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Successful Circassia LSE floatation could buoy further investments in life sciences R&D, says expert

Out-Law News | 11 Feb 2014 | 10:41 am | 2 min. read

The successful floatation of biotech company Circassia on the London Stock Exchange (LSE) could help boost future investment in the UK life sciences sector, an expert has said.

Circassia, which is in the process of developing treatments for a number of allergies, has announced that it hopes to raise £175 million from floating on the LSE when it undertakes an initial public offering (IPO) next month, according to media reports.

Corporate law and life sciences expert Charles Waddell of Pinsent Masons, the law firm behind Out-Law.com, said that if Circassia does well it could persuade other life sciences research companies based in Europe to turn to the LSE to raise funds.

"If investors get behind Circassia it could herald the dawn of more biotech IPOs in London," Waddell said. "This would be extremely welcome, as it would help demonstrate the attractiveness of investing in the UK's life sciences sector and give venture capitalists an alternative to a trade sale."

"The costs that researchers face in developing pharmaceutical products, clinical testing, obtaining regulatory approvals and launching new drugs to market can be prohibitive, so it would be great news for the sector if Circassia can do well and help increase the flow of investment across other life sciences projects," he added.

Waddell said that there has not been a biotech IPO in London for many years and that one of the main reasons for this has been because many investors had lost confidence in the sector. This was because listed biotech companies "overpromised and under delivered" on returns, he said.

Subsequently many specialist life sciences investors disappeared from the market, whilst more generalist investors have invested their money in other areas. In turn, this has influenced the choices of European-based biotech businesses, and many have sought an early trade sale or sought to float on NASDAQ, the expert said.

Waddell pointed to the success of GW Pharmaceuticals, a UK-based life sciences business, which since seeking a secondary listing on NASDAQ had seen its share price rise by 600% in the past year.

The Financial Times reported that the $502m raised by eight biotech companies to have conducted an IPO in the US last week is a weekly record for the sector. The publication, however, reported fears about the sustainability of high share prices in some businesses operating in the sector whose R&D on new drugs is still at an early stage.

"There appears to have been much greater confidence from US-based investors in US-listed biotech companies, with the values of many businesses soaring in recent times," Waddell said. "There is a pool of specialist life sciences investors in the US that is simply no longer replicated in London and the current boom has been supported by the interest more generalist investors in the US have also taken in biotech stocks."

"It is to be hoped that Circassia's floatation on the LSE will attract investors and lead other European biotech businesses to follow suit and generate a flow of investment in the UK's highly successful life sciences R&D industry," he added.