The need for European VC PE/patient capital to better ... - Hume Brophy

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INSIDE VIEW ON INTERNATIONAL healthcare PRACTICE

Comment Catch a falling knife and put it in your pocket PAGE TWO

Spotlight Hume Brophy supports Faron Pharmaceuticals AIM IPO PAGE THREE

On the Move Keeping you up to date with sector moves PAGE FOUR

MARCH 2016

SENSE IN THE CITY CONTINUED

The need for European VC PE/patient capital to better utilise PR and IR Could venture capital/private equity and “patient capital” in Europe achieve better exits and build a real EU biotech sector by using more PR and IR themselves as well as for portfolio companies? I used to be a buy side healthcare equity analyst, working on both sides of the Atlantic, evaluating where to invest across the whole spectrum, big and small, of publicly listed and about-to-be listed healthcare companies from pharma and biotech through hospitals, health insurers, pharmacy benefits and healthcare IT. As such I used to spend a great deal of time critiquing everything from the equity valuation to pipelines, technology and news flow of companies. When I moved from my initial short stint on the sell side to the investment or buy side I was told by some I had joined the “dark side” and later when I worked in New York that I had “gone to Gotham”. Now that I have moved into investor and public relations I suppose I am on the “flip side” and one of my tasks is to brief client companies on likely tough questions, how to communicate clear and fair answers to these and what investment expectations are. One of many questions I and other investment observers are often asked is why the nascent UK and European life sciences sector is not as big and omnipresent as that of the USA? It’s a question that has many possible answers but often comes back to a lack of sufficient early-stage funding. Here I examine a few reasons why and ponder the question in the title as a means to raising a bigger European pool of early stage funding.

Maturation of a life sciences Company requires hundreds of millions of Euros, an opportunity denied to most private European (incl.UK) life sciences companies. Many European specialist healthcare investors in public markets complain that emerging life sciences

EVA HAAS

Senior Consultant

Eva Haas is responsible for Investor Relations and Public Relations in Hume Brophy’s varied International Healthcare Practice serving companies large and small. She has 20 years’ experience in fund management and equity analysis of companies across the global healthcare sector.

companies IPO too early. Yet in Europe these same companies are rarely given the opportunity to mature from early to mid- or even advanced-stage development whilst remaining private unless they are funded by the family offices of a small group of billionaires such as the Hopps (Dietmar Hopp founded SAP in 1972) or Struengmanns (Hexal founders; Hexal was sold for about $8.3 billion to Novartis in 2005) or have a cutting edge technology so sought after or “hot” that a significant number of private equity/industry venture funds fall over themselves to get involved as has been the case with Oxford-based Immunocore which raised $320 million in a Series A private financing in July 2015 (294 million Euros at the time) or BioNTech AG which raised one of the largest initial private rounds in Europe at three-digit million Euros in 2008. Both of these Companies are involved in different technological approaches to cancer immunotherapy, currently garnering high investor and industry interest. In other words, one needs hundreds of millions of Euros (or Pounds Sterling) to grow a quality biotech Company to maturity (which I would call having several products in Phase II and III studies and/ or on market; the latter might be too much wishful thinking). According to Tufts Center for Study of Drug Development, as of their November 2014 publication, the cost of developing a successful drug is now nearly $2.6 billion consisting of an average out-of-pocket cost of $1,395 million and time costs (expected returns that investors forego while a drug is in development) of $1,163 million. Continued: Page Two

Life Sciences COMPANIES Bigger Exits

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Welcome to the March edition of The Tablet. In this edition, our very own Eva Haas discusses how PR can help European Life Sciences companies achieve bigger exits. We are also pleased to announce that our client, Faron Pharmaceuticals, opened the market last month following a successful listing on AIM at the London Stock Exchange. This edition also includes people moves across the sector and key events for your diary. Happy reading! Mary Clark Head of Healthcare

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13th October 2016, London Citypoint, 1 Ropemaker Street, London, EC2Y 9SS

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INTERNATIONAL HEALTHCARE PRACTICE

THE TABLET | MARCH 2016

SENSE IN THE CITY CONTINUED Therefore the price of maturity, let’s call it the “maturity opportunity cost” could even be well over one, if not several, billion Euros.

Only the strong and mature survive. Most European and UK biotechs do not have the luxury of triple digit million Euro funding let alone a billion to give them time to mature. Within this group there will be a fair share of “undiscovered” companies that have excellent, breakthrough science deserving such funding, it just hasn’t been perceived as “hot” yet. Many are often driven to IPO early either because their existing venture investors want or need to see an exit crystallising gains for their own investors or because they cannot find additional venture, crossover or “patient capital” investors for another private financing round. Another reason is that unlike their American counterparts European life sciences venture funds, or indeed public equity funds, simply don’t (yet) have the size and firepower to be able to put such large amounts into one Company and still diversify risk to an acceptable level. This stage of development is what is known as the funding gap or “death valley” for European fledgling life sciences companies. If these companies IPO early they often struggle with the multitude of extra capabilities and news flow needed for a public company and fizzle out one way or another either as they are unfairly penalised by generalist equity investors for a single product failure when it realistically takes a portfolio approach to get products to market or for a lack of news flow as they get on with the lengthy business of R&D.

Why is maturity a European rarity? Some Capital may be “patient” but is there a big enough pool of it in Europe?

Arguably, no, not yet. Patient Capital and the proliferation of more venture funds after 5 years of biotech outperformance in public equity markets and high levels of private equity exits is thought by many to be the panacea for European and in particular UK biotech. It is thought these funds will plug the “death valley” funding gap and allow Companies to mature. This is all highly laudable and very encouraging. European healthcare venture funds have been able to realise 1000% plus gains on 5-10 year investments (a so-called “ten bagger”) in certain companies (a whopping 25%60% CAGR) and 20%+ across whole portfolios over 5-10 years. Therefore they have collectively been able to successfully raise new funds for further investment in new companies. It is just what we passionately want to see to drive European biotech and life sciences to a level where they can compete with the USA. But do these patient European investors have enough money to invest to drive a whole sector? If we assume that several hundred million Euros are needed to get to Company maturity then a flagship patient capital fund of about 1 billion Euros could arguably only back 4-5 heavy weight biotech contenders all the way and many healthcare venture capital funds (which usually manage several hundred million Euros) only 1-2. If you allow for the fact that each Company has maybe 4-5 co-investors then we can increase that to 2030 companies for a large 1 billion Euros fund and 5-10 for other specialist VC funds in Europe, which one can probably count on both hands. This does not, in my very humble opinion, get us to a funding capacity for nurturing the several hundred nascent European life sciences companies to maturity that logically might be needed to create a large, publicly listed and successful European biotech sector of the magnitude and stature of the US biotech sector. So the answer to the above question is arguably that “No, in Europe there is not yet a big enough pool of patient capital.”

Chicken and Egg - if patient capital and healthcare venture funds had better & bigger exits, with a higher profile, perhaps they could raise the type of multiple billion Euros funding vehicles needed to finance enough companies to grow a credible, thriving European life sciences sector? So European life sciences needs a bigger funding pool and European venture, private equity and patient capital funds need more critical mass. How can they achieve this? Bigger and more prominent investment exits would help raise bigger venture funds and in this area it’s possible that the investors undersell themselves. It is generally accepted, certainly by many board directors that nascent companies need to plan ahead raising their profile and general awareness of achievements, quality of science and products in development often (ideally) several years ahead of financing rounds and IPOs. This involves corporate communications at various levels and if well planned and executed it generally works well. I would argue that venture funds and private equity funds should follow the same example and celebrate their successes. They do not engage with corporate communications much and if they did consult with public, media and investor relations experts at an early stage themselves, perhaps a higher profile for each fund and the industry would lead to the bigger exits and the bigger next generation funds that we sorely need in Europe. Reprint by permission of TTS Global Initiative

Catch a falling knife and put it in your pocket Stock-markets have been unstable to falling since late 2015 driven by macro-economic and geo-political fears and the on-going Mexican stand-off on oil supply and therefore price which has battered the profitability of oil companies. This has driven a fairly predictable risk-off mentality amongst investors such that any equities with a beta* of greater than 1.2 have seen outflows and hefty share price declines, particularly if just coming off 5 years of spectacular outperformance vs. the broader market. For example S&P500 is down 6% year-to-date and the NASDAQ Biotech Index is 24% in the red. Controversy and hyperbole around drug pricing has also hurt biopharma equities. We have seen this all before. The stages of a stock market correction and/or cycle are as below, only the time scale over which it will happen is in question and timing is one of the most difficult things in investing, although it gets easier the longer your time horizon is - so patience and patient capital really are the watch words:

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1. De-risking = selling beta: Fund managers and investors in general a.k.a the somewhat maligned “generalists” are unwilling to catch falling knives so when a market decline starts what happens first is that they “de-risk” their portfolios by underweighting (i.e. selling) high beta shares (e.g. biotech or highly cyclical industrials). 2. Selling snowballs followed by consolidation/ capitulation and then cherry-picking of prize beta assets: Markets and in particular riskier assets therefore fall for some time as stage 1 reinforces itself. When this activity has shaken itself out there is a period of consolidation and investors begin to assess which high beta or cyclical and “high risk” equities have been disproportionately sold and now have attractive valuations as well as (ideally) attractive long term fundamentals and positive secular trends. These are the stocks that are then bought back (lower), markets steady and then stock market growth reasserts itself as long as economic expansion continues. When is the consolidation period, or bottom? Certain indicators have been a sign (with hindsight rather obviously), at least in life sciences. Some of them are:

►► ►► ►► ►► ►►

Valuations reflect the discounted cash flow of a company’s existing pipeline alone - as if drug developers were never ever going to be able to develop new and exciting treatments ever again……like 2009/10 Price/Earnings ratio being lower than the stock market. Mega-cap biotechs in the USA are now below the S&P PE so it will be interesting to see if this holds true, although PEs are imprecise, moving targets For unprofitable companies - rather painfully - listed companies trade at or lower than the value of their existing cash Lack of share price response to good news M&A of smaller companies becomes the norm with few IPOs

* Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

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SPOTLIGHT

HUME BROPHY SUPPORTS FARON’S AIM IPO The Faron Pharmaceuticals management team opens the market ►► Proceeds of the IPO will be dedicated Hume Brophy acted as PR & IR to progressing the initial pan-European advisor on the listing of Faron Phase III clinical trial, INTEREST, in respect of Pharmaceuticals on the AIM market Traumakine® for the treatment of ARDS ►► The funding will also enable Faron to develop of the London Stock Exchange its novel cancer immunotherapy candidate Clevegen Hume Brophy is pleased to announce that it acted as the PR & IR advisor in the successful listing of Faron Pharmaceuticals on the AIM market of the London Stock Exchange:

Dr Markku Jalkanen, CEO of Faron Pharmaceuticals, said: “Faron’s fundraising and admission to AIM is an important landmark for the Company. We believe ►► Faron listed on AIM on 17th November 2015 that the support shown by both new and existing after a successful fundraising of £10 million Capital shareholders demonstrates a strong understanding of ►► The offering was supported by existing the value of our late stage product Traumakine®, for shareholders as well as new institutional the treatment of acute respiratory distress syndrome shareholders (ARDS). Currently there are no approved

pharmacological treatments for this life threatening medical condition with a reported 30–45% mortality rate.” “Admission to AIM provides a great opportunity to strengthen our business and support our objectives of progressing our lead programme through the on-going pan-European Phase III trial, and the development of our pre-clinical cancer immunotherapy candidate, Clevegen. We look forward to reporting on the Company’s continuing progress as an AIM-quoted company and would like to welcome and thank our investors for their involvement.”

About Faron Pharmaceuticals

Faron is a clinical stage drug discovery and development company focused on creating novel treatments for medical conditions with significant unmet needs. The Company is based in Turku, Finland. The Company currently has a pipeline of products focusing on acute organ traumas, cancer immunotherapy and vascular damage. The Company’s lead candidate Traumakine®, has been developed to treat acute respiratory distress syndrome (“ARDS”), a rare, severe, life threatening medical condition for which there is currently no approved pharmaceutical treatment. Traumakine® is now in a pan-European pivotal Phase III study (INTEREST). Besides Traumakine®, Faron’s pipeline consists of [a number of] early stage assets including a pre-clinical anti-Clever-1 antibody named Clevegen. Clevegen is focused on converting the immune environment around a tumour from being immune suppressive to immune stimulating.

NOTICE BOARD

BioCapital Europe is Europeʼs premier life sciences investment conference, offering VCs and Institutional Investors unique and timely access to around 40 exciting biotech companies from the Benelux and Europe.


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Hume Brophy London office has moved...

ON THE MOVE Here’s what we’ve heard... MEDIA

INVESTORS

You can find us at: ►► Becky Fletcher and Sean Martin are now Online ►► Allan Marchington has left Apposite Capital 55 King William Street, Health Reporters at the Daily Express ►► Sav Neophytou has joined Deepbridge London EC4R 9AD ►► Thomas Meek is now a Reporter at APM Health Europe Capital LLC ►► Biopharm Insight now has Surani Fernando as T: 020 7862 6397 Editor, Jennifer C. Smith-Parker as Deputy Analysts/Banking Editor and Hamish McDougall as Senior Reporter ►► Andrew Whitney has joined Investec Securities CLICK HERE TO FIND ►► Neil Western is now Asia Business Editor at The ►► Howard Miller has joined Canaccord Genuity Wall Street Journal Asia ►► Nigel Birks has joined WG Partners ►► Ella Pickover, Health Correspondent at the Press ►► Mark Brewer has joined finnCap Association, has returned from maternity leave ►► Amy Walker has joined Peel Hunt ►► Tara Cox is now Senior News Reporter at the ►► Dale Raine has joined Lazard Cambridge News ►► Hans Boström has joined Credit Suisse ►► Ian Smith is now Companies Editor at the ►► Martin Brunniger has left Jefferies Investors Chronicle ►► Michal Cabadaj has joined Peel hunt ►► Simon Jack is now BBC Business Editor ►► Lucy Codrington has joined Jefferies ►► Sean Martin is now Online Science Reporter at the Daily Express

DATES FOR YOUR DIARY MARCH 2016 1 Morgan Stanley Medtech & Services One-on-One Conference, London 1 Canaccord Genuity Musculoskeletal Conference, Orlando 1-2 Credit Suisse 2016 Healthcare Conference, London* 6-9 Raymond James 37th Annual Institutional Investors Conference, Orlando 7-9 Cowen and Co. 36th Annual Health Care Conference, Boston 9 BioCapital Europe, Amsterdam* 11 BioCentury 23rd Annual Future Leaders in the Biotech Industry Conference, New York 13-16 Roth Capital 28th Annual Health Care Conference, Orange County 15-16 Sachs Annual European Life Science Ceo (elsceo) Forum & Exhibition Partnering and Investing in Biotech & Pharma Industry, Zurich


15-16 Annual BIO Asia International Conference, Tokyo 15-17 Barclays Capital Global Healthcare Conference, Miami 16 JP Morgan Global Healthcare 1x1 Forum, Singapore 17 The Economist - Healthcare in Asia, Singapore 22-24 BioPharma Asia Convention 2016, Singapore April 2016 4-6 BIO-Europe Spring, Stockholm* 5 BAML Health Care Back-to-Basics Forum, New York 6-7 9th Kempen&Co Healthcare/Life Sciences Conference, Amsterdam 7 Credit Suisse’s 8th Annual Therapeutics Day, New York 7-8 Jefferies Immuno- Oncology Summit, Boston 14-15 Needham and Co. 15th Annual Healthcare Conference, New York 25-27 BioTrinity, London*

May 2016 4-5 Deutsche Bank Annual Health Care Conference, Boston 5 Asia Biotech Invest, Hong Kong 10-11 BioEquity Europe 2016 (BIO,BioCentury, EB Group),Copenhagen* 10-12 BAML: 2016 Health Care Conference, Las Vegas 11-13 BIOTech Japan 2016, Tokyo 11-14 Bank of America Merrill Lynch 2015 SmidCap Conference, New York 17-21 UBS European Small and MidCap Conference, London 19 Citi - Swiss Healthcare Day, Zurich 19 Anglonordic Conference, London* 23-25 UBS Global Healthcare Conference, New York 24-26 Berenberg European Conference USA, Tarrytown

US

ABOUT Hume Brophy Hume Brophy is an international communications firm specialising in PR, IR, public affairs, corporate and financial communications, and has a team of over 80 consultants based in London, Brussels, Dublin, Paris, Singapore, New York and Boston. Our specialist healthcare team combines global industry knowledge and expertise in public relations, investor relations with government & EU regulatory affairs. We understand the diverse nature of the healthcare industry and the roles that its constituents play. This means that we can deliver unrivalled healthcare solutions to help clients communicate with the major decision makers and important influencers across the investment community, media, regulatory & legislative bodies, and major political parties and institutions in Europe. We have proven transaction expertise and have worked on numerous fund raisings, IPOs and M&A across the healthcare industry. Follow us @Hume_Brophy www.humebrophy.com E: [email protected]

LAST GASP

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