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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

China Cord Blood Corporation (CCBC), the country’s largest provider of cord blood storage and ancillary services, has reported a 38.7% rise in profits for the full year to 31 March of Rmb126.2 million (US$18.3 million). At the same time, revenues were up 14.6% to Rmb760 million.
Beijing-based Baheal Pharmaceutical Group plans to bring IBM Watson Health’s Watson for Genomics to clinicians across China. The new multi-year agreement comes less than three months after Baheal and IBM launched a strategic alliance to distribute Watson for Oncology in China. The plan is to establish an ecosystem within China to sell the molecular data interpretation technology to clinicians and researchers across the country. Financial terms have not been disclosed.
Medical insurance provider ALC Health has been confirmed as a Lloyd's Coverholder in Hong Kong. ALC Health, a subsidiary of global benefits and assistance services provider International Medical Group, has also opened an office in Hong Kong, appointing Harry Amende as business development executive.
Malaysian examination glove manufacturer Comfort Glove has reported a profit of M$10.1 million (US$2.4 million) for the first quarter of the year. This is a significant increase on the same period last year when the company was hit by a fire. Quarter-on-quarter, revenues were up 29% to M$93.7 million.
Thanks to listing costs, Hong Kong care home operator Pine Care Group has reported a 54.5% slump in profits for the year to 31 March to HK$12.4 million (US$1.6 million). At the same time, revenues were up 2.6% to HK$177.3 million.
Shares in Sydney-based medical appointment booking service 1st Group jumped 22.2% yesterday after the group announced an agreement with Australian leading health advertising and content provider, Tonic Health Media.
Shares in Australian medtech company Resonance Health rose 3.7% yesterday after Thalassaemia International Federation (TIF), a leading patient organisation in the field of iron overload, endorsed its technology which measures liver iron concentration.
US life science technology company Sanovas has agreed to set up a US$75 million venture capital fund and innovation centre with the People's Government of Suzhou. The centre will be based at the Suzhou Institute of Nanotechnology and NanoBionics (SINANO) at the Chinese Academy of Sciences located within the Suzhou Industrial Park Biotechnology Innovation Centre.



Analysis

Brisbane-based Oventus has had a good week. First and foremost the sleep disorder device manufacturer has just completed the first tranche of capital raising. It has raised A$6.5 million (US$4.9 million) in a placement of shares at A$0.36 per share. A second tranche to raise A$0.5 million will follow subject to shareholder approval. Bell Potter is managing the deal.
A new report from QBE Insurance, Australia's largest global insurer, reveals that 22% of healthcare companies in Hong Kong have suffered from legal and regulatory compliance issues over the past 12 months. The Risks of Regret report looks at both current and future business challenges and opportunities, and how well-prepared companies are to deal with risks.
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Susann Roth, senior social development specialist, Asian Development Bank, explains why the ADB is committed to doubling health sector investments by 2020.
SGX-listed private healthcare provider Health Management International (HMI) has reported an actual loss in profits for the third quarter of the year of M$1.6 million (US$370,000), though stripping out exceptional items, profits were up 12% to M$7.1 million. The loss was predominantly down to one-off fees of M$7.3 million incurred during the group’s M$556.5 million consolidation of its two hospitals in Malaysia, however profits were also eroded by M$1.3 million in forex losses thanks to a weakening ringgit.
Shares in Cayman Islands-incorporated G Medical Innovations, which develops mobile health technologies, declined heavily on their ASX debut yesterday, dropping 30%.
Singapore-listed property developer Perennial Real Estate has reported a 356% rise in profits for the first quarter of the year to S$38.7 million (US$27.5 million) thanks to divestment gains in Singapore. Revenues for the same period slumped 31.5% to S$20.2 million largely due to lower project management fees and lower rental revenue.
First quarter results from Indonesian healthcare companies have been subdued. There is a sense of marking time rather than any major move forward for any of them. Indeed with the exception of Siloam International Hospitals, the country’s largest private hospital operator, the share price of its healthcare rivals are all showing a loss for the year.



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