Three of the most major drugmakers with roots in China, Zai Lab Ltd (NASDAQ:ZLAB), BeiGene Ltd (NASDAQ:BGNE), and Hutchmed China Ltd (NASDAQ:HCM), have been flagged by the SEC for failing to comply with a law governing US-listed companies.
In statements responding to the SEC's provisional list, all three companies suggest they expect more companies to come under regulatory scrutiny as they file their annual reports.
The law causing panic is the Holding Foreign Companies Accountable Act (HFCAA). It requires the SEC to identify public companies whose auditing firms cannot be reviewed or inspected by the nonprofit Public Company Accounting Oversight Board (PCAOB) due to "a position taken by an authority in a foreign jurisdiction."
While LianBio (NASDAQ:LIAN) was not included on the SEC's provisional list, the company put out a preemptive statement saying it believes it does not fall under the HFCAA purview.
"Unlike the companies currently identified on the SEC's provision list, LianBio's retained principal auditor is a large independent public accounting firm located in New York and is now inspected by the PCAOB.
Zai Lab said, "we are evaluating, designing, and implementing additional business processes and control changes to meet the requirements of the HFCAA, which we believe will enable us to engage an independent public accounting firm that satisfies the PCAOB inspection requirements for the audit of our consolidated financial statements, subject to compliance with SEC and other requirements before the three-year (or two-year under the Accelerated HFCAA) deadline of the HFCAA."
In Hutchmed's statement, it acknowledged the possibility of a delisting "unless the Act is amended to exclude the company or the PCAOB can conduct a full inspection of the company's auditor during the required timeframe."
"The Company will continue to monitor market developments and evaluate all strategic options," the statement said
Price Action: ZLAB shares are down 15.40% at $30.40, HCM stock is down 7.68% at $17.06, BGNE stock is down 11.60% at $162.70, LIAN stock is down 6.18% at $3.49 during the market session on the last check Friday.
