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European financial biotechmarkets are opening up, allowing first movers to strengthen their cash positions

20/04/2012

"The ease at which Thrombogenics recently raised € 78m has put Belgian biotech at the European top at the start of 2012", Jan De Kerpel, KBC Securities

During our last newsletter (early March), we wondered if the European/Belgian capital markets would open up as they have done in the US. Well, only a few weeks later we received the proof the markets at this side of the Atlantic indeed opened up, as Thrombogenics raised close to € 80m via a so-called ‘accelerated bookbuilt offering’ (ABO). The ABO was performed in only a few hours time such that stock trading was restricted to a minimum. Moreover, acting under the ABO scenario kept the administrative burden of the capital increase to a bear minimum (no lengthy legal documents or prospectus needed) thanks to a special clause in the Belgian law allowing companies to issue up to 10% of new shares in a 12 month timeframe. Interestingly, while discounts of 5-10% in biotech ABO’s are not uncommon, Thrombogenics could raise the funds with a discount of only 3.5%.

Case study: Thrombogencs’ capital increase analyzed

So why was this possible? We believe several elements played a role and the transaction can be seen as a case study. First, Thrombogenics’ piggy-backed on a lucrative deal that was closed 2 weeks before. The company licensed the ex-US rights of lead product Ocriplasmin to ophthalmology market leader Alcon (subsidiary of Novartis) in a deal worth € 375m, of which € 75m upfront, € 90m within the coming 12 months and the remainder in sales milestones, on top of industry standard sales royalties. The deal announcement came only a few days after management had publicly revealed to be in negotiation with ‘big boys’ in the field. The ‘pre-announcement’ of the deal, and the lucrative deal terms put Thrombogenics on the radar screen of the global investment community. Secondly, the late stage character of the ocriplasmin program and the recent positive regulatory news from the US FDA further derisked the investment profile of the company. Thirdly, the use of proceeds (investing in the US launch and label extension studies of ocriplasmin and strengthening the ophthalmology franchise) made sense from a business perspective. If all of that wasn’t enough, investors received on top the promise of potential short-time upside if the phase IIb results of anticoagulant TB-402 (to be published in this quarter) show to be positive. Finally, as a fifth argument, the company, just like many other development stage biotech companies, is frequently participating in investment conferences and is in close contact with the investment community throughout the year. We believe that the combination of all these items resulted in the successful and fast bookbuilt. Moreover, the high demand, especially -and for the first time- from US investors, and the fact that the company hasn’t disappointed investors in the past, resulted in a substantial oversubscription which in its turn explains the low discount of only 3.5%.

Is the window also open for other biotech companies?

The question is now if the international market is ready to also fund earlier stage development companies. At least one other Belgian company proved it is possible. Promethera Biosciences, the closely-held cell therapy company operating in the field of liver disease, completed end March a € 24m fundraising, of which € 17m in capital from international investors and pharmaceutical venture arms and € 7m from a loan from the regional government.

Partnership income remains an important source of funding

Next to Thrombogenics with its Alcon deal, several other companies strengthened their cash positions in recent weeks via revenue flows from partners. Galapagos inked in total € 11m in milestone payments from partners Janssen Pharmceutica and Servier. Ablynx extended its strategic collaboration with Boehringer Ingelheim resulting in an additional € 7m in research funding. Most recently, Tigenix’ share price increased by 7% intraday after the announcement that it had entered the last step of its phase II study in rheumatoid arthritis, as investors anticipate that positive results will result in a lucrative partnering deal.

Belgium biotech in pole position at the start of 2012

Thanks to the lucrative licensing deals closed by Galapagos and Thrombogenics on their most advanced products, and the ease at which Thrombogenics raised € 78m of new capital have put Belgian biotech at the European top in 2012. It will now depend on the market dynamics and the individual company-specific corporate developments to sustain this leadership position.

At the publication of this article, end April 2012, we can conclude that US biotech indices continue their rally (nasdaq biotech: +16% year-to-date), but so did the European biotechnology indices (+11%). The aggregated Belgian biotech (+4%) experienced the same market pressure since the beginning of April as seen for small-cap indices (EU SMALL +4%). General European indices stand since the beginning of the year at -5% (EU STOXX50) to +6% (Bel20).