The reasons why companies want to access the US market is because they can raise more cash, establish a premium valuation and get better partnership deals, said David Schechner, head of biotechnology investment banking at Needham and Company. "By reaching US investors, who are more accessible, biotech companies can increase their visibility, get a greater liquidity and increase their profile within the US medical community," said Schechner. "The Nasdaq (a stock price index for high-tech firms and the second largest equity market in the US), for example is a home to the biotech industry and 392 biotech companies are currently listed." In comparison, he said, other exchanges, including European ones, have less than 100 biotech firms listed. However, being listed on a US stock exchange has its hurdles, said Schechner. "The reporting regime, with quarterly results, the loss of confidentiality and the constraints of the recently implemented Sarbanes-Oxley Act are all factors to take into consideration when deciding to conquer the US equity market," he said. But the rewards can be substantial. According to Schechner, the average deal size of an initial public offering (IPO) in the US in the last three years was $53.3m (€40m) compared to $39.5m in Europe. To have the opportunity to achieve this, Schechner explained, the ideal candidate must in return have a proven technology platform, preferably with late-stage products, large market opportunities and the potential to commercialise these products within four years. "It is tougher for companies with early stage products in development - ideally they should be at least in late Phase I and not licensed from another firm," he said. In addition, an experienced management team, a seasoned board of directors as well as near-term milestones are also desirable to attract a US investor ready to place his chips. Biotech companies don't need partnerships anymore like they used to three years ago, said Schechner. He added that despite the events of 27 February this year, when US stocks slumped sending the Dow to its biggest point drop since the 9/11 attacks, and resulted in fear returning to investors' psyches, there is no sign of "a danger zone". "2007 is a typical year for IPOs and there is a reasonable balance of supply and demand," said Schechner. "Small cap stocks are currently outperforming the market." Now, the challenges for small biotech companies are to build the right investor base, to have some liquidity in the stock (at least $35m of US float) and 80 per cent of institutional investors, concluded Schechner.
