A report in The Australian Financial Review suggests biotechnology company Mesoblast (MSB.AX), which specialises in stem cell regenerative medicine, is looking to set up a dual-listed structure with a secondary listing on the NASDAQ Stock Exchange.In what may be turning into a trend, this report comes hot on the heels of influenza anti-viral developer Biota’s (BOTA) recent delisting from the ASX and subsequent merger with NASDAQ-listed Nabi Biopharmaceuticals.
Managers at numerous biotech and software companies have long bemoaned the valuation of their companies and the difficulty they have in attracting equity funding in Australia. At the time of Biota’s off-shore move in November 2012, management expressed concern that the inherent value in Biota was not being recognised by the domestic investment community and that shareholder value would be better served with a USA listing.
With long product development lead times, biotech firms burn through large amounts of cash, at a rapid pace, as they race to bring their products to market. This requires a constant need to return to the markets and raise new funds. Mesoblast doesn’t appear to have had any trouble with raising funds under its current domestic listing. In March it completed a $170 million private placement and now has around $330 million in cash reserves. This recent placement included new USA and global institutional funds that purchased ASX-listed stock. Mesoblast has an exciting pipeline of products in development and while the cash reserves seem large, the cash burn is currently over $30 million every six months.
Funding requirements, valuations and listing structures will no doubt continue to plague companies in the development stage of their business. Should this lead to a noticeable increase in off-shore listings then there are two blue chips that will be affected. The ASX Ltd (ASX.AX) is disadvantaged by takeovers and dual listings as a takeover reduces listing fees, while dual listings mean competition from overseas exchanges for trading fees. On the flip side, a dual listing creates an extra layer of complexity and process which is great for registry firms such as Computershare (CPU.AX), which can charge for a higher volume of more complicated work.
It is a long, hard road taking a product from development through to commercial success. The profits that flow to successful biotech companies can be truly outstanding and for this reason the sector can provide some amazing investment opportunities. The catch is, during the development stage, many biotech firms have exciting stories but the investor needs to determine which could ultimately be commercially viable.
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