April 2009 An Inside Look at the Public Capital Markets Donald Notman Managing Director Equity Capital Markets
Dec 19, 2015
April 2009
An Inside Look at the Public Capital Markets
Donald Notman
Managing Director
Equity Capital Markets
2
Overview of Healthcare Financings
Examples of Successful Transactions
3
U.S. Equity Mutual Fund Flows (US$ in billions)
Market Performance (1/1/08 – Present)
DJIAS&P 500
NASDAQ CompositeRussell 2000
2008
(33.8%)(38.5%)(40.5%)(34.8%)
2009
(4.1%)7.4%
(4.2%)
(9.3%)
Market Performance (4/17/09 Close – Present))
2007
6.4%3.5%9.8%
(2.8%)
NBI (12.6%) (10.5%)4.6%
2008 20092007
7.7%(1.4%)
(2.0%)
(14.5%)(19.4%)(32.1%)(37.0%)(54.8%)
(1.9%)(6.8%)
10.2%16.2%
DJ/W Medical Equip.MS HC Providers
AMEX Pharma.
MS HC Payors
DJIAS&P 500
NASDAQ CompositeRussell 2000
% Change(2.1%)(0.4%)1.3%
(0.1%)
NBI (2.6%)
DJ/W Medical Equip.MS HC Providers
AMEX Pharma.
MS HC Payors
% Change
(3.3%) 3.6% (4.5%) (5.5%)
Source: FactSet, Placement Tracker, ici.org, sec.gov, company press releases
$(75.0)
$(65.0)
$(55.0)
$(45.0)
$(35.0)
$(25.0)
$(15.0)
$(5.0)
$5.0
$15.0
$25.0
$35.0
Public Market Performance
U.S. Equity Mutual Fund Flows
4
Healthcare IPOs – Pricing Relative to Range
Note: Numbers below “Healthcare IPOs – Pricing Relative to Range” graph represent total number of IPOs per quarterSource: FactSet, Placement Tracker, ici.org, sec.gov, company press releases
IPO Pricing and Performance Since 1/1/2008
Healthcare IPOs Since 1/1/2008US$ in millions, except per share Midpoint IPO Valuation Current Performance
Offer Shares of Filing Pre- Post- Market Midpoint / Offer / vs. Russ.
Company Date Filed Offer Range Price Amount Money Money Price Cap. Pricing Current 2000
CardioNet 3/18/08 6.6 4.5 $23.00 $18.00 $81.0 $333.8 $387.8 $19.79 $469.6 (21.7%) 9.9% 41.5%MAKO Surgical 2/14/08 5.1 5.1 15.00 10.00 51.0 133.4 184.4 6.90 172.4 (33.3%) (31.0%) 2.9%
Mean 5.9 4.8 19.00 14.00 66.0 233.6 286.1 13.35 321.0 (27.5%) (10.5%) 22.2%
Note: Grey shading denotes Leerink Swann deal.
57%
90%
73%
56%45%
33%
78%
100%
43%
50%
18%
22% 45%
33%
11%
10% 9%
22%
9% 11%
0%0%0%0%
0%
33%
50%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09
7 10 2 11 9 11 3 9 2 0 0 0 0
Priced Below Priced Within Priced Above
# IPOS
5Source: FactSet, Placement Tracker - Includes transactions >$5MM in size
Historical PIPE and RDO Volume
Annual Healthcare RD & PIPE VolumeTotal Raised ($ in millions)
$0
$900
$1,800
$2,700
$3,600
$4,500
2005 2006 2007 2008 2009 YTD
Biotech Spec. Pharma Medtech
2005 2009 YTD
$ Raised $ Raised % Change $ Raised % Change $ Raised % Change $ Raised
Sector
Biotech $2,014.7 $2,961.0 47.0% $3,173.3 7.2% $1,141.8 (64.0%) $351.7
Spec. Pharma $432.4 $595.2 37.6% $208.7 (64.9%) $95.3 (54.3%) $20.0
Medtech $426.2 $827.9 94.3% $244.2 (70.5%) $226.5 (7.2%) $98.1
Total $2,873.4 $4,384.1 52.6% $3,626.2 (17.3%) $1,463.6 (59.6%) $469.8
2006 2007 2008
Number of DealsSector 2005 2006 2007 2008 2009 YTD
Biotech 72 104 112 53 15
Spec. Pharma 19 26 10 4 1
Medtech 26 22 16 12 5
Total 117 152 138 69 21
6Source: FactSet, Placement Tracker
Healthcare PIPEs and RDOs Completed Since 1/1/08
Total Raised ($ in millions) # of Transactions Completed
Pre-Offer Market Cap Ranges
4
12
9
11
3
10
17
8
8
11
5
1
$0
$100
$200
$300
$400
$500
$600
<$25 $25-$50 $50-$75 $75-$100 $100-$125 $125-$150 $150-$175 $175-$200 $200-$225 $225-$250 $250-$275 $275-$300 >$300
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Gross Proceeds Raised
7Source: FactSet, Placement Tracker
Healthcare PIPEs and RDOs Completed Since 1/1/09
Prices as of 4/28/2009(1) Includes transactions >$5MM in size(2) Amount of warrants as a percent of shares in the transaction.(3) Exercise price of warrants as a percent premium to the transaction price.
US$ in millions, except per share Offer as Offer / Offer Price Price PerformancePre-Offer a % of Avg. Daily Discount to Post Offering
Units Offer Offer Market Pre-Offer Trading Warrants 10 Days Prior Next 10 DaysDate Company Industry Ticker Offered Amount Price Cap Mkt. Cap. Value Amt Prem Prior Close Close Post Today
PIPEs4/13/09 Rosetta Genomics Biotech ROSG 2.000 $8.0 $4.00 $38.3 20.9% 113.9x 0% NA 38.8% 43.9% (12.5%) (18.8%) (23.0%)4/9/09 Chemgenex Biotech CXSP 1.550 7.1 4.58 183.4 3.9% 34926.9x 0% NA (58.0%) (60.6%) 150.7% 149.4% 150.7%4/6/09 BioMimetic Therapeutics Medtech BMTI 0.941 8.0 8.50 151.0 5.3% 16.1x 0% NA 9.7% 14.1% (10.1%) 6.4% (8.8%)3/2/09 Cardima Medtech CADM 18.519 20.0 1.08 158.1 12.6% 3465.9x 22% 16% (1.8%) (6.1%) 15.7% 4.6% 1.9%2/23/09 Opko Health Spec. Pharma OPK 20.000 20.0 1.00 235.6 8.5% 381.6x 0% NA (20.0%) (9.1%) 10.0% (9.0%) 16.0%2/19/09 EnteroMedics Medtech ETRM 13.110 15.1 1.15 54.6 27.6% 1312.7x 50% 20% (10.9%) (0.9%) (0.9%) 47.8% 95.7%2/13/09 Cadence Pharmaceuticals Biotech CADX 12.040 87.3 7.26 478.8 18.2% 158.8x 50% 8% (2.6%) (3.1%) (1.4%) (3.2%) 36.3%2/13/09 Affymax Biotech AFFY 0.652 10.0 15.33 317.6 3.1% 33.8x 65% 9% (5.5%) 0.5% 1.8% (21.7%) 11.8%2/13/09 Affymax Biotech AFFY 2.845 32.0 11.25 317.6 10.1% 147.6x 0% NA (30.7%) (26.2%) 38.7% 6.7% 52.4%1/27/09 EXACT Sciences Biotech EXAS 3.000 6.0 2.00 44.0 13.6% 39.9x 0% NA 26.6% 38.9% (18.5%) (27.5%) (24.5%)1/15/09 ReGen Biologics Medtech RGBO 2.015 7.1 3.50 28.8 24.5% 104.9x 15% (66%) (18.6%) (7.9%) 0.0% 17.1% (15.7%)1/7/09 Infinity Pharmaceuticals Biotech INFI 2.000 30.0 15.00 155.2 19.3% 105.9x 150% 61% 90.1% 106.3% (51.4%) (51.0%) (59.8%)
Total $250.6
Mean $20.9 $6.2 $180.3 14% $3,400.7 29% 8% (11%) (6%) 10% 8% 19%Median 12.5 4.3 156.7 13% 130.7 8% 12% (8%) (5%) (0%) 1% 7%
RDOs4/2/09 Savient Pharmaceuticals Biotech SVNT 5.927 $31.0 $5.23 $270.4 11.5% 8x 85.0% 100% (9%) 5.9% (4.4%) (7.8%) (4.7%)3/30/09 Novavax Biotech NVAX 12.500 11.0 0.88 $64.7 17.0% 109x 0.0% NA 26% (6.4%) 15.9% (8.0%) 221.6%3/10/09 Cytori Therapeutics Biotech CYTX 4.771 10.0 2.10 $75.9 13.2% 22x 140.0% 23% (24%) (18.9%) (10.0%) (18.1%) (15.2%)3/5/09 Optimer Pharmaceuticals Biotech OPTR 0.458 5.0 10.93 325.0 1.5% 3x 20.0% 0% 3% (0.0%) (0.8%) 0.3% 27.5%3/5/09 Optimer Pharmaceuticals Biotech OPTR 2.795 27.9 10.00 325.0 8.6% 18x 0.0% NA (6%) (8.5%) 8.4% 9.6% 39.3%2/20/09 Ariad Pharmaceuticals Biotech ARIA 14.379 24.3 1.69 117.6 20.7% 44x 75.0% 27% (25%) 0.0% (12.4%) (41.7%) (14.8%)1/30/09 Dexcom Medtech DXCM 15.994 48.0 3.00 92.9 51.6% 137x 0.0% NA (1%) (3.8%) 7.7% 22.7% 37.0%1/30/09 Pharmasset Biotech VRUS 4.678 45.5 9.73 244.7 18.6% 52x 0.0% NA (9%) (7.0%) 17.2% 30.3% (6.8%)1/29/09 Avi BioPharma Biotech AVII 14.224 16.5 1.16 89.0 18.5% 89x 100.0% 0% 4% (7.2%) (25.0%) (23.3%) (19.8%)
Total $219.3
Mean $24.4 $5.0 $178.3 18% $53.7 47% 30% (5%) (5%) (0%) (4%) 29%Median 24.3 3.0 117.6 17% 44.4 20% 23% (6%) (6%) (1%) (8%) (5%)
Note: Grey denotes Leerink transactions - Rosetta Genomics and Infinity Pharmaceuticals not included in Offer Price Discount to 10 Days Prior or Prior Close (Mean and Median)
8
Current Trends
• Separation of the “haves” and “have-nots”
• Public investors remain risk adverse and are moving upstream in market cap size
• Venture investors filling some but by no means all of the void
– Mostly, if not exclusively, participating in financings for portfolio companies that are already public
• Must fund through important milestones
• Issuers looking more closely at “bought deals” and ATM offerings
• Critical deal considerations:
– Market capitalizations less than $100 million are difficult
– Later-stage programs and depth of pipeline important
– Less than 12 months of cash takes away all leverage
9
Overview of Healthcare Financings
Examples of Successful Transactions
10
• Leerink Swann acted as sole placement agent for Momenta Pharmaceuticals in the Company’s $25.2 million registered direct offering announced on 12/12/08
• Transaction highlights:
– Superior execution in a challenging market
– Accomplished critical financing goal of Company to extend cash runway to two years
– Launched and priced transaction with only four days of marketing
– Momenta stock price traded up 30% during the intra-week marketing period; the NASDAQ Biotechnology index was flat over the period
– Transaction priced at a 3% premium to the closing price prior to launch and required no warrants
– Book consisted of significant, high-quality new investors as well as participation by selected existing investors
• Momenta is a leader in developing bio-generics with compelling value proposition in current environment
– Near-term value catalyst in potential approval of M-Enoxaparin, generic of Sanofi’s Lovenox with $3.6 billion of global sales in 2007
– Significant technical hurdles for competitors Amphastar, Hospira, and Teva
– Momenta technology and scientists helped resolve global heparin contamination crisis
– ANDA filed for M356, generic version of Teva’s Copaxone, with $1.4 billion of global sales in 2007
– Major collaboration with industry leader Novartis / Sandoz
– Proprietary follow-on biologics capabilities and pipeline
$25.2 million
Registered Direct Offering
Sole Placement Agent
December 2008
Case Example: Momenta Registered Direct Offering
11
• Leerink Swann LLC acted as sole placement agent in the 1/30/09 announced Pharmasset (Nasdaq: VRUS) $45.5 million registered direct offering
• Superior execution
– Accomplished critical financing goal of Company, removing financing overhang
– Achieved maximum deal size with oversubscribed book and stock trading up on announcement
– Tight, intra-week marketing with minimal share price impact
– Priced at a 7% discount to the prior day’s closing price and required no warrants
– World-class book with significant participation from both new and existing blue chip healthcare investors
– Sales and trading coordinated with research to organize several high quality non-deal marketing events
– MEDACorp resources were used to craft selling and positioning points to investors
• Pharmasset is a world-class company developing blockbuster potential anti-viral drugs
– R7128 represents a multi-billion dollar blockbuster drug candidate for the treatment of HCV
– Clevudine represents a late-stage potential paradigm-shifting therapy for HBV
– Pharmasset has the leading nucleoside analogue development platform, a key strategic asset
– Management has consistently delivered on data and timelines attracting a leading healthcare institutional investor base
Case Example: Pharmasset Registered Direct
$45.5 million
Registered Direct Offering
Sole Placement Agent
January 2009
11
12
• Background:
– Market Cap: $286.7 mm
– Market Price: $5.24 (H - $28.42 ; L - $2.80)
– PDUFA on July 30, 2009 for lead product
• Transaction:
– $31 million
– Unit Offering:
• 1 share of common
• 1 warrant to buy 0.85 common share
– Price - $5.23 per unit
– Warrant Pricing: Initial strike at $10.46 with adjustable pricing and expiration based on FDA outcome (PDUFA – 7/30/09)
• Pricing:
– Approval, strike of $10.46
– If Complete Response Letter (CRL):
• Repriced based on 5-day VWAP at T + 11-15 days
• Floor of $1.56
• Expiration:
– Approval or rejection – 9 months post CRL
– If neither approval nor rejection, earlier of:
• 15 months after CRL
• 9 months post Company Response
– If no CRL, 7 years
Case Example: Savient Pharmaceuticals (SVNT)
$31 million
Registered Direct Offering
April 2009
12
13
Factors For a Successful PIPE / RDO
• Non-Deal Roadshows are important in this environment
– Identification of anchor order is critical
– Anchor is 10% - 20% of deal
• Prior validation of strategic support or interest
• Existing base of solid institutions attracts more and creates good support
• Creative deal structures may be more frequent (Savient)