As the European biotech sector stumbles along, many of its constituents must today be looking with envy at GW Pharmaceuticals, the UK/US-listed company that has risen 255% since its stock premiered on Nasdaq in May.
Advisors of other European biotechs will note that a dual listing now stands as an important strategy for gaining market recognition. Still, for potential entrants – and indeed for GW itself – it will be vital to retain a tight focus on fundamentals to benefit from justified enthusiasm on the one hand while not falling into the worst excesses of bubble valuation mentality on the other.
GW is of course not the first UK company to list additionally across the Atlantic; but the ADR programmes of the likes of Antisoma and SkyePharma never gained traction, and ultimately ended up an unnecessary burden on already financially stretched businesses.
The key to success is timing: GW’s US IPO has coincided with an unprecedented wave of investor enthusiasm – some of it justified, but much of it considerably less so (The new frontier in valuing US biotechs, September 30, 2013).
Granted, there are undoubted fundamental reasons behind GW’s rise, such as the settlement of a reimbursement disagreement in Germany and positive multiple sclerosis spasticity data with its cannabinoid spray, Sativex. But without a US listing and a push from the sellside these would have stood for little.
In GW’s case the definitive boost came yesterday when Lazard raised its target price from $22 to $65, citing the potential of GW’s early-stage epilepsy programme. Lazard had jointly run GW’s Nasdaq IPO, which priced at just $8.90, and now says that “under successful scenarios ... $300 a share or higher could be achieved”.
It applies a remarkable 80% success probability to GW’s cannabidiol – this has barely started phase I – and omits to mention that GW’s US Sativex partner, Otsuka Holdings, has decided against taking up an option on GWP42006, another phase I epilepsy project. Lazard states that GW’s epilepsy programme is “emerging as one of the most important and exciting orphan franchises in all of drug development”.
Unfortunately Lazard does GW little credit with such hype, and draws attention away from the fact that the company is not just another early-stage bubble stock like Clovis Oncology. GW has a marketed drug, a pipeline and important catalysts ahead, such as the readout next year of phase III Sativex studies in cancer pain – potentially a game-changing additional indication.
Still, perhaps European companies will see the hype as a necessary evil, and will surely note that GW would have achieved little had it simply stayed on London’s Aim market. This is just a case of a share price returning to where it should be, they might argue, by whatever means necessary.
Much of the problem with the UK is the relative scarcity of specialist healthcare funds and almost complete absence of generalist interest in biotech after previous failures. European markets have therefore deeply discounted what analysts see as biotech companies’ underlying value.
In contrast, the US has benefited from a strong resurgence of generalist enthusiasm, piggybacking on a naturally broad specialist base. Exposing the US audience to undervalued European stocks thus creates a natural opportunity for hyperactive investors desperate for the next above-average return.
Nevertheless, for European companies wanting a slice of the action listing ADRs is not something that can just be done overnight. In GW’s case this took several years of investor meetings to test the market, treating it more like a primary float of a new business.
“One of the key questions for us was how to make a dual listing work,” the group’s chief executive, Justin Gover, tells EP Vantage. “We tried a genuine US company launch rather than just listing ADRs on Nasdaq.”
Thus the clear risk for others attempting the dual-listing trick is that there is no telling how long the US enthusiasm will last or what state the market will be in once a putative IPO gets off the ground.
None of which is to deny that, for a European biotech, the US is clearly the place to be.