aids our clients in their strategic planning and ability to access global capital via the A-share, Hong Kong and US markets. This is a unique, greenfield opportunity that would be difficult to find elsewhere.
“Dedicating time and senior-level attention to our clients is a form of investment. We are fortunate in that as our clients grow, we grow in tandem and keep pace with the advancement of the industry.” Ms. Zhou noted that she values our clients, “When I was an in-house legal advisor for a multinational pharmaceutical company, our team developed practical experience on legal compliance issues related to healthcare and medical devices. Subsequently, as a lawyer in private practice, I was fortunate to have the opportunity to participate in and advise clients on several emerging fields that have developed rapidly in recent years, such as, IVD, genetic testing, stem cell therapy, and artificial intelligence (AI) in healthcare and medical data. These are now part of our strengths and, because of our practical experience, we are now highly familiar with business models and regulatory changes that impact our work in this sector”.
So why do clients choose to work with you specifically? “Ms. Zhao ventured “Perhaps we know more about specific business or commercial issues than their other external counsel? Or perhaps, concurrently, we have more market knowledge so their internal counsel can leverage our industry experience to help the client find a solution?”.
The healthcare and life sciences industry is strictly regulated and the business models of companies in this sector are also highly complex and diverse. On one hand, if a client encounters a situation that requires deep industry expertise, it is often difficult for them to find external advisors with the right level of experience in the relevant competencies. As one example, if a client is facing challenges involving technology licensing and commercialization, human genetic resource management, and healthcare digital marketing, lawyers would need a similar depth of practical experience within the industry, absent which it would be difficult to meet their specific healthcare sector needs. This is primarily because healthcare clients generally already have keen insight into industry challenges.
On the other hand, even when it comes to the investment and financing aspects which are relatively easier to standardize, managing the legal and practical risks of sub-specializations remains challenging and will require lawyers to draw upon their substantive project experience and industry insight. Those who have not maintained an extensive and current knowledge base about these sub-specializations could easily create more confusion for companies and investors, especially in the legal due diligence and transaction arrangements in certain innovative business areas where regulations may not have kept pace and been fully developed. Because of this, client needs and the external legal market are not efficiently matched by supply and demand.
“Accordingly, your market share is predicated upon your professionalism, your knowledge of healthcare and life sciences business models, strengths, and weaknesses, and your ability to provide clients with practical solutions.” Partner Zhou Hanshuo concluded his interview by adding: “Clients and external counsel make a mutual decision to work with each other and to collaborate to fulfill shared objectives. As a law firm, we provide legal services according to the ‘primary drug’ innovation standard, ‘high-throughput sequencing’ personal customization standard, and ‘POCT’ instant standard, and we will continue to adhere to this.”
Success is Predicated on an Experienced, Collaborative Team
Jingtian & Gongcheng’s Healthcare team is forward-thinking and is accustomed to working with pioneering clients in entering “blue ocean” markets. Over the past years, Jingtian & Gongcheng’s Healthcare team has completed numerous healthcare and life sciences projects, encompassing general hospitals (including tertiary/Grade 3A hospitals), pediatric clinics, specialized hospitals (including women’s and children’s hospitals), clinical new drugs (biological medicine and pharmaceuticals), medical devices and equipment, IVD, CRO, CDMO, IVF, HPV, drug distribution, traditional Chinese medicine cultivation, rehabilitation therapy, drug R&D and cloud data platform management and operations. In addition, its legal services span across compliance, investment, M&A, private equity financing, domestic & overseas IPOs, and more. For example, high-profile, A-share IPO transactions include Bright Gene and SinoCellTech. As for foreign transactions, our Healthcare team also worked on the dual-listing of Asia’s largest hospital operator, IHH Healthcare Berhad, on the Singapore and Malaysia stock exchanges simultaneously, and the first mainland Chinese healthcare services firm, Concord Medical Services Holdings Limited, listed on the New York Stock Exchange, along with other pioneering transactions.
“Our established ties with the healthcare industry began with a fortuitous event, and it holds distinctive value not only for its commercial interests but also because it involves serving the public interest. Because of this, Jingtian & Gongcheng’s Healthcare team is driven by passion as well as dedication,” noted Beijing Partner Lang Yuanpeng (whose commitment to the healthcare field is also evident throughout his career). As a senior lawyer with more than 20 years of industry experience, Mr. Lang has cultivated extensive insight and capabilities relating specifically to healthcare and life sciences.
During the interview on the future of the healthcare and life sciences sector, and Jingtian & Gongcheng’s continued role in its development, Mr. Lang asserted: “The current pandemic negatively impacts the macro economy to a certain extent, but the net effect on the healthcare industry is negligible. The healthcare industry remains a fast-growing field, and it will continue to evolve into a top priority in the future. Jingtian & Gongcheng’s Healthcare team provides a range of legal services including IPOs and listings of hospital, medical device, medical waste disposal, and related healthcare companies, M&A, private equity financing, and other services. In addition, we attach great importance to the research and development of frontier issues, so that we can provide our clients with creative solutions that are tailored to their specific situation and needs. In brief, our team focuses on safeguarding our clients’ interest through a comprehensive, multi-faceted and innovative approach”.
Jingtian & Gongcheng’s success is derived in part from the full support by the Management Committee to the partnership and the trust placed in the Healthcare team. This team has overcome adversity in the course of completing a number of its successful projects and has, consequently, not only received much acclaim within the legal industry, but it has also been consistently ranked and recommended by leading legal and commercial media, such as Chambers & Partners and LEGALBAND. In the Chambers Asia-Pacific 2020 guide published by Chambers & Partners, Jingtian & Gongcheng has been recommended in nine practice areas, including “Healthcare”, for three consecutive years.
Over the past three decades, Jingtian & Gongcheng has guided its clients through healthcare reform, new medical legislation, and digitally-enabled healthcare services. In addition to updating its talent base and institutional knowledge, the firm has continued to evolve in tandem with traditional medicine, bio-pharmaceuticals, life sciences, and general health amid both policy changes and industry disruption. Today, Jingtian & Gongcheng is advancing into 5G to launch its healthcare legal services, and it is dedicated to continuous innovation, transforming the industry and investing in sustainable growth.
Interview Respondents, comprising Jingtian & Gongcheng Healthcare Partners:
Zejia Chen Yuanpeng Lang Wei Ren Yusheng Ye Xin Zhang Hanshuo Zhou
