Taking AIM: The keys to successful biotech IPOs

With the recent spate of biotech IPO’s in London, we wanted to find out about the pitfalls to floating on the stock market, the options available to biotechs considering a listing and what some of the keys to a successful float would be.

 To do so, who better to ask than the LSE itself? We caught up with Lucy Tarleton, a manager in the UK Equity Primary Markets team at the London Stock Exchange, who told us what she saw is the most common mistakes companies made and what initiatives the LSE is currently working on to support the equity funding chain.




B&M: Lucy, can you give our readers a brief overview of the primary markets role at the London Stock Exchange and specifically your role here?


LT: I’m a manager in primary markets working on IPO origination- working with and providing support and guidance to private companies who are looking at potentially going public one day and are looking at an IPO as part of their future strategy. I look after companies that are looking at coming to AIM and the main market and I have a regional responsibility for London and the South.

B&M: Can you summarise for me the USPs talking about AIM in particular? Why should companies consider listing?

 LT: One of the main reasons that companies come to AIM or the Main Market is to access capital to further their growth. Obviously it’s not just about access to capital. Companies list to raise their profile and increase their recruitability and visibility and we know a number of companies saying since they’ve been a quoted company that their credibility with customers and suppliers has increased significantly and they can enter into a contract or put in tenders for big pieces of work that they might not otherwise have been able to enter into. A lot of companies also use being quoted on a public market to expand into international markets as well.

B&M: What are they keys to a successful float?

 LT: The key to a successful float is probably all in the preparation. Really thinking about why you want to take your company public. Some slightly smaller businesses are perhaps not aware of all the IPO process entails and actually get very focused on the IPO process itself and not thinking about life as a public company afterwards, they’re not really thinking to the future or too long-term so if businesses management of companies are quite short-term in that vision then public markets are probably not going to be for them.

The IPO process itself does take time, it takes between 3 to 6 months typically for a company once it’s appointed its advisors to actually go through the whole process but when we’re talking to companies we would certainly advise them to start talking to their NOMADs, their accountants, lawyers, financial PR talking to them sooner rather than later to get an idea of how they are going to position themselves as a company, what the process entails and really getting familiar with themselves and also as a company, getting their house in order, getting policies and procedures all set up which they will need to do as a growing business in any case but that is required as part of the IPO process.

B&M: What are some of the most common challenges or problems that companies experience in listing?

For us, the main pitfall is where companies just haven’t been sufficiently prepared for adapting to life as a public company and wanting to be too hasty to get to the market. Also focusing too much on the valuation so thinking of that value that their company will be valued at on Day One and not thinking about what’s going to happen afterwards. An IPO is really a transformation of the business and it’s really the start of the next phase of the company’s development; yes it’s the end of one process but it’s actually the start of a new chapter in the company’s life and they need to be ready to focus on that.

B&M: Any other common mistakes companies make?

LT: Not appointing the right advisors to help them through the process, the companies themselves not actually doing their own due diligence on whether an IPO is right for them and that they haven’t got their story right but probably the biggest one is over promising and under-delivering.

B&M: Let’s return to your role in primary markets at the moment. What is your key focus?

LT: At the moment the IPO market is quite buoyant so we’re talking to directors of companies and their investors about IPO as a viable option for companies and particularly with the smaller end of the market with SMEs. We spend a lot of time with the SME community talking to them about what an IPO is, what does it entail, who are the key advisors, key people who work in that sphere, telling them what we’re seeing in the market, insights into recent deals.

For the LSE, it’s not just about IPOs - it’s about the supporting the whole funding ladder and how do we get companies to use equity funding to support their growth. So we are looking at working with angel investment, private equity and how that all ties in together.

As part of that we’ve launched this new programme called Elite in collaboration with Imperial College Business School. We launched with the first cohort of companies of which there are 19 and the idea is to provide them with a cohesive, constructive support network and programme to help them get their businesses ready to access external finance whether that is from the VC community, whether it’s from public markets, whatever the business is seeking to do to grow.

B&M: I want to talk now a little about the bioscience sector. How important is that sector for your role and for the London Stock Exchange in general?

ET: All sectors are important to the Stock Exchange but we are seeing an increased level of interest from companies in the Biotech and wider Life Sciences sector and certainly going back to the point around innovation there is a lot of good science here in the UK and actually commercialising some of that science and getting it to become a proper company and actually getting those companies to grow and also getting the companies to grow in their own right and not accept the first cheque that’s sent their way or potentially move overseas so we’re hearing and seeing a lot going on in the sector and there’s always a lot of discussion around the access to finance topic because these businesses are very R&D focused which requires quite a lot of money and obviously where we sit, certainly with AIM it can be an option for companies in that sector to potentially tap into.

B&M: What is your assessment in particular of the UK biotechs in the past year? What sort of impact has the recent successful listings of Circassia and Horizon had?

ET: I think it’s had quite a big impact. Precedents are great because it’s all very well for us here at the Stock Exchange to talk about why companies should float and the benefits of going public but when you’ve actually got CEOs of companies like Circassia and Horizon actually coming to the markets and then saying that it’s providing a platform to support their growth and the reasons why they came public, that is a far stronger message than what we can say. It’s good to see that the UK biotech sector is beginning to look to the public markets and the fact that the investor community is also looking at these businesses in the sector coming through and it’s not just UK investors, US investors can access companies coming here and certainly what we see is another one of the reasons companies come to London is actually the depth and the spread of the capital you can access is not just UK money it’s actually global capital that is available.

B&M: What do you think are the factors that contributed to the success of the biotechs in the past year and what’s underpinning it, what is driving that positive performance?

LT: There’s probably a couple of things. One is obviously where we are in the IPO cycle: the markets are buoyant, we are seeing an increased level of activity across sectors coming to the market and the majority of the those companies are UK businesses looking at the market so there is renewed optimism around.

I think also investors are looking at new opportunities coming through and when they see good businesses that have good management teams, people who can lead the business, have got that established track record, a proven business model and good science from the UK they are prepared to invest.

B&M: There’s a lot of talk about boom and bubble in the market: do you view the IPO market at the moment in those terms particularly as it relates to biotech?

LT: I wouldn’t say we’ve got a boom or a bubble with biotech. We are seeing a steady increase in the appetite from investors and companies looking at going public in the sector. Yes we’ve had 5 healthcare IPOs this year but certainly within the pipeline I know we have a number of others we’ve been talking to who are looking at hopefully coming in the second half of this year. There’s a lot of talk and sometimes the media can get carried away but certainly that’s not what we’re seeing. We’re seeing a healthy pipeline of quality businesses that are looking at going public.

B&M: Okay. Let’s talk about the industry a little bit. What do you see from your point of view are the issues within healthcare and biotech industry that concern you the most?

LT: For us, we’re coming at it from the funding side and here at the Exchange what we’re faced with a lot is the challenge of the US. It’s not necessarily at the IPO level, it’s about going back to the funding ladder in terms of what comes before going public and actually here in the UK there’s not a huge biotech VC community, there’s specialist investors and what we hear from companies is that they struggle because it is very capital intensive and they struggle to get that money to fund the R&D and keep getting that money.

Here in the UK there’s a lot of support for very early stage start-ups getting businesses growing and getting them off the ground, then there’s quite a lot of support at the last stages for more established. There is however a gap in between. AIM does seek to address that in some aspects but AIM is still a public market so businesses do have to be credible, they do have to be a company. What we hear a lot of is companies have got off the ground and they say we’ve tried talking to people to get money but no one is wanting to invest the amount of money that we need to get to where we want to be so they start talking to the US where there’s a much wider pool of investors.

B&M: That represents a huge challenge from where you’re sitting?

M2: One of the aims of the Elite programme is to address exactly that challenge – to make sure that these companies know all of their options and talk to the right people. At the moment, often they’d talk to two people and they’d think that was all the options.

B&M: What are the challenges that are keeping you awake? You mentioned a couple of the challenges you are facing such as education and creating awareness - are those the dominating factors or are you more concerned about the market itself and what direction it’s heading and what mood sentiment is out there?

LT: That does play into it, the state of the economy impacts all businesses. We do spend a lot of time talking to companies, educating businesses and if we here in the UK and this is working with universities, government, advisers, investor community, if we can’t find a solution to get the community all working together then there is a big risk that we do lose businesses, we do lose talent, jobs, the UK economy doesn’t grow, it does have a wider impact, it’s not just about IPOs.

B&M: What about conversely? What’s really exciting at the moment, where do you see cause for optimism and hope?

LT: We’re seeing some fantastic businesses here in the UK that want to grow and that are considering what their options would be. Just hearing how companies have been growing throughout the recession and the downturn and what they’ve done to keep their businesses going and now are looking to the future with brightness - that is quite exciting and with the biotech sector in particular we are seeing a lot more interest in the sector from the public markets.

B&M: One last thing to end the interview, what message would you give to UK biotechs at the moment looking to raise capital?

LT: They should talk to as many people as they can, whether that’s investors, advisers and other biotech networks, and they should make use of all the resources that are available to them. We are here at the Stock Exchange to help. With programs like Elite, we have initiatives and resources here to help companies to grow, to put them in touch with the right advisers and investors, so the message is use the resources available to you and make them count.

This article was featured in the June edition of Drugs & Dealers, Biotech and Money’s exclusive magazine.To get access to 10 other executive interviews like this one and feature articles, download for free the magazine.

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