Banking on biotech with RBC Capital Markets
RBC’s Corporate Banking Group provides leading financial services capabilities for global corporate and institutional clients. Alongside our Global Investment Banking colleagues, we leverage the global capabilities of RBC’s platform and work closely with each client to provide lending and financing strategies that achieve their objectives and facilitate seamless execution.
Here we talk to Paul Tomasic, MD, EU Head, Healthcare, RBC Capital Markets and hear his views on UK capital markets in relation to life science and healthcare.
B&M: Perhaps we could get a brief overview of RBC Capital Market’s core range of products and services in relation to the health care and life sciences sector.
PT: We aim to bring the full suite of investment banking products to our European healthcare clients ranging from IPOs to follow-on offerings, convertible bonds, M&A and licensing advisory and corporate debt. Importantly, we aim to do all of these on a global scale with an ability to execute transactions across any European market or in the US. On the US market, to complement our on-the-ground European healthcare team (based in London), we have about 40 healthcare bankers in the US as well. As such, to the extent any of our European clients ultimately decide to do a deal in any European market or in the US we have the full suite to serve them in a jurisdiction agnostic manner.
B&M: The investment bank landscape is crowded. What do you think makes RBC stand out, what are some of your key differentiators?
PT: Prior to joining RBC late last year, I was a member of 2 large healthcare investment banking teams, Citi and UBS, for many years. When I looked at the European investment banking landscape for healthcare companies, one of the trends that I was noticing is that over the last several years the large banks were increasingly focused on mega cap pharma given the recent activity in that space. As a consequence, emerging small and mid-cap European healthcare companies were increasingly underserved by the large banks. On the other end of the spectrum, I saw “boutiques” that generally fell into two camps, neither of which were an ideal partner for our rapidly growing European healthcare companies. First, there were “regional boutiques” which focused on a particular geographic market, either a UK bank doing a UK deal, a Nordic bank doing a Nordic deal or a French bank doing a French deal.
Alternatively, the boutiques were product focused, ie, very limited in their product offering by either doing just M&A or just equity. Where differentiates RBC from both of these types of boutiques (and from the large banks) is having a core focus on emerging small and mid-cap healthcare companies (not mega cap) but serving these customers with a a complete suite of investment banking products across any number of geographies in Europe or the US. So we are agnostic as to whether a deal needs to be done in the UK, Germany, France, the US or the Nordics and we are agnostic as to whether the ultimate value-generating event for our client is an equity deal or an M&A deal or a licensing deal. We are best defined as a global bulge bracket bank in terms of capabilities but with a boutique mind set in terms of a core focus on emerging small and mid-cap healthcare companies.
B&M: You’ve been at RBC now for 6 months. In your current role as MD of Healthcare, where do you add the greatest value.
PT: We’re structured at all levels of our organisation to be relationship driven so I see my primary role as dealing with senior management and board of directors of our clients. When the time comes for a transaction (and that may be many years into our relationship), my job is to get into the weeds of a deal to ensure that it is successfully executed. Ultimately, I aim to deliver an end-to-end solution to our customers that is built on trust established through a long-term relationship. I’ve been in Europe for about 20 years now in the business so would also aim to utilise my network, as well as the experience and expertise, I have built in those years to provide my honest advice. In many respects being head of the group doesn’t change what I had been doing before I assumed the role / title. In our London healthcare team, we now have several calling officers for our clients and, while we work very closely together a team, each one of us takes our individual relationships with clients personally.
B&M: You mentioned earlier about RBC offering a full suite of services but are any of those areas where you are seeing the greatest demand for clients?
PT: Certainly in this market, in the first half of the year, we are seeing equity activity, more particularly IPOs, as a dominant feature. There are many nuances to this discussion with serious consideration being given to listing dynamics ie, size, valuation, location etc. The location debate has been the most pertinent with European markets challenging the US ones as viable listing venues for a European healthcare company in ways we have not seen in many years. I would also say that inter-mixed with financing / equity discussions we are also seeing connected dialogue around M&A and licencing deals which we advise on as well. While a dominant feature in today’s market, the IPO route is never a singular, straight journey.
B&M: Would you see those areas as your immediate goals in terms of growth or do you have a broader scoping of where you want to grow your services?
PT: We’re keen on not just doing transactional deals with companies but actually to foster trust-based relationships over time to serve our clients with our full product suite as they themselves develop. As such, executing an IPO is really only the first step in the evolution of a company. After an IPO, we would like to grow with our clients to to advise them on licencing, M&A, geographic expansion, and capital structure considerations (including, in due course, debt and corporate lending). Our work on the equity side with companies also does not stop after a public listing. For example, to further liquidity – an important value driver — we know that expanding a company’s investor base after an IPO is a critical exercise to undertake. We think our business model of having a global franchise combined with strong and diverse product capabilities makes us exceptionally well place to serve our client over the longer term.
B&M: Am I right in thinking that RBC, as an institution is relatively new to the European space in terms of your offerings?
PT: As an institution we certainly are new to the European healthcare investment banking landscape. RBC was not active in Europe in healthcare until I joined last November. However, we did have several of the most important building blocks in place before I joined. First, we’ve had an exceptional US healthcare team in place for some time that’s been building up, particularly on the life sciences side. That global connectivity with the US is very important to the success of our European healthcare franchise. Second, we had what I would call the plumbing in place here in Europe to allow us to ramp up our healthcare efforts quickly. As an institution, we have roughly 200 investment banking professionals in Europe, an outstanding equity capital markets franchise and a very focused small and mid-cap sales force. These are all critical elements that have been in place but just haven’t been applied to healthcare until my team arrived. Third, as this is a relationship driven ‘peoples’ business, we put in place European healthcare team comprised of individuals who have fostered personal relationships with healthcare clients for many years. Inaddition to myself, the European healthcare team consists of hand-picked individuals I brought on-board from Citi, Lazard and Jefferies. Thus, all in all, while we are in many ways new to the European healthcare investment banking landscape it cannot really be termed a business starting from scratch.
B&M: What do you see as your major challenge as you grow your footprint?
PT: I think the major challenge is continuing to build brand awareness. Over time, I want our clients to value our personal relationships but to also understand that our relationship is supported by the power of extremely strong and supportive institution. I have often remarked that we, as an institution, are even better than clients realise in terms of our capabilities. I have to say that in my first 6 months, I have been very impressed by the RBC engine room in terms of knowing how to get deals done and working with our clients in a productive, efficient, solution-driven manner. This is an organisation firing on all cylinders and we just need to continue to get the message out that this is directly applicable to our clients in the European healthcare space.
B&M: How are you going about achieving that at the moment?
PT: We very much see the community of healthcare and more particularly biotech in Europe as a network and tapping into that network – in all its forms — is important. That means not only tapping into companies and their specific venture capital owners but also leveraging and building relationships with law firms, investor relations teams, scientific bodies (not-for-profit), and academia.
Extending that network model, we also look to build partnerships with other investment banks, particularly some of the boutiques that I mentioned earlier who are extremely capable in what they do but could benefit from a partnership with a global firm or a firm with a more diverse product offering. We do not look to take away business from those banks but to augment their customer service. In a sense, we are very much looking to apply certain networking concepts that we have seen works a lot better for a number of years in the world of silicon valley technology in the US and trying to apply that in Europe which is to start to see relationships as a confluence of networks as opposed to just one on one dialogues. Really trying to get out in the space as an institution to do that.
B&M: Do you see a lot of similarities between the US markets and the UK and Europe in that sense?
PT: Yes and there’s a lot to learn still in Europe from some of the developments in the US markets. If I think about the banking landscape in terms of finding niche, you look at the successes of the likes of Leerink and Stifel in the US which have really carved out spaces in the banking world and life sciences in a very real way in the US market. While the model I am looking to employ in Europe is different from those institutions in substance, the similarity is that there are still niches that can be carved out in what is generally regarded as a crowded investment banking landscape. Put another way, if you have a differentiated offering and can provide underserved clients with a high quality service then I think it is very possible to carve-out a niche. The US market has shows us that is possible and, to date, the receptively I have gotten from emerging European healthcare companies has certainly supported that notion.
B&M: If we look at capital markets in the UK, where are you seeing up and coming trends that maybe weren’t there 6 or 12 months ago?
PT: I think there are several notable trends that we are seeing today in the UK market that we were not seeing 6 or 12 months ago. First, we continue to see emergence of a greater number of more sizable emerging UK Pharma companies. Today, we have companies likes Circassia, Clinigen and GW Pharmaceuticals which are active from a business development perspective and sizable listed UK companies (£500m+ market caps). The continued success of these companies breeds further success and bodes well for the attractiveness of the London exchange as a listing venue. Second, we are seeing the ability of some large UK funds to raise capital that will be deployed globally but also in the UK market to fuel scientific growth. The likes of Neil Woodford’s fund and the Malin Group are significant positive for the market dynamics in the UK. Finally, while only a small trend, it is interesting to actually see some US companies seeking to list in the UK markets (namely, PureTech) Over time, it will be interesting to see how this trend plays out and whether it becomes more substantial. Overall, I think the dynamics in the UK market over the last 12 months has been very positive indeed.
B&M: Do you think the UK needs to see more of those types of investments for domestic funds or should the emphasis always be on quality?
PT: I would say rather than more what we need to see is continuing successes so we need to see more Circassia and Clinigen type stories, stories that actually show that companies have gone from smaller levels of market capitalisations to larger levels on the back of M&A or product news or clinical development. I think that success will breed success. One of the key drivers of the US IPO market has been the overall out-performance of the class of 2013, 2014 and 2015 IPOs. Those returns have exceeded anything that a generalist investor would have realised in the broader markets. The reason the US IPO engine continues is the success of that market has spurred the generalist investor. My hope hope is that the success of the likes of specialists such Neil Woodford and Malin will provide a spark for the UK market and, over time, bring back generalist investor into the UK healthcare market.
B&M: It’s bringing a tangible notion that the UK is a great market to be investing in as opposed to a sentiment that changes from time to time.
PT: One of the headwinds that the UK healthcare market continues to battle against is the memories that some investors hold onto of the very high profile failures from the 1990s and early 2000s. I still hear stories today of British Biotech in the late 90s which was a billion dollar company at one point before it dropped significantly. One could argue that this is a distant memory and that we are in a different environment for a whole host of reasons but the truth is that for the generalist investor you still need to prove that the sector has truly and fundamentally emerged from that period. The other challenge in the UK investment market is getting UK investors to see the life sciences sector as fundamentally different from its other investment profiles. That is, success in the biotech sector will not be measured by dividend returns and a steady profit profile. Instead, unlike most other UK sectors, our healthcare sector is about re-investing capital into businesses to produce, significant long-term upside returns. The model is simply different and I think that is the hurdle that we need to get the generalist over.
B&M: Are you generally optimistic about the way that the markets are heading in the UK and Europe?
PT: I am optimistic about the way that the markets are heading in the UK and Europe. I think we are seeing a wave of clinical successes across Europe and I define success not only by successfully executing IPOs or follow-ons but clinical and development success as well. We are seeing European science validated in many ways including the ability for European companies to strike large licencing deals with established mega cap Pharma. To give you a continental example, something like Innate Pharma’s deal was fantastic for our sector and shows that it doesn’t matter whether you’re a US or European company. What matters is your science and the type of deal that will raise eyebrows on European science being successful. I’ve also been very encouraged by not only the funds that have been raised in Europe but the increasing interest from the US investors willing to participate in European stories and listings regardless of whether the ultimate listing is a European listing or a US listing. It’s no longer becoming essential for attracting US investors that their investments are listed in the US.
B&M: What can we look forward to seeing from RBC Capital Markets over the next year or so?
PT: You will see us a lot more active in executing transactions. This will include advisory as well equity. IPOs and follow-ons are going to be a core part of our business. We will do that across geographies in Europe so you can expect to see that activity being in the UK, France and in the Nordics. You will equally be able to see us being agnostic to taking European companies to the capital markets in the US or in Europe. Our core team based in London will run those transactions and work closely with our European clients but it’s a global business and our clients will see active involvement from our US colleagues. As the year progresses you’ll see more and more of the full breadth of RBC’s capabilities in terms of our work with companies as thought leaders on licensing and M&A deals.
You can read this and 10 other exclusive executives interviews in May’s Drugs & Dealers Magazine.