april 2009 an inside look at the public capital markets donald notman managing director equity...
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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)