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MaRS Best Practices: Valuations in the biotech Industry - Raymond King

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Speaker: Raymond King, Senior Manager, TSX/TSX Venture Exchange …

Speaker: Raymond King, Senior Manager, TSX/TSX Venture Exchange

Canada's biotechnology and cleantech communities have a history of developing world-leading technologies—but for these industries to grow, they must have access to new capital to fund research and development that will allow Canada to maintain its position as a world leader

Part of the MaRS Best Practices Series -
More information http://www.marsdd.com/events/details.html?uuid=8211fe27-3ce5-4a7d-b264-4c367fcd6b7f

Published in: Business, Economy & Finance

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  • 1. 1 MaRS Best Practices Series Special Valuation Series Nov. 12th, 2010 MaRS Best Practices Special Valuation Series Friday Nov 12th @ Noon Raymond King, Senior Manager Toronto Stock Exchange Wayne Schnarr, Analyst, Equicom Toronto Stock Exchange
  • 2. 2 A Capital Opportunity for Life Science Companies Listing on Toronto Stock Exchange and TSX Venture Exchange Raymond D. King, MBA Senior Manager, Global Diversified Industrials Listings Business Development
  • 3. 3 Who is TMX Group? Toronto Stock Exchange and TSX Venture Exchange Life Science Sector Going Public Outline
  • 4. 4 7thlargest exchange group By domestic market cap1 1st in North America 2ndglobally By number of issuers1 TMX Group - Global Leader in Equities 6thlargest exchange group By equity capital raised2 1Issuers on TSX and TSXV (WFE, June 2010) 2(WFE and Capital IQ, Dec 2009)
  • 5. 5 North American Equity Stock Market Continuum OTC - Pink Sheets OTCBB NASDAQ NYSE • Minimal/No listing standards • Senior listing standards • Disclosure rules • Junior listing standards CNSX
  • 6. 6 2,177 companies 20 graduates in First Half 2010 20 graduates in 2009 45 graduates in 2008 1,488 companies TSX Venture Exchange •  Access to capital for earlier stage companies or smaller financings •  Total market cap of $38 Billion & average market cap of $17.4MM •  Cost effective stepping stone for international companies looking to list on a quality North American market •  Exchange mandate to mentor management of newly public companies •  Streamlined graduation to TSX when senior market requirements are met •  103 year history Toronto Stock Exchange •  Senior market for well established businesses and management teams with experience in public markets •  Total market cap of $1.8 Trillion & average market cap of $1.2B •  30% of TSX issuers >$500M are interlisted on a US exchange •  Access to larger, more international institutional investors and greater analyst coverage •  Globally visible specialized indices •  157 year history Unique Equity Market Structure
  • 7. 7 TMX Group Serves Companies at all Stages of Growth Market Capitalization Toronto Stock Exchange and TSX Venture Exchange Unique feeder system 471 graduates + 85 M&A* *From January 1, 2000 – June 30, 2010 7 Toronto Stock Exchange issuer base: 1,488 issuers, ~$1.8 trillion market cap TSX Venture Exchange issuer base (excludes NEX): 2,177 issuers, ~$37.7 billion market cap As at June 30, 2010 514 Issuers 498 Issuers 476 Issuers 2016 Issuers 142 19 Issuers
  • 8. 8 International Investment Community Trades on Toronto Stock Exchange 25 International Brokers including: Barclays Capital Citigroup CSFB Deutsche Bank Goldman Sachs HSBC JP Morgan Macquarie Capital Markets Merrill Lynch Morgan Stanley Raymond James Thomas Weisel State Street UBS 80 Canadian Brokers including: BMO Nesbitt Burns Canaccord Genuity CIBC World Markets GMP Securities RBC DS Scotia Capital Markets TD Securities National Bank Financial ~35% of daily trading originates from International brokers Volume CAGR 14% Transactions CAGR 37% Toronto Stock Exchange Volume and Transactions (2004-2009)
  • 9. 9 Who is TMX Group? Toronto Stock Exchange and TSX Venture Exchange Life Science Sector Going Public Outline
  • 10. 10 TMX Group’s Equity Exchanges Support a Diverse Issuer Base Number of Issuers by Sector Includes issuers on Toronto Stock Exchange and TSX Venture Exchange (100% = 3665) As at June 30 2010
  • 11. 11 Why Companies Consider TSX and TSX Venture Exchange Unique Public Market for small to mid cap companies •  Access to Capital •  Liquidity •  Visibility
  • 12. 12 Access to Capital: 2009 was a record year for financing on TMX Group Equity Exchanges *NOTE: TSX Venture Exchange commenced operations on November 29 1999 Toronto Stock Exchange and TSX Venture Exchange Total Financings (C$Billions) 1999 – 2010 August
  • 13. 13 TSX and TSX Venture Exchange have shown consistent growth in liquidity Billions of Shares Toronto Stock Exchange Volume of Shares Traded Billions of Shares TSX Venture Exchange Volume of Shares Traded
  • 14. 14 TMX Group Listing can Provide Analyst Visibility 872 TSX Companies get Analyst Coverage Source: Capital IQ, December 31 2009 4 Average Number of Analysts Covering TSX Cos. 259 TSXV Companies get Analyst Coverage
  • 15. 15 Who is TMX Group? Toronto Stock Exchange and TSX Venture Exchange Life Science Sector Going Public Outline
  • 16. 16 Life Sciences Companies By The Numbers 136 Life Sciences Cos. $11B Market Cap $367M Raised Through 84 Financings 4B Shares Traded Through 2.4Million Transactions Average Number of Analysts Covering Life Sciences Cos:3 7 New Life Sciences Listings YTD Dec 31 2009 Analyst Coverage Source: Capital IQ
  • 17. 17 Who is TMX Group? Toronto Stock Exchange and TSX Venture Exchange Life Science Sector Going Public Outline
  • 18. 18 Benefits of Going Public
  • 19. 19 Methods for Going Public on Toronto Stock Exchange or TSX Venture Exchange
  • 20. 20 •  IPO market window closed •  Listing certainty needed – removes underwriting risk •  Financing amount below a minimum IPO floor •  Lower up-front costs •  A private placement can be escrowed until reverse merger completed When to Pursue an IPO vs. a CPC™ Transaction CPC™IPO •  Demand for primary distribution •  Scale and liquidity criteria met •  Limited transaction timeline constraints •  Sufficient capital to fund up-front costs
  • 21. 21 Capital Pool Company™ (CPC) Program has a Strong Track Record Since inception in 1987: • Over 2095 CPCs have been created • 80% have completed their QT – over 1660 companies • 332 Graduates now trade on TSX • 96 of the grads were CPCs As at June 30 2010
  • 22. 2222 CPC Acquires Business (QT) Public Financing and CPC Trades Seed 24 Months Maximum Capital Pool Company: Process Aftermarket and Growth
  • 23. 2323 Seed Financing •  seed financing of the company by 3-5 Founders/Directors CPC IPO •  a prospectus offering to create a corporate vehicle with public distribution Qualifying Transaction (QT) •  a target business is identified, disclosed and acquired Aftermarket and Growth •  company trades and executes its business plan Capital Pool Company: Milestones
  • 24. 2424 CPC Acquires Business (QT) Public Financing and CPC TradesSeed 24 Months Maximum Qualifying Transaction
  • 25. 2525 Considerations for a Qualifying Transaction: •  Significant growth opportunity & reason to be public •  Strong & coachable management •  Capital needs: $5+ Million •  Close to or at commercialization •  Meets minimum listing and audit requirements •  Stock options and acquisition currency •  Strong market appetite •  12 to 18 month cash requirements (can be financed) Selecting a QT Candidate
  • 26. 2626 Consider this… Success Factors: •  Lots of cash on closing •  Market interest and understanding •  Deliver in short term post closing •  Reasonable valuation – not always maximum valuation Potential Pitfalls: •  Listing requirements shortfalls •  Insufficient cash/working capital on closing •  Valuation versus escrow regime (TSXV Policy 5.4) •  PIFs - timing and impact on circular
  • 27. 2727 CPC Acquires Business (QT) Public Financing and CPC TradesSeed 24 Months Maximum Aftermarket and Growth Aftermarket and Growth
  • 28. 2828 Consider this… Success Factors: •  Press release clarity / quality •  Broker management and support •  Timely disclosure against published milestones (good and bad) Potential Pitfalls: •  Orphan status •  Mistrust of management’s willingness to communicate •  Market fluctuations
  • 29. 29 Listing Requirements – Life Sciences TSX Venture Exchange Toronto Stock Exchange Tier 1 Tier 2 Net Tangible Assets, Revenue or Financing $5 million NTA OR $5 million revenue $750,000 NTA OR $500,000 revenue OR $2 million arm’s length financing Adequate Working Capital Adequate for 18 months plus $200,000 unallocated funds Adequate for 12 months plus $100,000 unallocated funds Funds to cover all R&D and capital expenditures for 2 years Cash in Treasury Minimum $12 million raised via prospectus offering History History of operations or validation of business Minimum 2 year history of R&D activities Distribution • Public float of 1 million shares • 250 board lot shareholders • 20% of issued and outstanding shares in hands of public shareholders • Public float of 500,000 shares • 200 board lot shareholders • 20% of issued and outstanding shares in hands of public shareholders • 1 million free trading public shares • $4 million held by public • 300 public board lot shareholders Sponsorship Generally required
  • 30. 30 Disclaimer This document is for information purposes only and is not an invitation to purchase securities listed on Toronto Stock Exchange and/or TSX Venture Exchange or Natural Gas Exchange. TMX Group Inc. and its affiliates do not endorse or recommend any securities referenced in this document. Please seek professional advice to evaluate specific securities. While the information herein is collected and compiled with care, neither TMX Group Inc. nor any of its affiliated companies represents, warrants or guarantees the accuracy or the completeness of the information. You agree not to rely on the information contained herein for any trading, business or financial purpose. This information is provided with the express condition, to which by making use thereof you expressly consent, that no liability shall be incurred by TMX Group Inc. and/or any of its affiliates as a result of any errors or inaccuracies herein or any use or reliance upon this information. © 2010 TMX Group Inc. Diversified Industrials Raymond King 416 947-4675 raymond.king@tsx.com