Swift resolution emerges to China's non-compliance

Just when several Chinese biotechs are scrambling to regain long-term compliance with tightened-up US audit regulations a solution to the problem has appeared on the horizon. China’s Securities Regulatory Commission has proposed removing its requirement that local businesses be inspected on-site by Chinese auditors, deeming this rule outdated. This issue was very relevant for Chinese companies with US listings, and a conflict arose when the US SEC stipulated that any US-listed business had to be audited by a US accounting firm. Last month the SEC published its first list of non-compliant companies, threatening their delisting if the non-US auditor situation persisted to 2023, and last week Casi Pharmaceuticals, a US biotech with a significant subsidiary in Beijing, was added to this. In the meantime Beigene and I-Mab have already changed auditors, and the latter is moving to list additionally in Hong Kong, meaning that it could continue trading in the theoretical event of its US listing being cancelled. Last month Loncar Investments’ chief executive, Brad Loncar, said the fact matters came to a head like this could actually spur a resolution. This view looks now to be playing out.

Selected US-listed biotechs with China operations
Company On SEC's non-compliance list? Statement
Zai Lab Yes (conclusive list) Working to engage independent auditor that satisfies PCAOB requirements
Hutchmed Yes (conclusive list) Shares trade in UK & Hong Kong, ADSs on Nasdaq; maintaining dialogue with China regulator
Beigene Yes (conclusive list) Changed auditor from Ernst & Young Hua Ming (China) to Ernst & Young (US)
Casi Pharmaceuticals Yes (provisional list) Evaluating control changes to meet HFCAA requirements
Adagene No Evaluating control changes to meet HFCAA requirements
I-Mab No Has engaged PCAOB-compliant auditor; shares trade on Nasdaq; Hong Kong listing is being pursued
Lianbio No Says principal auditor is located in New York, and inspected by PCAOB
PCAOB=Public Company Accounting Oversight Board; HFCAA=Holding Foreign Companies Accountable Act. Source: stock exchange & company information.

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