How to have a successful biotech IPO: Lessons from Horizon
Removing the hype from IPO
Dr Darrin Disley is President and CEO of Horizon Discovery. A life scientist with a track record of raising c$190 million in business financing from grant, angel, corporate and venture capital sources as well as closing c $300 million in product, service, and licensing deals. In 2012, Darrin was named Business Leader of the Year at the European Life Science Awards.
Most recently, Darrin was the driving force behind the success of Horizon Discovery’s recent $113 million listing on the Alternative Investment Market of the London Stock Exchange, an all-time record for a Life Science company.
We spoke to him to find out more about his challenges in growing Horizon, his sense for the opportunities out there and his secrets to the success of the IPO. Below is an excerpt from the interview (the full article can be accessed in our free magazine Drugs&Dealers)
B&M: One of the things we were really keen to talk about was the IPO. So let’s start from the beginning here. Was IPO always the plan?
DD: No. Prior to our seed round in March 2008 we had £9000, that was it, a former toilet for an office in the Babraham Institute and one PhD student in a lab in Torino - that was the company!
The vision when we got £150,000 seed funding on 26 March 2008 was to build a business based on selling cell line products by 2013, that had a couple of million in revenue that we could sell for £14-16m and give the university and Jonathan Milner (our investors) 14 to 16 times their money back!
I’m pleased to say that we actually did deliver that kind of valuation up-lift within a couple of years and along the way returned >$8 million to founders and shareholders in pre-IPO place-outs. At the IPO >$45 million was returned at up to 32X multiple which seems staggering when you consider the limited vision we had for the company in 2008..
B&M: So when did you decide that IPO was the right…?
DD: We started talking about it in 2011-12. It wasn’t IPO per se that interested us, it was about building a business where we could retain control of the vision of where we wanted the business to go. Our key principles when we started were firstly to make a real difference to cancer patients and secondly to build a sustainable business that by delivery of scientific excellence and industry excellence would generate the cash and the space to deliver the other things that we wanted to deliver.
There was always the intention from 2010 that an IPO would probably be the best way of having the company achieve long-term sustainability.
B&M: To prepare the groundwork for the offering, what were the major steps that you took?
DD: I spent a lot of time ‘educating’ (or browbeating is another way of saying it!) the investors on the benefits, particularly the venture investors. They generally like IPOs when that’s the exit point so it can be challenging.
What we had to do was an extensive period of pre-marketing to convince them that we could get this complex story across to both specialists, but more particularly generalist investors. The rest was using a bit of fear to be honest. ‘This IPO window is not going to be open for very long, lets drive this through…’ and then it got momentum behind it and we had a very good pitch and were able to deliver it very well to people and everyone piled in.
B&M: What were the biggest challenges you faced when making a move to list on the market. Was it the convincing of the generalist investors?
DD: To be honest it was pretty easy with the generalist investors because we got the story right and we put it across in the way that they understood. That, and obviously we had a track record of revenue growth, with a rate of >125 per cent (CAGR) over the whole lifetime of the company.
B&M: If you had to distil the elements, what would you say are the things that made it so successful?
DD: We tried to pitch them our ambition, and that really resonated because they could see historically that we returned money to shareholders early and we were all people who had track records and thus were not doing this for money alone, so we clearly weren’t doing this for an exit point. The IPO is merely a first step in how we build something great and that really resonated. Then you obviously had to have a proposition that showed a genuine engine for growth moving forward; in our case capital growth for a couple of years and then moving into revenue generating type of growth in subsequent years.
You had to show you had a platform and business model that could scale, had flexibility, wasn’t a one trick pony etc. and had some upside potential. We also had a management team that had been there and done it before. We had a board that was outstanding.
We were much more open than most people. Financial PR people try and control what we say and we know what we shouldn’t say, but I believe investors deserve enough information to make their decisions.
‘Biotechs need to understand what resonates with investors. For an investor, this is a commercial enterprise, it’s not a science project, it’s not about you and your Nobel Prize winning technology, it’s a business and all businesses are about customers.’
B&M: There are definitely many lessons there for biotechs. If you had to give one piece of advice to any biotech that’s considering an IPO at the moment, what would it be?
DD: Biotechs need to understand what resonates with investors. For an investor, this is a commercial enterprise, it’s not a science project, it’s not about you and your Nobel Prize winning technology, it’s a business and all businesses are about customers. Who is the customer, where are they, why would they buy the product or service, how can we create a win-win deal? Every business should be about the commerce whether it’s really high-end molecular biology or it’s a low end consumable manufacturing. When you go into it, the way you humanise the story to generalist investors is for them to have a really strong sense that this is a group of people that understands that the business is about customers. They’ve gone out and got customer validation on this, they’ve evolved their business into a flexible, scalable model and they’ve provided a road map of how they’re going to get there and understood the risks of getting there.
B&M: So now that you’re a publicly listed company, what is the single biggest thing that keeps you awake at night?
DD: I think it’s how do we deploy the money – specifically, how do we deploy it in a way that doesn’t overcook the business. Deploying it sensibly is vital. We’re very frugal with every pound and the danger is now you’ve got a lot of cash that you put it to work in ways that are not as efficient as they should be.
Boom or Bubble?
B&M: What is your general view on the IPO markets, are we talking revival or are we talking bubble?
DD: That’s just a ridiculous way of looking at it. A great invention is a great invention and a great business is a great business whether it’s done in the so-called bubble or the pit of a recession. Investors should be getting the balance right of considering the macro-economic and the micro-economic factors influencing their investment decisions. The problem is they often don’t have the technical or market know-how to do the micro-economic, or they can’t look at a particular biotech as a stand-alone entity and say I want to invest in that solely on its merits.
Horizon is a great company so just because the sentiment for Biotech investment goes in the US, why should our share price drop 20 per cent? It doesn’t make any sense whatsoever. It should be here’s the company, here’s what its metrics are, here’s how we value it, here’s what it’s done versus its targets.
The challenge is inhow do you educate people so that they match the right funding to the right stage of development of the business, from seed through to the public market.
Darrin was talking to Terence O’Dwyer and Neil Darkes, co-founders of Biotech and Money
This article was featured in the June edition of Drugs&Dealers, Biotech and Money’s exclusive magazine. To read the full article, which includes Darrin’s story, how he is tackling the growth challenges and his advice to biotechs currently looking to raise capital, download for free the magazine. You’ll also get access to 10 other executive interviews and feature articles.
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