BioWorld International Correspondent

LONDON - Vectura Group plc and Norwood Immunology Ltd. both floated on London's Alternative Investment Market, but not before they slashed their proposed valuations, and, in the case of Norwood, cut back the amount raised almost by two-thirds.

Chippenham-based Vectura achieved its ambition of raising £20 million (US$36.6 million), but reduced its valuation from a target of £85 million to £60 million, selling 35.9 million shares at 56 pence per share. Meanwhile, London-based Norwood set out to raise up to £14 million, giving it a market capitalization of £115 million, but came away with £5 million and a market capitalization of £46 million, selling 15.4 million shares at 38 pence per share.

It's hard to be sure if the precedent was good or bad for those still looking to go public, including Microscience Ltd. and Evolutec Ltd., which are both in the midst of the flotation process.

The CEOs of Vectura and Norwood told BioWorld International the market is extremely difficult.

"It is a pretty tough environment at the moment," Chris Blackwell, CEO of Vectura, said. "The fact we got away is a phenomenal achievement." That's despite the reduction in the valuation. "It was priced at a level that we still think is good value," Blackwell said.

Vectura announced in May that it had reached proof of principle for its two lead products. It is preparing for Phase IIb studies of AD 237 for the treatment of chronic obstructive pulmonary disease and VR004, an inhaled treatment for erectile dysfunction. AD 237 is 50 percent owned by the UK biotechnology company Arakis plc.

Richard Williams, CEO of Norwood, said fund managers have "AIM indigestion" - an average of eight companies per month have floated on AIM so far this year, raising more than £500 million. "The problem is the sheer number of companies looking for money," Williams said.

One fund manager told Williams he had met with 21 people trying to raise money the previous week, and another said, "It does not matter who you are, we are not doing any business."

Adding to the indigestion, fund managers continue to exhibit the old problem of risk aversion. Williams said the prejudice against biotechnology companies has been reinforced by the fall in Ark Therapeutics Group plc's stock since it became the first company in three years to list on the main market in London in March. (See BioWorld International, March 10, 2004.)

Norwood has given shareholders a 1-for-1 option, exercisable up to June 2005, which would raise the same amount again. By then the company expects to have published full results of a Phase II trial of its lead product, a gonadotrophin-releasing hormone analogue, as an adjunctive treatment to boost the immune systems of 100 patients who have received bone marrow transplants.

Williams admitted that the flotation also was hampered by the Australian parent company Norwood Abbey Ltd., which retains an 83 percent stake.

"Having a dominant shareholder means a lack of free float, and inevitably is a negative," he said.

Working in its favor was the fact that Norwood is trying to register an existing drug in a new indication, offering a fast route to market, and it has a U.S. marketing partner, TAP Pharmaceutical Products Inc.

Vaccines specialist Microscience is reported to have received a cool reception for its proposed flotation, in which it set out to raise £40 million for a valuation of £120 million to £140 million. The £40 million was to include £10 million from existing private equity investors. A company spokeswomen on Monday told BioWorld International that Wokingham, UK-based Microscience expects to complete the deal this week, but could not comment on the valuation, adding, "The market is what it is."

A fourth IPO candidate, Evolutec, began the rounds of investment managers last week. A company spokesman said it was too soon to report on progress, noting that the Oxford, UK-based company is trying to raise £7.5 million only, of which £2 million would come from existing investors.

If there is a mixed picture in London, the IPO window in mainland Europe still appears to be closed, not withstanding the flotation of the Swiss company Basilea Pharmaceutica AG in March. Two weeks ago, Paris-based Immuno-Designed Molecules SA pulled its proposed IPO on Euronext's Nouveau Marche that aimed to raise €98.8 million (US$120.4 million), citing market conditions.

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