The Wall Street Perspective

by Hakan Gadler

In this issue we'll take a look at recent public offer­ings made in the U.S. and on markets overseas. Because the U.S. financial markets have the greatest breadth and depth, larger companies headquar­tered overseas often decide to pursue a listing here. For many smaller, early-stage companies however, that is not an option due to the expense and listing requirements. The Sarbanes-Oxley Act of 2002 is also likely to discourage potential market entrants. In Europe, the AIM of the London Stock Exchange, with its lesser requirements, typically attracts the most attention, with Deutsche Börse Frankfurt a close second following the demise of EASDAQ. In this article, however, we'll find that there are alternatives.

Overseas Markets Have Outperformed The U.S. Markets

Despite the NASDAQ and S&P500 equity indices trading at, or near, four-year highs, the Dow Jones Index and the NASDAQ Biotechnology Index have performed poorly in 2005 (Chart 1.) Surprisingly, several overseas markets have outperformed the U.S. markets as measured through the dominant equity index in each country. Of the seven equity indices in Chart 2, the Austrian ATX index is up over 30% this year, with the AEX General (the Netherlands), ATX (Austria), BEL-20 (Belgium), DAX (Germany), FTSE-100 (United Kingdom), and SSMI (Switzerland) indices up between 10% and 16%. The Nikkei-225 (Japan) index is lagging the others as it has gained less than 10% since January 1.

Chart 1. Stock market index performance through August 12, 2005

Equity Indices

Copyright 2005 Meddata, Inc. www.meddatainc.com

Note: Indices were normalized to 100 at the close of trading December 31, 2004

Chart 2. Stock market index performance through August 12, 2005

Equity Indices

Copyright 2005 Meddata, Inc. www.meddatainc.com 2005-8-15

Notes: Indices were normalized to 100 at the close of trading December 31, 2004. AEX: AEX General, the Netherlands; ATX: ATX, Austria; BFX: BEL-20, Belgium; FTSE: FTSE-100, United Kingdom; GDAXI: DAX, Germany; N225: Nikkei-225, Japan; and SSMI: Swiss Market Index.

Seventeen IPOs Effected on the U.S. Markets

Seventeen companies have effected an IPO on one of the U.S. markets since the beginning of the year, all but two on the NASDAQ. The six companies which listed through the beginning of May can be found in a table in this column in the previous issue of LabToWallStreet. Since then, the market for life-science IPOs has heated up as the NASDAQ Biotechnology Index began pulling up from its bottom in April-May. Interestingly we find two non-U.S. companies among the eleven market entrants: Gentium SpA, an Italian drug develop­ment company, and China Medical Technologies, Inc., a medical device manufacturer based in mainland China (Chart 3.)

The span of gross proceeds has increased since earlier this year. Adams Respiratory Therapeutics, Inc. and the cardiovascular company ev3, Inc. both raised well over $100M, with Gentium and Hemosense raising around $20M each. Further, the offering by Adams Respiratory Therapeutics was underpriced as the shares closed at $25.75 on the first day of trading, up more than 50% from the $17 offering price.

Among the winners for first-day investors are ev3, up over 30% from its debut, and China Medical Technologies which has been rising steadily since its debut early August. The interest in the latter may be due to the generally increasing interest in Chinese companies following the recent IPO of Baidu and Yahoo's investment in Alibaba.

European IPOs Smaller and Earlier Stage Than U.S. IPOs

The stellar performance of various European stock markets have also enticed non-U.S. life-science companies, and their institutional investors, to test the waters. Chart 4 lists eight companies which went public on a variety of non-U.S. exchanges during 2005, two on the London Stock Exchange and one each on Euronext Amsterdam, Euronext Brussels, the Swiss Market, the Osaka Securities Exchange, Deutsche Börse Frankfurt, and the Vienna Stock Exchange (Wiener Börse.)

Gross proceeds are smaller, reflecting both the ear­lier development stage of the companies and, likely, the lower valuations commonly seen outside the U.S. The amounts raised varied between approximately $25M raised by Galapagos NV and $113M raised by MediciNova on the Osaka Securi­ties Exchange.

Performance-wise we see a lot of variation with MediciNova disappointing investors since the share price is down more than 50% since the introduction in February. Vaccine developer InterCell AG, introduced on the Wiener Börse, also in February, is up 33%. At least part of the reason why MediciNova has performed so poorly to-date, is undoubtedly the paucity of information about the company and its unorthodox choice of venue for its market introduction. The company is based in San Diego but is a spin-out from Japanese pharmaceutical company Tanabe Seiyaku which explains the choice to list in Japan. I question the decision as I believe that long-term the company is likely to suffer from lack of interest from analysts and from U.S. investors.

Chart 3: Life-science IPOs between May 6, 2005  and August 12, 2005, listed by first trading day.

First TradingDay	Company Name	Symbol	Gross Proceeds	Closing Price First Trading Day	Closing Price 8/12/2005	Per Cent Price Change
6/2/05	XenoPort, Inc.	XNPT	$53M	$10.39	$11.65	+12%
6/16/05	ev3, Inc.	EVVV	$165M	$14.06	$18.48	+31%
6/16/05	Micrus Endovascular Corporation	MEND	$36M	$11.01	$12.08	+10%
6/16/05	Gentium SpA	AMEX: GNT	$22M	$8.90	$8.28	-7%
6/28/05	Hemosense, Inc.	AMEX: HEM	$19M	$5.55	$6.50	+17%
7/14/05	CryoCor, Inc.	CRYO	$41M	$10.87	$7.86	-28%
7/21/05	Adams Respiratory Therapeutics, Inc.	ARXT	$135M	$25.75	$28.55	11%
8/5/05	Advanced Life Sciences Holdings, Inc.	ADLS	$32M	$5.10	$5.04	-1%
8/5/05	AtriCure, Inc.	ATRC	$48M	$14.08	$14.07	unch
8/10/05	Coley Pharmaceutical Group, Inc.	COLY	$96M	$18.88	$18.40	-3%
8/10/05	China Medical Technologies, Inc.	CMED	$96M	$16.20	$20.80	+28%

Note: All companies were introduced on NASDAQ, except as noted. N/A not applicable, unch unchanged.

Final Thoughts

We have seen an increase in both the number of listings and in the ability to raise money since the NASDAQ bottomed out in April-May. Later-stage companies with revenues are still better received by the U.S. markets and investors in early-stage companies need to develop strategies to bring the companies forward without needing to raise money from the public markets early in the development of the company.

Interestingly, the European markets seem to have a greater acceptance of earlier-stage companies, at least as evidenced by the market introductions to-date in 2005. The better performance of the European markets, at least as measured through the various market indices, may also have made the markets more receptive to earlier-stage offerings.

The choice of exchange is likely to have some see how the companies which have chosen another importance as the London Stock Exchange and exchange will perform going forward -- manage­Deutsche Börse Frankfurt are viewed more highly ment and development program are likely to carry than the other exchanges. It will be interesting to see how the companies which have choosen another exchange will perform going forward - management and development programs are likey to carry more weight than the choice of venue, however.

Chart 4: Life-science IPOs in Europe and Japan between January 1, 2005  and August 12, 2005, listed by first trading day.

Notes: The following exchange abbreviations are used: AEX Euronext Amsterdam, BXS Euronext Brussels, FRA Deutsche Börse Frankfurt, LSE London Stock Exchange, OSE Osaka Securities Exchange, SWX Swiss Exchange, and VIE Vienna Stock Exchange (Wiener Börse.) Stocks listed on AEX, BXS, FRA, and VIE are quoted in euros; stocks listed on LSE in pence; stocks listed on OSE in yen; and stocks listed on SWX in Swiss franc.

Hakan Gadler, M.D., Ph.D., MBA, is the founder and president of Meddata, Inc., a consulting firm advising primarily senior management of life-science companies on strategy, cor­porate development, and business development opportunities. He particularly enjoys being able to bring a medical/clinical, a research, and a business/marketing/investor perspective to the positioning and development of promising life-science compa­nies. Hakan can be contacted at hgadler@meddatainc.com or visit our website www.meddatainc.com.