EP Vantage Interview – Clinigen pays the price but braves IPO waters

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It hardly seems to matter that the recently completed London flotation of Clinigen was in large part a vehicle for its founding husband-and-wife team to sell out; more importantly, it is the UK’s first healthcare IPO since e-Therapeutics back in 2007.

Still, the company has paid a high price to raise £10m ($16.2m) gross and get the float away, having had to shoulder a disproportionate amount of costs while the founders, Andy and Linda Leaver, walked away with 96% of their £40m takings intact. In an interview with EP Vantage Clinigen’s CEO, Peter George, insists that this was “pretty normal”, adding that the listing represented “the next logical step after two years’ sustained growth”.

Even though Clinigen’s business lies some way off the high-risk drug development model, and accounting for the fact that the company was likely being dressed up for a sale, it cannot be denied that growth has been impressive. Revenue was up 135% in the year ended June 30, and cashflow profitability has been achieved across all three of its business units, says Mr George.

These comprise two services divisions – one selling marketed drugs to companies running clinical trials that need an active comparator, and the other supplying unapproved drugs to patients under global access programmes, for instance on a “named-patient” basis. Then there is a “products division”, which sells antiviral Foscavir, a cytomegalovirus drug first launched in 1989 that lost patent protection some 12 years ago; Clinigen bought this from AstraZeneca in 2010, since when its sales have more than quadrupled.

Remarkably for a business brought together by mergers and acquisitions, Clinigen is virtually debt-free, Mr George says, and a clean balance sheet was an important consideration in the float. “It was very clear that the preferred option was an IPO, though the markets were tough. There was some interest from [a sale to] private equity ... but this would have geared the company up.”

Shouldering the burden

One question that might vex new investors will be why the company should have had to shoulder most of the IPO costs, although presumably this could have been something that Mr and Mrs Leaver had insisted on to get the float away.

The details of the float on AIM throw the disparity into stark relief. While the Leavers are selling 50% of their stake for £40m they have picked up less than a third of the £5m costs; meanwhile Clinigen’s much smaller sale of new stock will be whittled away to just £6.6m net as the company loses 34% of its gross amount to fees.

Clinigen insisted that the fees went not only to Numis, the bank doing the float, but also covered lawyers and other costs. At the £1.64 listing price Clinigen will be valued at £135m, with the Leavers’ remaining stake amounting to 30%. “They will be locked in for 12 months,” says Mr George.

The CEO also insisted that the founders’ sale of stock into the IPO – not normally viewed as a sign of confidence – was perfectly logical. “Andy was more of a seed or venture capital investor; he had backed the management team but was not involved on a day-to-day basis,” he states.

Acquisition war chest

The lion’s share – 79% – of the £82m of revenue Clinigen notched up last year comprised clinical trials services. Sales of Foscavir contributed £22m while global access programmes did just £1m, although this was before the acquisition of 26 new products.

So if all the divisions are profitable, why list to raise a paltry £6.6m? In a word, acquisitions. “We’re pursuing 27 different opportunities, and have had non-binding talks with five parties,” says Mr George, and all aim to boost Clinigen’s products division.

In addition to the £6.6m raised in the IPO, the company has around £5m of existing cash plus a loan facility with RBS for up to £10m, giving it a deal war chest of over £20m. This must surely also be music to the ears of investment bankers.

Although several companies are competing in the niche product acquisition space, Mr George insists that few can boast Clinigen’s global focus; while the company is active in 53 markets, Alliance Pharma and Sinclair IS Pharma tend to focus on the UK and Europe. As for whether prices to buy in such drugs have been pushed up, Clinigen believes it can offer benefits beyond being the biggest bidder, including taking products into new indications.  

For the company’s other two divisions, organic growth is the name of the game, and a surge of demand for comparator drugs is driving the clinical trials business. “Previously less than 15% of clinical trials had a comparator arm, but now ... especially in Europe and Asia, this is over 50%,” says Mr George.

Then there are synergies, such as the possibility of translating global access programmes into outright acquisitions for the products division. Indeed, Clinigen has come a long way from being a niche supplier of specials.

Its costly IPO might just be the necessary evil needed to take it to the next level.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com

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