A controversial situation has emerged around TRANSTHERA-B that warrants close examination of its capital market dynamics.

TRANSTHERA-B, a company that investors should carefully monitor, represents a complex case study in modern financial markets. Founded in 2014, the company reported a total loss of 275 million RMB in 2024, with R&D expenses of 244 million RMB. Notably, the company's 2025 interim report shows zero operating revenue.

TRANSTHERA-B made four attempts to list on the Hong Kong Stock Exchange. The first three attempts in August 2021, June 2022, and June 2024 all lapsed. The company finally succeeded on its fourth attempt in January 2025 and was listed on June 23, 2025, under stock code 2617.HK. Prior to its IPO, the company completed nine funding rounds, raising a cumulative 1.723 billion RMB from over twenty institutional investors including Advanced Manufacturing Fund, China Investment GBA Fund, GP Health Fund, and CPE.

The global offering consisted of 15.281 million H shares, representing 3.85% of the total share capital post-issuance, priced at HK$13.15 per share, raising approximately HK$200 million (net proceeds of HK$161 million).

Two significant issues emerge from this structure. First, the net proceeds of HK$161 million appear insufficient given the company's 2024 loss of 244 million RMB. Second, the extremely low float creates liquidity concerns. Cornerstone investors including Jiangbei Pharmaceutical, Akeso, and Washington Capital collectively subscribed to HK$130 million worth of shares, representing 63.96% of the global offering, leaving minimal shares for retail trading.

This structure raises questions about whether the primary purpose of the listing was to obtain tradeable securities rather than raise capital for operations.

The public offering was 3,419 times oversubscribed. On its first trading day, the stock opened 59% higher and closed up 78.7%, reaching a market capitalization of HK$9.3 billion. The rally continued, and on September 8, when TRANSTHERA-B was included in Stock Connect, the stock surged 20% to close at HK$75.8.

Inclusion in Stock Connect triggered significant passive buying from index funds, but given the extremely low float, this forced buying drove dramatic price increases. On September 12, the stock rose 77.09%, followed by a 115.58% gain on September 15. On September 16, TRANSTHERA-B briefly surged 63% during trading, reaching a high of HK$679.5 per share with a market cap approaching HK$270 billion. However, the stock experienced a dramatic reversal that afternoon, closing down 53.73% with market cap shrinking to HK$76.2 billion.

The volatility appears linked to forced selling after driving a zero-revenue company to a HK$270 billion valuation, followed by passive index fund buying.

The 987018.CNI index, which uses total market cap weighting and prioritizes liquidity and market size, included TRANSTHERA-B on September 15. Since this index only excludes low-liquidity stocks, TRANSTHERA-B met inclusion criteria, forcing passive funds (such as ETFs) to allocate according to weight, rapidly increasing its weighting to approximately 2.62%.

According to Wind data, products tracking this index have a combined scale of 35.963 billion RMB, requiring approximately 940 million RMB investment in TRANSTHERA-B.

Questions arise about the index methodology, particularly regarding how a newly listed stock with such poor liquidity received such high weighting after only three months of trading.

This situation underscores the importance of understanding index construction when investing in index funds.

In contrast, the Hong Kong Stock Connect Innovation Drug ETF (520880) avoided this situation by initially assigning only 0.08% weight to TRANSTHERA-B. This ETF tracks the Hang Seng Stock Connect Innovation Drug Select Index, which uses free-float market cap weighting combined with liquidity screening and R&D investment growth requirements. TRANSTHERA-B's minimal float (IPO issued 15.281 million shares, with only about 5.49 million actually circulating) and the index's strict screening for R&D investment growth resulted in the minimal 0.08% weighting.

The Hang Seng Stock Connect Innovation Drug Select Index recently implemented three major changes on September 8:

1) Explicitly excluding CXO companies to focus purely on innovation drugs 2) Expanding sample scope beyond Hang Seng Composite Index constituents to include all Stock Connect eligible stocks, enabling earlier inclusion of smaller cap innovation drug companies through quarterly adjustments 3) Implementing liquidity discount coefficients for weighting, using liquidity as an effective quality screening indicator and compressing weights for low-liquidity stocks to manage tail risks

Individual stock weight limits were also reduced from 15% to 10%, helping balance representation across large, medium, and small innovation drug companies while enhancing index flexibility.

The Hang Seng Stock Connect Innovation Drug Select Index appears to offer superior rules compared to the 987018.CNI index, being more focused, reasonable, and balanced. The Hong Kong Stock Connect Innovation Drug ETF (520880) is the first ETF tracking this index and currently has the largest scale and best liquidity, supporting intraday T+0 trading. The connected fund code is 025221.

Recent developments in innovation drugs include three significant updates:

1) Mabwell announced signing exclusive licensing and preferred equity purchase agreements with Kalexo, granting Kalexo global exclusive rights to develop, manufacture, and commercialize the 2MW7141 project. Mabwell will receive up to $1 billion in upfront and milestone payments plus low single-digit royalties.

2) Chief Executive John Lee stated the government will attract more pharmaceutical companies to establish operations in Hong Kong for clinical trials and treatments of rare diseases, advanced cancer drugs, and advanced therapy products, while improving patient recruitment and trial initiation efficiency through the "Greater Bay Area Clinical Trial Collaboration Platform."

3) From January to July this year, China's National Medical Products Administration approved 50 innovative drugs for market, exceeding last year's total of 48, demonstrating strong policy support. Current trade negotiations may also create significant strategic space for Chinese innovation drugs.

The era of Chinese innovation drugs is just beginning, requiring decisions on what to buy, how much to invest, and investment duration.

MACD golden cross signals have formed, indicating positive momentum for certain stocks.