Tuesday, February 26, 2008

Can Italy Kick-Start Europe’s IPOs?

It’s a tough time for any biotech company to go public—let alone one, like Italy’s Molecular Medicine (MolMed), that’s working in two of the most controversial and risky biotech areas, stem cells and gene therapy.

But MolMed’s going for it anyway. The company, spun out of Milan’s San Raffaele Scientific Institute in 1996, hopes to see its first shares traded on March 5 on the Italian Electronic Stock Exchange (MTA). No matter that global markets face their gloomiest prospects ever, according to many economists and bankers. No matter that compatriot PhiloGen, focused on the more conventional, and certainly less risky antibody field, and at about the same development stage (Phase II) as MolMed, pulled its planned January 2008 IPO. “Biotech investments are not that cyclical; they don’t always follow the path of other investments,” opines CEO and President Claudio Bordignon, MD.

There’s nothing wrong with optimism. And granted, macroeconomic trends don’t directly influence R&D success per se. But let’s face it, in times like these, with talk of credit-crunch and global recession, investors are hardly likely to pour money into one of the riskiest sectors out there.

But MolMed doesn’t need much, as Bordignon argues: the global offer will represent only 25% of the company’s post-offer share capital (the minimum float required for Italy’s exchange), worth just over €70 million ($100 million--which certainly sounds like more than 'much' in terms of IPO hauls elsewhere). And it will also, Bordignon claims, benefit from a significant local hero effect. “We’re an Italian company, with Italian investors,” he points out. The link with San Raffaele, one of Italy’s most prestigious research institutes, and management’s pedigree, will also help, he says. (Click for MolMed's history and management.)

As for PhiloGen’s U-turn: that means “we benefit from a scarcity effect,” says Bordignon. With or without PhiloGen, mind you, there's already a scarcity of biotechs trading on the Italian market: Italy’s last biotech IPO was NovusPharma (now part of Cell Therapeutics) in 2000. Other Italian firms including Newron and BioXell have opted instead for Switzerland.

Still, Bordignon is hoping that Borsa Italian’s recent tie-up with the London Stock Exchange will help provide the breadth of exposure that other domestic firms have found lacking. “This [tie-up] was one of the main reasons for floating in Italy,” he told IN VIVO Blog, besides the local recognition. “Investors will see MolMed alongside other significant biotech companies as a result,” he points out.

MolMed hopes to use the funds raised to move its lead cell therapy program TK, for high risk leukemias, into Phase III trials and to progress recombinant fusion protein Arenegyr through Phase II solid tumor trials. Few potential investors appear put off by MolMed’s cell- and gene-therapy focus, according to Bordignon. Most (though not all) “understand the safety and efficacy data we have” supporting the programs, he says. “We’ve had very positive feedback.”

If those encouraging words translate into Euros, it would be a spot of brighter news for an otherwise depressed European biotech sector in which many companies, as in the US, are opting for trade sales rather than public listings. But it’s already clear we are not the only skeptics. “We were offered the [MolMed] IPO work but turned it down,” says an executive at one of the top five investment banks, “just as we did that of PhiloGen.” Why? “Because of scarce clinical data on any of the programs—basically, it’s too early.”

Bankers are sometimes wrong, mind you. Bookrunners Societe Generale and Banca IMI may yet pull off MolMed's IPO—though even if they do, and don't get us wrong, we hope they do—it’s unlikely that this will kick-start a European floating frenzy.

UPDATE: Molmed grossed €56.2mm ($82.3mm) in its IPO, selling 26.1mm shares at €2.15 each, the bottom of its €2.15-2.75 range.

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