Low-r
risk growth stories
Redpath says that as far as finnCap is concerned, the size of the client doesn’t really matter, and the company is attracted by ‘disruptive’ technologies that are approved and early in their commercialisation cycle: “This presents investors with growth stories at relatively low risk,” he says. “Products that have a ‘razor/razor-blade’ model – that is selling high margin consumables into an installed base of hardware, are particularly attractive to investors at the moment.” “Notwithstanding austerity measures in most large economies, the life sciences industry is still able to command healthy margins. It is true that the risk profile of a ‘binary biotech’ is unpalatable to many mainstream investors at the moment,” he adds. “It has to be said that several high- profile failures left investors nursing huge losses and sceptical that they could make money in this sector. It is often misunderstood, but there is no sector allocation in small cap fund management, so the profitable sale of ClearStream does not automatically mean more cash is released to invest in life sciences. Over the past few years, with the soaring price of metals, small cap fund managers have been interested in the resources sector and money has piled into these companies: our research shows that in the year to December 2010, £1.7 billion was raised for mining companies on AIM, while only £170 million was raised for life sciences companies. We are in direct competiton for funds.” Redpath’s message is clear: in M&A, don’t overpay. “Today’s assets are very cheap and deferring a significant proportion of the consideration, and linking it to pre-agreed
performance, might cause some interesting balance sheet issues under IFRS, but is more palatable to investors as it hedges some of the risk associated with the acquisition. Under these circumstances, it is possible to pay the majority of the acquisition cost out of the cash flows it generates,” he says. “We see our relationship with companies as long-term, and indeed we have several pre-IPO candiates with whom we have been working for more than a year, refining the business plan, identifying non-executive board members, and assisting with any re- structuring of the company that will make it an investable proposition. This is free advice that would otherwise be an expensive consultancy project. If only more companies were aware of this and availed themselves of the opportunity.” Redpath emphasises that it’s important to disregard the doom and gloom of the equities markets: “We all know it will blow over, although we don’t know when. Life sciences can make a huge difference to human wellbeing, far more than a new mobile phone or a flat- screen television. We are all getting older and the population continues to expand. Consequently, there will always be a demand for good products which is not consumer-driven.
“Make sure you have a good product, a robust business model, a route to market and, if the public markets are your goal, develop an early relationship with a broker that will help you to refine the investment proposition. “There is money out there:
you just need help to find it,” he concludes.
Investment & Finance Meet Keith Redpath of finnCap
Keith Redpath has been in the life sciences industry for more than 20 years, having graduated from Heriot Watt University in Marine Biology, then gaining a PhD from the University College of North Wales. Since then, he has worked in pharmaceutical development at Covance; been Global Head of Life Sciences at PA Consulting Group; and Head of Life Sciences Equity Research at Lazard & Co, where he ranked as No. 2 biotechnology analyst in the 2004 Starmine Survey. After this, he returned to his native Scotland and was Head of Life Sciences Research at Wood Mackenzie for two years before establishing his own consultancy
Further information Keith Redpath Research Director finnCap
60 New Broad Street London EC2M 1JJ United Kingdom Tel: +44 20 7220 0500 Fax: +44 20 7600 1659 Email:
kredpath@finncap.com
Web:
www.finncap.com Dynamic Outsourcing for Life Sciences 2012
Attendee registration is now open for the Dynamic Outsourcing for Life Sciences event organised by avakado media and being held at Chilford Hall, Cambridge, UK from April 17-18, 2012. DOLS 2012 will feature keynote addresses on the state of the industry; parallel discussion sessions on a wide range of topics in outsourcing; presentation sessions from CROs and CMOs on business and operational practices; attendee interaction sessions; and a tabletop exhibition of companies offering R&D and manufacturing technologies and services.
To register and benefit from the top-quality presentations at this excellent venue visit the website
www.avakado.eu and click on the ‘Our Events’ and ‘Dynamic Outsourcing for Life Sciences 2012’ links.
For further information on the presentations contact Tom Mulligan: Email:
tom@avakado.eu Tel: +44 (0)1403 220755
To book your low-cost tabletop exhibition stand contact Mark Harrington: Email:
mark@avakado.eu Tel: +44 (0)1403 220753
Life Science CLUSTERS Supplement 7
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