Healthcare and International Stock Exchange Listings for US companies

An IPO is often the most important capital markets and wealth creation event in your corporate life cycle. Unmatched access to capital at a lower cost is a clear benefit in favour of an IPO, along with corporate branding opportunities and a host of other benefits.

Your company should consider three things when choosing a listing location—the actual out-of-pocket costs for establishing and maintaining the listing, the effects on valuation and liquidity, and the nonfinancial benefits. (A fuller discussion of the pros and cons of listing on the Australian Securities Exchange (ASX) versus the Nasdaq or NYSE can be found in the second of this series of BlueMount Capital’s articles: “International Stock Exchange Listings for US Companies”.)

However, a US private company considering an IPO, with a value of less than US$1 billion is too small to list successfully in the USA these days.

IPOs in the United States typically have significantly high expenses. Legal and accounting fees, printing, brokerage charges to raise the capital, insurances, director fees and other related expenses are substantially higher than in many other countries.

Therefore, as a healthcare company, you should consider all of the relevant factors that all global Listing Exchanges’ offer before committing to what might appear to be the most obvious or easiest IPO route. Are you ready to engage in such considerations?

Why are healthcare companies listing on the ASX?

Are you aware that Australia has a strong healthcare, biotech and med-tech ecosystem with world-class healthcare companies, research facilities and informed investors? This Listing Exchange profile allows companies listing on the ASX to raise capital for both commercialisation and future growth.

With over sixty-five healthcare listings since 2013, the ASX also provides a unique platform to join an impressive peer group of both emerging and mature companies, across pharmaceuticals, medical technology, biotechnology, digital health, medical practice and pathology operations.

The ASX now has sixteen listed healthcare unicorns. In total there are 170 plus healthcare, biotech & med-tech companies listed on ASX with a combined market capitalisation of over A$248 billion.

With numerous growth-stage healthcare companies from Australia, Asia-pacific, the US and Europe successfully listing on the ASX with good valuations and traction for scale, a clear trend has emerged, the ASX is increasingly being used by healthcare companies as either a stepping stone to a future dual-listing on other exchanges or as a long-term listing venue. (A sample of examples of ASX Unicorns is provided in the table below.)

Many young healthcare companies are listed on the ASX. Usually, in the US and other major markets, such young  companies are considered as mid-stage or late-stage pre-IPO growth firms, and they seek venture capital as Series B, Series C, Series D, etc.

However, in Australia, you may be surprised to learn that retail investors accept investing in high-risk young firms that are still figuring out their growth-model. The key advantage for investors is that growth in the ASX healthcare sector, in both domestic and foreign companies, expands the universe of available investment options, which in-turn creates a significant opportunity for healthcare companies like yours!

Observations based upon Healthcare Valuations on the ASX

When comparing the ASX with alternative global listing opportunities for healthcare sector companies, with between $50m and $1bn capitalisation, it is clear that the ASX is second only to the New York based exchanges in terms of the number of companies listing. However, both US exchanges have been trading far longer than the ASX and therefore have a large number are legacy listings. Moreover, these US Exchanges have experienced declining listing numbers and significant increases in qualifying listing valuations over the past ten years.

In the table above, you can see that the Nasdaq and NYSE have far higher median liquidity velocity ratios than the rest of the Exchanges for both larger and smaller healthcare stocks. The ASX is not the leader in terms of the other global Exchanges for small healthcare stocks, it is third behind Singapore and Toronto Stock Exchange, but for larger companies it is the leading Exchange based upon liquidity velocity. Market liquidity is important to your choice of Listing Exchange for a number of reasons, but primarily because it impacts how quickly you can open and close positions. In a liquid market, a seller will quickly find a buyer without having to cut the price of the asset to make it attractive.

Where the ASX outperforms all other exchanges, is in Median EV/Sales and Median P/S multiples where it is the most favourably priced compared to all the other exchanges for smaller healthcare companies

(Enterprise value-to-sales (EV/sales) is a financial ratio that measures how much it would cost to purchase a company’s value in terms of its sales. A lower EV/sales multiple indicates that a company is more attractive investment as it may be relatively undervalued.)

(The price-to-sales (P/S) ratio is a valuation ratio that compares a company’s stock price to its revenues. It is an indicator of the value that financial markets have placed on each dollar of a company’s sales or revenues.)

Looking at the number of companies listed on each of the exchanges and comparing small to large healthcare companies, we can see the ASX is second largest for small, but tied in fourth place for larger capital raises.

From these figures, which lack a longitudinal dimension. it is hard to deduce that the ASX accommodates smaller company listings than larger ones. However, it is clear that the median market value of healthcare listed companies is lower.

In this regard it is clear that one of the ASX’s advantages over listing alternatives is the comparatively low level of market capitalisation required to list. Moreover, the comparatively high level of capitalisation, which it appears to be necessary to list on the Nasdaq, should suggest that for companies with comparatively low levels of capitalisation listing on the Nasdaq may prove difficult.

Final Thoughts

It is evident that the choice of global Listing Exchange, for your healthcare company when considering an IPO, is more complex than is first evident. Understanding how the performance of each Exchange may compliment, or not, the IPO profile of your company requires the appreciation of many factors if your company is to maximise its IPO opportunities. Therefore, if you are considering an IPO, why not contact BlueMount Capital and let them use their expertise to assist you in making the right Listing Exchange decision?

About BlueMount Capital

BlueMount Capital specialises in bringing US companies to the ASX, and has an office in Los Angeles to service its American clients

Len McDowall
Managing Director
Level 32 200 George St
Sydney 2000 Australia
Telephone: +61 2 8277 4112

or

Alex Chen
Director, and USA Representative
Penthouse 1055 W 7th, 33rd Floor,
Los Angeles CA 90017 USA
Telephone: +1 212 470 6997