Lombard flees to US after all

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Lombard Medical Technologies is pushing ahead with a $55m Nasdaq IPO today, but it has had to compromise heavily to get it away. After setting an initial range of $15 to $18, the firm has had to cut the price to $11 and sell many more shares to raise slightly less than the initial $60m it was targeting.

Existing investors that followed the company from the UK are therefore facing a much bigger dilution of their holding than originally expected, although the fact that they have committed to buying two thirds of the new stock on offer speaks volumes. More importantly, though, the haircut Lombard needed to take to get new investors on board shows that the path to the US is not always smooth.

Lombard's IPO – the details
Date announced Number of shares  Price per share Amount to be raised
Indicative IPO pricing March 31, 2014 3.6 million $15-18 $60.0m
Actual IPO pricing April 23, 2014 5.0 million $11 $55.0m*
Existing shareholders - 11.2 million $18.40 (avg) -
*Existing shareholders have indicated an interest in buying up to $36.9m of shares at the IPO price

After indicating the initial IPO price range, the UK company postponed its transfer from London’s AIM to Nasdaq two weeks ago, citing poor market conditions (Lombard postpones IPO as US indices decline, April 14, 2014). Whether these conditions have improved markedly since then is debatable – and in any case might have little to do with Lombard’s decision to go ahead after all.

“When we initially planned to price the deal the markets were very volatile. We wanted to make sure that our current major shareholders were supportive of us moving to Nasdaq despite the volatility, so we postponed to consult with those investors,” the company’s CEO, Simon Hubbert, tells EP Vantage. “They were 100% supportive of the move to Nasdaq – and they demonstrated that support by participating in roughly half of the transaction.”

The average value of its existing share capital, according to Lombard’s F1 filing, is around $18.40 per new Nasdaq share. The company initially planned, therefore, to ask new shareholders to invest at nearly as high a level, but in the event it has been forced to offer more shares more cheaply, giving the new investors a larger piece of the pie.

The haircut Lombard has had to put up with comes to about 8%, but in fact this is not too bad by recent standards. The average discount in medtech IPOs this year and last is 14% (Orthopaedics companies seek to follow diagnostics in going public, April 4, 2014).

With that in mind, the $37m worth of the new shares that existing Lombard investors are willing to buy indicates a show of confidence, at an advantageous price, as well as a desire to minimise their dilution.

US presence

“Access to capital was never the issue here,” says Mr Hubbert. “The challenge we had was the company listed on AIM was 80% held by six institutions, so there was little liquidity in the stock. We’ve now opened the stock to a large group of new investors in the US.”

It makes sense for the company to raise its profile in the US. Its main product, the Aorfix endovascular aortic repair (EVAR) graft used for treating aneurysms, was approved by the FDA last February but was only launched in the US in November. But demand is strong – US sales of Aorfix in 2013 came to just over half a million dollars, not bad for two months’ work. In Europe, where the graft has been on sale for three years, 2013 revenues were $3.9m.

That figure gives Lombard something to aim for with its US sales, and a US listing will surely help. 

“The US is clearly the main thrust of the story – half of the potential global market for the product is in the US and there are a lot more potential investors in medtech in the US,” says Mr Hubbert. “It’s a question of where’s the best place to do it for the long term good of the company.” It will be interesting to watch the performance of the shares in the coming weeks.

To contact the writer of this story email Elizabeth Cairns in London at elizabethc@epvantage.com or follow @LizEPVantage on Twitter

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