Startup eyes U.S. IPO over Hong Kong

Grail, a cancer-testing startup backed by two of the world’s richest men, is weighing a U.S. initial public offering, people familiar with the matter said, potentially backing away from earlier plans to list in Hong Kong’s volatile market for new health stocks.

The Menlo Park biotechnology company could seek an IPO as early as 2019, based on conditions in the stock market, one of the people said. They asked not to be identified because the discussions are still at an early stage and plans could change. In February, Bloomberg reported that Grail had been considering raising as much as $500 million in a Hong Kong listing this year.

A representative for Grail declined to comment. No final decisions have been made about a listing, said one of the people.

Grail is one of the most highly valued biotechnology startups in the world, with a private valuation of about $3.2 billion, according to data from Pitchbook. It’s developing a test to detect a wide variety of cancers extremely early on. Investors in the startup include some of the highest-profile names in the business world, including Microsoft co-founder Bill Gates and Amazon.com founder Jeff Bezos’ personal venture fund.

Hong Kong has been an attractive but tumultuous market for a handful of health companies that have chosen to list there. Earlier this year, the Hong Kong Stock Exchange changed its rules to let companies go public when they are still developing their products and don’t have revenue. Many biotech companies spend years without revenue or profit while they develop their products.

An increase in market volatility and weak performance by some Hong Kong IPOs in the sector have made Grail reconsider its listing venue and delay the timing until at least next year, one of the people said.

In October, Innovent Biologics, a Chinese biotech firm, raised $420 million, following listings by Ascletis Pharma and BeiGene. Ascletis’ shares are down about 48 percent from their IPO price, BeiGene has lost 17 percent, and Innovent is up 70 percent.

U.S. biotech stocks have struggled as well. The Nasdaq Biotechnology Index of 190 stocks is up this year, but it lost as much as 17 percent in a steep drop between August and October.

Grail completed the largest biotech funding round ever last year, raising over $900 million. Grail’s main priority now is shaping its business strategy and boosting growth, one of the people said, and the size of a potential IPO is not final.

Formed by U.S.-listed genetic sequencing firm Illumina and the biotech venture capital firm Arch Venture Partners, Grail’s goal is to create a “pan-cancer” screening test that can diagnose people at a very early stage even when they have no symptoms, according to a 2016 interview with Jay Flatley, Illumina’s chief executive officer at the time.