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Analysis: Why float on the ASX

In the first of a series from stock exchanges around the region, Josh Collard, listings business development manager at the Australian Securities Exchange, explains why the ASX is attractive to healthcare companies.

The Australian Securities Exchange (ASX) is home to more than 160 healthcare companies with a combined market capitalisation close to A$150 billion (US$112.3 million), and is a highly active market for initial public offerings (IPOs). There have been 36 healthcare IPOs in the past three years, collectively raising A$5 billion.

The ASX healthcare sector is diverse, with around 50% of companies in healthcare (around half of these are involved in med-tech), 30% in biotech, and the remaining 20% split between pharmaceuticals and life sciences. The top 10 stocks account for 85% of the total market capitalisation of the sector, including some well-known names such as CSL, Resmed and Cochlear. Beyond the large caps there is a long tail of smaller companies. That is where the appeal lies for many – viewing the exchange as an attractive capital raising venue for early stage companies to fund both their commercialisation and growth aspirations.

There have been two waves of healthcare listings on ASX since the early 2000s. The first was during the period from 2003 to 2007 when higher-risk capital was looking for growth opportunities outside of the traditional tech sector following the dot-com crash. During this period ASX saw over 70 healthcare listings, before a slowdown following the start of the resources boom in the mid-2000s when a large proportion of higher risk capital was reallocated to mining stocks. As the resources boom began to ease in 2012, higher risk capital initially moved into cash, before rotating into the healthcare and technology sectors from 2013. Since then, ASX has attracted 44 healthcare listings and the IPO window remains open today.

There are several key differences between the first wave of ASX healthcare listings and the current wave. Companies coming to market in the current wave are generally more mature, closer to (or generating) revenue and investors are better educated about the sector. In terms of subsector trends, the first wave saw a larger number of biotechnology companies coming to market, whereas the current wave has seen momentum with medical device and digital health companies. A number of early stage medical marijuana companies have also listed over the past 12 months.

ASX has a long history of supporting early stage companies, and unlike some of its peers, the exchange offers a single main board listing – that is, it does not have a junior board. This has advantages for prospective candidate companies, as many investment mandates exclude junior boards, limiting the capital pool available to them. ASX also has a very active retail investor base that, alongside specialist small cap funds, is supportive of early stage companies seeking to raise capital.

ASX has a unique value proposition that helps it attract companies. It offers the ability to list earlier on a globally recognised market, access an investor base that is active in small and mid-cap stocks and achieve index inclusion at an earlier stage than would be possible on other major markets. For example: entry to the S&P/ASX 300 index starts at a market capitalisation of A$300million, whereas entry to most other global indices starts at US$4-5 billion market capitalisation. Once a company enters the main index, many institutional funds are mandated to invest. Global funds are active in Australia enabling companies to gain access to international investors, with around 45% of total institutional investment in the S&P/ASX 200 coming from offshore.

Over the past four years there has been significant growth in the number of cross border listings that ASX has attracted. A combination of factors has helped this. Australia has one of the world’s largest pools of investable funds, the largest in Asia, with most funds allocated to equities mandated to invest in ASX listed companies. There is also increasing demand for foreign companies from Australian investors in an effort to diversify the menu. ASX has been particularly active marketing to companies that have limited access to capital in their domestic markets, or companies that originate in large home markets that view a public listing as preferable to other sources of funding, such as private equity or venture capital investments. Foreign companies in the sector are also attracted to Australia to take advantage of the competitive r&d tax concessions that are available.

Healthcare companies have found their way to ASX from countries such as New Zealand, Singapore, Ireland and the US. Despite the US having the world’s largest capital markets, many companies in the small and mid-cap world struggle to attract attention, and seek to explore external options until they are of a scale sufficient for the US public markets. An example is HeartWare International, which listed on ASX in 2005 with a market capitalisation of A$80 million, before dual listing onto NASDAQ in 2009. It was subsequently acquired by Medtronic last year for US$1.1 billion. Other recent US success stories include Osprey Medical, which is based in Minnesota, and AirXpanders, which is based in California. Both companies have raised several rounds of capital via an ASX listing to fund their operations.

ASX continues to promote the market for healthcare companies, both at home in Australia and abroad. This trend of foreign companies utilising the ASX as a capital raising venue is set to continue, and investors can expect to see an expanding menu of healthcare companies across various geographies and sectors.

Posted on: 03/05/2017 UTC+08:00


News

Beijing-based healthcare service platform Miaoshou Doctor has completed a ¥1.5 billion (US$232 million) Series F round of financing.
Chinese digital technology company, Xisoft Technology, which focuses on hospital operation management, has raised ¥100 million ($15.65 million) in Series A+ financing.
Hearing health company Olive Union has closed a $7M Series B round led by Beyond Next Ventures, Bonds Investment Groups and Japan Policy Finance Corporation.
Long Hill Capital, a venture capital firm in China, has closed on more than $300 million for its third fund on 15 March.
Eluminex Biosciences, an ophthalmic biotechnology company has completed a $50 million Series A financing co-led by Lilly Asia Ventures, GL Ventures (venture capital arm of Hillhouse Capital), and Quan Capital.
TVM Capital Healthcare, a global private equity and growth capital firm focused on emerging markets, has announced two team additions today.
In partnership with VeChain and DNV GL, Renji Hospital, a hospital in China affiliated with the Shanghai Jiaotong University School of Medicine, has launched the world's first blockchain-enabled intelligent tumour treatment centre.
Hong Kong-based BuyHive, a new global sourcing start-up that connects buyers with trusted verified overseas suppliers, has launched a PPE programme to help US companies optimise their post-Covid supply chains.



Analysis

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Edwin Tong, senior minister for health, explains how the Ministry of Health in Singapore is supporting the growth in the number of seniors with Alzheimer's.
Penny Wan, regional vice-president and general manager, Japan and APAC, Amgen, writes about the public health challenge of cardiovascular diseases.
French-based international ophthalmic optics company Essilor has signed Letters of Intent with the Royal Government of Bhutan and the Central Monastic Body to strengthen the country’s vision care infrastructure.
April Chang, country manager at Cigna Singapore, argues that wellness programmes at work can lead to reduced absenteeism, higher productivity and increased morale among employees.
Steven Fang understands how to set up a healthcare company. Not only is he chief executive and founder of ASX-listed oncology company Invitrocue, he was also the founder of Singapore-based Cordlife Group, a healthcare company which provides cord blood and cord lining banking services.
Imagine a world in which you can consult with your doctor via video. She asks for a blood sample, which can be collected and analysed from a device in your home. After that is diagnosed, the prescription is automatically sent to the pharmacy and Uber then picks it up. The time from diagnosis to drugs at your home is only 60 minutes.
The digitisation of health data through blockchain technology is a groundbreaking solution that will empower patients and provide them with better access to healthcare.


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