Turning the tide: attracting transatlantic biotech issuers to AIM
London Stock Exchange is a diversified international exchange Group that sits at the heart of the world’s financial community. Through its markets, the Group offers international business, and investors, unrivalled access to Europe’s capital markets.
In May 2015 Verseon, a US-based drug discovery company successfully listed on LSE’s AIM, reversing a trend for UK issuers travelling overseas to secure capital. Here we talk to Chris Mayo, Consultant for Primary Markets at London Stock Exchange on the listing plus how he see’s AIM building on this trend.
B&M: If we focus in on the recent listing of Verseon the Californian company that recently listed on AIM. I understand it was roughly $100m is that correct? Obviously it’s quite a coup for LSE and AIM to have a US company come over the Atlantic and list on the London exchange. A good place to start is what do you think attractive Verseon to a London listing versus the US.
CM: From a life sciences perspective there’s increased risk appetite in the UK and also increased availability of capital here as we’ve seen over the last 18 months. 2014 was the best year we have had in a decade for life science capital raising, at over $2bn. To date this year, we are already more than half way to that number, and in fact if you include the recent Woodford Patient Capital Trust IPO, we are far in excess of $2bn. In addition, Circassia was the largest biotech IPO concluded globally last year by proceeds raised and 4D Pharma was the best performing London IPO last year. So if you add all those things together there is increased risk appetite amongst the UK investor base for this sector in particular. I’m sure that Verseon were looking for patient long-term holders of their stock at IPO and you would certainly get that in the UK. There is also a significant attraction with regards to the flexibility for these companies in terms of their ability to do corporate transactions on AIM. Some of the obligations in the US are significantly more onerous, especially with regards to cost, regulation and compliance so there is an attraction for foreign companies in accessing AIM to reduce their costs in raising capital and maintaining a listing.
B&M: You mentioned the risk appetite and what is now deemed a long-term view from investors here in the UK but what else is adding to the charm and the attraction of AIM as well?
CM: There is a strong small and mid-cap eco-system here in the UK which is extremely supportive of companies who are of relatively smaller size. I don’t think that really exists in the public markets in the US – smaller life sciences IPOs have generally underperformed their larger peers over there last year. I think that AIM’s regulatory framework has proved helpful and supportive to these companies, allowing them to raise capital to drive growth, and in turn allowing investors to benefit from access to innovative companies. Overall, it’s becoming an increasingly attractive platform for companies in this sector to access capital. We’ve seen a lot of businesses over the past 18 months either IPO or raise further capital. In 2015 we’ve already seen a lot of AIM listed companies being able to come back to the market and raise capital relatively easily. This ease of access to capital is really a strong argument for being a listed company and now a strong argument for being a quoted company on AIM.
B&M: Did the size of the raise surprise you in any way? It’s the highest this year and it would count as probably one of the highest last year if you were to exclude the likes of Horizon.
CM: For this sector in the UK yes, but I think there’s an increasing trend for larger raises on AIM. We’re getting companies who are more developed accessing AIM. A $100m raise as a benchmark against AIM IPOs as a whole last year was not unusual, measured against recent transaction sizes. We actually even had much larger raises than that last year. It’s certainly the size of raise you would expect for a company in this sector which has large capital requirements. Indeed, we saw larger raises in terms of Circassia on the Main Market last year but we also had a number of raises that weren’t far off $100m for other UK companies last year.
B&M: Looking at the $100m listing of Verseon, could this be the start of a reversal in the flow of drug developers crossing the Atlantic to raise money in the UK?
CM: It’s the second life sciences company from the US this year so it is significant. Especially for smaller growth companies, AIM offers a very attractive option and I don’t think the small cap eco-system is really there in the US, but it’s very established here so for a small cap life science company AIM can really offer you a very attractive option. I also think that in general we are seeing a lot of interest from the US across many sectors. I would say there are different types of companies that may appeal to different types of investors but it’s important to point out that you don’t need to be listed in the US to attract US investors. US investors represent a significant proportion of the investor base of UK-listed companies, especially in growth sectors like life sciences and that’s something that is often misunderstood. It’s not a question of listing in the UK and only attracting UK investors. London’s markets offer an attractive option for these companies to be able to access all types of international capital. We are seeing increasing interest and the Verseon deal will certainly help. We hope to see similar transactions in the future.
B&M: What else do you think you can do at LSE and AIM to increase that deal flow quicker?
CM: We are not just focused on US companies but on life science companies more broadly. Obviously we’ve done a lot in terms of speaking to those companies and their shareholders, educating them about benefits of the public markets and also the benefits of London Stock Exchange as a specific listing venue. There’s another side to the equation which is how to raise awareness amongst the UK generalist investor base, to make them more comfortable to accept risk and understand these kind of companies. In January of this year we held, ”The Future of Healthcare Investor Forum”, which was sponsored by the BIA, One Nucleus, MedCity, JP Morgan, Numis and Citigate, designed to get investors, private companies and public companies together and showcase the best the UK life science sector has to offer and raise awareness broadly amongst the UK investor base. We expect to make this an annual event.
B&M: So it’s removing market sentiment away from this and providing real educational pieces around success stories to help give the investors a more tangible hook?
CM: That’s right and this sector has outperformed markedly over the last couple of years. I think it’s important to point out that if you’ve not had interest or exposure to this sector then you may have underperformed. It’s important that as an investor you get a better understanding of the sector because there are lots of good opportunities to invest long-term in companies that have an ability to develop fantastic products or services and generate substantial future revenue. We’ve seen many examples of such success in the US and there are a number of UK companies who have that kind of potential as well.
B&M: Coming on to the differences between US companies listing on AIM and UK companies are there key differences in the approach or preparations that a US company would need to take to list on AIM as opposed to UK companies?
CM: There are some differences but a lot of the core diligence and preparation is similar. With regard to corporate law in the UK and the US, there are substantial differences where a company would have to consult with their advisers. One example is pre-emption rights which are not well understood in the US. It is possible for an US domiciled company to list on AIM (indeed Verseon is US incorporated) and I think it’s important for companies from foreign jurisdictions to articulate to UK investors how their corporate regimes or governance differ to the UK situation and understand if any adjustment is necessary to their governing documents to make the governance regime a little more familiar to UK investors. Obviously there are also some differences with the IPO process itself, for an AIM IPO there is no regulatory review of the document as there would be by the UKLA for a main market listing or by the SEC for a US IPO, so that is something which is different as well. There are things like early-look investor engagement meetings pre-IPO and deal research which are standard in the UK and either less common or prohibited in the US. There are also differences in terms of reporting, the most notable being the quarterly reporting requirement in the US which does not apply in the UK and also the varying demands of Sarbanes-Oxley compliance a US listed company faces based on its size and domicile. I think the common view is the UK process is more flexible and that the ongoing burden of being listed is considerably less in the UK versus the US.
B&M: Is there a common assumption that most of the US companies listing on London’s AIM see it as a bridge for a dual or primary listing on NASDAQ. Do you have any comments on that?
CM: First, there is no requirement to move to the Main Market if you reach a certain market cap when listed on AIM. AIM however is a market which is designed for growth companies and there does come a time in the company’s development where they may think it’s time to move to the main market and in doing so that opens them up to even greater investor access and also indexation benefits through passive investors. We don’t feel there’s any need for companies quoted on AIM to then list on NASDAQ as you have access to all the same investors through a London listing – it is more a case of there being an event where they can get access to stock (such as a follow-on offering) and then having a consistent, coherent engagement with these investors. We think they can achieve their objectives through a main market listing and in some cases even by staying on AIM. There are a few examples of companies who have moved to the US with mixed results but there are actually lots more examples of companies that have stayed and prospered. The latter just don’t tend to be mentioned in the media.
B&M: Where do you see emerging opportunities for the AIM markets with regard to life sciences and healthcare?
CM: This is a sector that is very important to us because when you look at the science base in this country there is a lot of excellent research leading to the creation of companies and we see that those businesses have enormous potential. In the past, exciting research in this country has been commercialised by foreign companies and that’s a shame but I think you’ll see an eco-system being built in the UK, with the help of tech transfer / IP commercialisation companies. I think we have the opportunity now for a lot of those companies to remain here and access primary capital in the UK. If you look at Circassia last week, it raised £275m to fund 2 acquisitions. That’s exactly the way public markets should be used, to take advantage of strategic opportunities.
If we’d have been sat here 18 months ago and you said a UK biotech company would have completed a £211m IPO and a year later would come back and do a £275m follow on, which I think is the largest biotech deal in the UK and maybe Europe, and the largest AIM IPO so far in 2015 would be a US life science company, people wouldn’t have believed it - this highlights that we’ve come a very long way.
You can read this and 10 other exclusive executives interviews in May’s Drugs & Dealers Magazine.