Over the last decade there has been a fundamental shift in the funding environment for UK life sciences businesses.
New technologies and therapies, many fuelled by recent advances in genetics and cancer are attracting greater amounts of capital than ever before.
Gone are the days when biotech for the most part looked like a poor relation to mainstream tech and even good biotech’s struggled to get funding. Much of the new capital is flowing from the US and for many aspiring life sciences businesses a US IPO is now seen as key milestone and preferred route for a large capital raise and to provide a value realisation opportunity for early investors.
While there were UK-based US listed life sciences companies in the noughties, arguably the listing of Cambridge based GW Pharmaceuticals in 2013 on NASDAQ, marked the beginning of a new era for UK life science businesses.
AIM and the Main Market are still an attractive option for the right type of business at the appropriate stage. For others, the depth of capital and investment appetite of US investors, offers a great opportunity.
Our experience in the UK is that demand for US IPO’s remains high despite the impact of COVID-19 which hit in early March. While UK markets largely shut down in the period to end of June, the US experienced more of a pause for breath with lower levels of activity to Q2-2020.
However, there were still 24 US IPOs in the healthcare sector in that period raising $6.7 billion (EY Q2-Global IPO Trends Report). While activity slowed in the period to Q2, the reality is that IPOs were put on ice for the market to settle rather than being abandoned and there has been a very strong rebound in global IPO activity in Q3 2020.
Moreover, our observation is that while some individual companies in the sector have been negatively impacted, there are more winners than losers and on balance the current near-term outlook for the sector is buoyant.
Hammersmith-based Silence Therapeutics’ US listing went live in September 2020. In July, Cambridge-based Horizon Discovery announced its intention to pursue a US listing and in October Abcam filed a registration statement with the SEC for its proposed US IPO.
While these three companies had listed previously on AIM, private companies are also listing their securities in the US without a prior UK listing, ignoring the UK markets in favour of the US.
Another Cambridge-based company previously unlisted. F-Star effected its US IPO via a reverse merger into what was essentially a listed cash shell company.
At EY, our recent experience and discussions with companies is that the appetite of UK life sciences boards to plan for and execute a US IPO remains unchanged; indeed it is more surprising if it is not on the agenda.
In addition, on both the West and East coast of the US, there are many companies preparing for an IPO and suitably experienced CFO’s and other C-suite executives are in short supply.
In our latest Global IPO Trends report (Q3-2020) we reported a number of key points. Q3 2020 was the most active third quarter in last 20 years by proceeds and the second highest third quarter by deal numbers.
Exchanges around the world posted 445 IPOs with proceeds totalling $95bn, which were 77 per cent and 138 per cent higher than Q3 2019, respectively. The stellar record by proceeds can be attributed to the most active August and September for IPOs in the last 20 years.
While IPO activity in EMEIA was sharply down year on year in the nine months to September 2020 with a 27 per cent fall in deal volume and a 24 per cent in proceeds, the Americas (dominated by the US) has had a very strong nine months with an 18 per cent increase in volume and 33 per cent hike in proceeds. Asia-pacific markets also performed strongly.
US IPO activity has been rapidly rising since June. Q3 2020 has significantly topped Q3 2019 by 124 per cent in number of IPOs and by 182 per cent in proceeds.
In the Americas, healthcare companies continued to dominate in Q3 2020, accounting for 41 per cent of the IPOs, or 35 IPOs. However, technology companies still represented the most in proceeds, raising $16.4bn, which accounted for 50 per cent of total proceeds in Q3 2020.
The largest single life sciences/healthcare IPO was Royalty Pharma which raised $2.6 bn on NASDAQ in June.
We expect markets to remain buoyant in Q4 but are advising companies to expect the unexpected, with ongoing uncertainties from the pandemic, China-US tensions, Brexit and the upcoming US presidential election expected to bring more volatility.
That said we are expecting high levels of US IPO activity during US presidential election time due to a strong IPO pipeline built up during lockdown.
In Europe, the Middle East and Africa likewise there is a strong pipeline of companies looking to take advantage of a transaction window later in the year.
Executing an IPO and the volume of different workstreams required is a significant undertaking for any businesses and careful planning is key.
While listing in the US requires fewer accounting workstreams than in the UK, the scrutiny and challenge of reporting under US regulations, dealing with the SEC and the US litigation environment, means that for many UK life sciences business a US IPO will be a far more challenging project than listing in the UK.
If you are thinking about whether to undertake an IPO or wondering what it might involve that we can help you better understand what you need to do to get ready in an IPO Readiness workshop.
Given market volatility usually the best plan of attack is to have everything ready to take advantage of the window of opportunity and raise capital at short notice and at a better price.