CLEVELAND — Speaking from what he called a city increasingly known for healthcare commercialization, Baiju Shah, president of BioEnterprise , welcomed attendees to the inaugural Global Healthcare Investing Conference on the campus of the Cleveland Clinic here this week. BioEnterprise, which is charged with growing the bioscience industry in Cleveland, is a co-sponsor, with IBF Conferences, of this first-ever event.
Shah said that in addition to investing heavily in technology transfer and regional entrepreneurs, Cleveland-area firms must "go global" if they want to accelerate into healthcare leadership.
And while global investing in life sciences is relatively new compared to other high-tech sectors, according to the sponsors, there is large opportunity there. But capturing that opportunity is "difficult," Shah said.
Providing some perspective on global investing — both opportunities and risks — was keynote speaker Ray Minella, global head of healthcare investment banking at Jefferies & Co ., a firm that includes more than 450 investment bankers worldwide and has raised more than $75 billion in public and private offerings in the last 10 years.
One trend that is growing is to have non-native companies trading on foreign exchanges, namely, Minella said, because the U.S. regulatory environment is considered "less hospitable" compared to foreign exchanges. Meanwhile, exchanges such as the UK's AIM, are seen has having less stringent listing requirements.
"People talk about the AIM as being a great opportunity for companies," Minella said.
However, U.S. deals tend to be bigger, in many cases 50% larger. The mean deal size in Europe has been less than $200 million, whereas in the U.S. it has been about $300 million.
The AIM, "a little brother" to the London Stock Exchange, is "certainly flexible" and companies "don't have to have the operating history," Minella said, that they do in the U.S., and the costs of listing on the AIM are "a lot less than NASDAQ."
Private companies are looking for international private money. However, the challenges presented include the fact that venture capitalists (VC) seek to limit risk, and time and geography differences are a "significant barrier."
Also, foreign funds generally co-invest or follow the lead of known lead investors.
Minella's look at IPOs from a European and U.S. vantage point showed that European markets have raised 80% more capital since 2006.
While there have been 266 IPOs on all U.S. exchanges, there have been 788 IPOs on all European exchanges.
Still, the IPOs completed in the U.S. have larger valuations than those completed on the AIM, for example.
Compared to biotech IPOs, which have declined in recent years while those completed in the U.S. have remained stable, med-tech issuers have rarely accessed public capital via the AIM, Minella said.
Med-tech outpaces biotech in IPO aftermarket performance on the AIM at 38.2%, compared to biotech at 3.5%.
The upshot of these trends indicates that the U.S. continues to be the standard for emerging growth healthcare issuers due to its offering a more sophisticated investor base, the deepest capital pool and the greatest liquidity, according to Minella.
The med-tech market has made a strong recovery since 2004, and large-cap med-tech stocks and suffered less than the overall market in 2001-2002, he said, with established medical device franchises outperforming the S&P after 2004.
Furthermore, he suggested that 2007 is on track to rival 2004 IPO volumes in med-tech.
Med-tech, Minella said, "is a very interesting place for investors to be."
Some companies are using the IPO process as a way to sell the company, he said, noting that following the issuance of the prospectus, others may have an interest in that company, and the leadership is "willing to talk if somebody has a different idea" of what may be best for that entity.
The cardiology, orthopedics and aesthetic sectors are driving volumes as the demand in those areas increases to meet the healthcare needs of aging Baby Boomers.
In aesthetics, almost 70% of deals are priced at the low end or below the filing range, whereas in cardiology and orthopedics, about 45% priced in the midpoint of the filing range or better, according to Jefferies.
Also, the current backlog reflects the success of the diagnostic, imaging and monitoring sub-sector, with about 44% of deals on file falling within that area, according to the investment bank.