European cash bonanza sign of better things to come?

Analysis

NicOx’s announcement today that it is planning on raising €100m is just the latest in a string of European financing deals this week that could indicate that the tight financial markets are finally opening up on the continent.

The French pharma group’s news follows that of ThromboGenics, which yesterday revealed that it would be raising €42m and German group 4SC who raised €30 million in a combined rights issue and private placement that completed on Monday.

NicOx’s primary aim in raising its money appears to be supporting the commercialisation of its lead product, naproxcinod, for osteoarthritis, which today was accepted by the FDA for filing and could get approval by the July 24 PDUFA date (NicOx's hint of deal delay makes fundraising look likely, June 19, 2009).

Real test coming

The news about the two-step fundraising, which has already netted the group €30m following strong demand from investors, including the French government, was most probably the reasons behind the 3% fall in the group’s share price today to €7.82, cancelling out news about the FDA filing.

However, while there may have been massive interest in the private placement, the second arm of the fundraising, a rights issue open to new investors, could prove a more robust test of whether the markets have really eased and biotech is back on investors’ menus.

Sunnier times ahead?

Samir Devani, analyst with Nomura Code, nonetheless believes that the three recent fundraising do indicate that the financial situation for European biotechs could be improving and that businesses have woken up to this fact. “I think most companies recognise the markets are in good shape and are being opportunistic if they can. I expect to see more [fundraisings].”

His optimism appears to be backed up by other recent large fundraisings in the last few weeks, most notably Eurand’s impressive feat of raising $103.9m at the end of October and Amarin’s announcement that it had netted itself $70m.

But Andy Smith, a pharma and biotech fund manager with Axa Framlington, believes that there is a very clear divide between the ways that companies raise money, which has to do more with quality than the overall state of the market.

“There are the haves and have nots, the have nots will do fundraisings every five minutes just to raise money, while the haves will do it carefully to build on success,” he says.

According to Mr Smith it is often exiting investors who participate in the fundraising of weaker companies, who, he says, are forced to fund them for one or two years in order to prevent losing their investments. “They are almost investing to enable themselves to exit at better times.” 

How low can you go?

This quality divide is also reflected in the discount at which companies conduct their fundraisings, with there being a correlation between the health of the individual company and the discount.

Accord to Mr Devani of Nomura Code, those companies raising money for the expansion of their businesses are able to get away with relatively low discounts. However, for those using the money for working capital not only is raising money more challenging the discount remains much steeper.

ThromboGenics has seen its shares rise to €16.99, despite the fact that it raised money at €16, only a 5% discount to its share price of €16.90 when the fundraising was announced. Investors were most probably happy to invest at that level because the €42m raised is going to be used in the commercialisation of the group’s lead product microplasmin, a treatment for back of the eye disease.

The odd one out

But what is striking about the recent wave of fundraisings over the last six months that has also seen the likes of Diamyd Medical raising $31.7m and Amarin netting itself $70m last month, is that the European revival appears to be bypassing the UK.

The only really significant fundraising in the UK has been Proximagen’s impressive £50m cash call back in June.

One explanation of why it may be easier to raise money outside of the UK are the historically poor returns the UK has offered investors, despite it being the most mature biotech market in Europe.

However, while the outlook in Europe may appear sunnier with a number of companies still lining up to get offerings out the door, including Biovitrum’s chunky $234m rights issue which it is hoping to use to buy Swedish Orphan International, if the recent wave of fundraising has really been about the health of companies things might change next year.

Many have managed to achieve good results this year by squeezing cost savings out their operations, with this process largely complete things might not be so easy in the future. If this is the case then the current crop of fundraisings that could continue until the end of this year, might not be repeated in 2010.

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