Investment & Finance How to get the best financial deals in life sciences
finnCap is a leading financial adviser to the life sciences sector on the Alternative Investment Market (AIM) in London, UK and has worked on a number of successful fundraisings and transactions. Keith Redpath, life sciences expert at finnCap, describes the best approaches for life science companies to adopt in obtaining finance and completing M&A deals.
finnCap is an independent broker focused on growing companies, and has developed a strong track record in advising and raising capital, providing research and after-market care for such companies. The company’s strategy is to develop long-term relationships with clients and to add value by providing information, execution skills and advice in relevant markets with ‘made-to-measure’ solutions to meet the individual needs of each client.
finnCap’s experts are specialists in the small cap sector, where the company has established a strong reputation, but it also covers a number of much larger stocks, up to around £1 billion in market value. Irrespective of size, finnCap ideally looks for growth stocks in interesting or misunderstood market niches. Particular areas of expertise include: technology and telecommunications; mining; oil and gas; industrials; consumer goods; financials; support services; and, of course, life sciences.
Doing small cap well “finnCap was founded on a very simple premise: to do small cap well,” says the company’s life sciences analyst Keith Redpath. “At the time of the company’s MBO from stockbrokers JM Finn in August 2007, we believed, rightly as it transpired, that other brokers would raise money for companies of less than £150 million market cap, but then leave them to flounder with no after-market support. This is referred to in the City as ‘pump & dump’. Without continued shareholder dialogue, regular roadshows and relevant research, share prices of smaller companies inevitably drifted down. From the outset therefore, finnCap was very focused on a comprehensive after- sales service, and now has the largest small cap broking team in the City, where the company is top-ten Extel ranked both for sales trading and broking.” When Redpath joined finnCap in October 2007, the company had already identified life sciences as an important sector but from his experience and guidance, it decided to focus on medical technology as the lower risk, and therefore on a more investor- friendly sub-sector of the market. He says the proof of whether the company was right, on both counts, is that finnCap is now the
6 Life Science CLUSTERS Supplement
largest broker by number of retained corporate clients on the AIM market, and the largest in life sciences:
“Companies like our offering and have seen us succeed in enhancing share prices and executing valuable exits. Life sciences is a key sector for finnCap and we plan to continue to invest,” he says. “In our last financial year the sector represented about 15 per cent of our income; we were responsible for 20 per cent of the money raised for the sector on AIM in the year ending 31 December 2010. Investors have made money on every one of our M&A deals, and that gives you credibility when you introduce a new company. It is therefore one of the four focus sectors for finnCap, the other three being natural resources, technology and industrials. One common feature of all four is that they are cash- intensive businesses; they are risky, but the rewards for success are very high.” In the past 18 months, finnCap has raised money for LiDCO, 3D Diagnostic Imaging, Tristel, IS Pharma, ClearStream, Byotrol and Toumaz. The company has also advised on the acqusitions of The Medical House by Consort Medical, ClearStream by CR Bard and IS Pharma by Sinclair Pharma. “In this environment, investable companies are those with revenues,” says Redpath. “Profits should be within sight. It helps if they qualify for tax-efficient investment status, for example, VCT, EIS or IHT, as these are pools of money that have a limited choice of investment opportunities. A business that has an element of recurring revenue, for example consumable sales into an installed base of hardware or an in-a- class-of-one drug, provides investors with comfort that the business is not entirely speculative. A blue-chip distributor adds to the reduction in risk as the City takes this as an endorsement of the product.”
IS Pharma merger with Sinclair Pharma In April of this year, finnCap acted as financial adviser and broker to IS Pharma during the company’s merger with Sinclair Pharma. The merger has created a pan- European speciality pharmaceutical company headquartered in the UK with direct distribution operations in the UK, France, Germany, Italy, Spain and Ireland,
as well as its own manufacturing and product development capability. The company is focused on dermatology and specialist hospital therapies, including supportive oncology, critical care and wound care. Following completion of the merger, shares in Sinclair Pharma moved to trade on AIM and the company changed its name to Sinclair IS Pharma plc. “We first began to work with IS Pharma in 2009, when we secured the role of joint broker,” says Redpath. “Through the summer of 2010 we took the company on an extensive roadshow and facilitated more than 40 institutional investor meetings. In October 2010, Abingworth invested £3.6 million, following a direct approach to IS Pharma, at a premium to the market price. Shortly thereafter we were approached by several of the investors to whom we had introduced the company and asked if they could invest on the same terms. Following a rapid book-build we announced a fund raise of £12.5 million in early November 2010. “In January 2011, we published a research note on four UK Small Cap speciality pharmaceutical companies, which included both IS Pharma and Sinclair, and we took all four companies on an extensive roadshow to more than 20 investors – shortly therafter Sinclair and IS Pharma announced their intention to merge. “ClearStream was a similar story. We took the company on in November 2009 when the shares stood at 23.5p. Through 2010 we again organised several roadshows, and secured investment from two blue-chip institutions. In April 2011, in response to demand from the investors we had introduced, we raised £1.9 million – cash that allowed the company to accelerate the build-out of new manufacturing facilities. By now the share price was 31p. “Through late summer we placed more than 5 per cent of the company which was being sold by backers of the MBO some 10 years previously. These shares were placed at around the 40p level. In September 2011, following negotiations through which ClearStream was advised by finnCap, an offer for the company of 85p/share from CR Bard was accepted. This was an 84 per cent premium to the prior night’s closing price. Regardless of when you bought shares in ClearStream, you made money on the deal.”
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