Dick Whittington found that the streets of London were not paved with gold. Some small UK companies are finding the same is true of America’s high-profile technology index. Award-winning AIM writer Andrew Hore looks at what happens when small-caps leave home.
Abcam co-founder and 6.3% shareholder Dr Jonathan Milner is critical of the life science products supplier’s decision to leave AIM and concentrate on its Nasdaq listing. Abcam ADR (NASDAQ:ABCM) is not the only AIM company to gain a Nasdaq listing, and the performance of these companies is mixed to say the least. Most have lower share prices than when they joined the American tech index.
There are still AIM companies keen to gain a Nasdaq listing, however. Redx Pharma was going to reverse into Nasdaq-listed Jounce Therapeutics, which develops treatments for cancer and had cash that would have given the combined group at least $130 million of funds for drug development. However, Concentra Biosciences came up with a recommended cash bid for Jounce.
Spectral MD Holdings Ltd (LSE:SMD) is merging with Nasdaq-listed special purpose acquisition company (SPAC) Rosecliff Acquisition Corp 1. This deal will provide cash to finance the commercialisation of the DeepView wound-care analysis technology. The deal values US-based Spectral MD at $170 million, or 101p a share – the June 2021 placing price was 59p.
Proton therapy cancer treatment developer Advanced Oncotherapy (LSE:AVO) is considering a Nasdaq listing as a way of raising the cash it requires, but this could be fanciful. OptiBiotix Health (LSE:OPTI) and cancer diagnostics device developer ANGLE (LSE:AGL) have both talked about a Nasdaq listing in the past but have put that to one side given current market conditions.
Most of the companies joining Nasdaq are biotech and pharma businesses and are always likely to be risky. Abcam is different in that it is a highly profitable and cash-generative business.
Dr Milner argues that the Nasdaq listing was poorly executed and there was a lack of preparedness. He also believes the concentration on the Nasdaq listing was more to do with gaining higher remuneration for the directors.
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Cambridge-based Abcam was the largest company on AIM when it left. It was also one of the most successful. After joining AIM on 3 November 2005, the market value increased from £57.5 million at 167p a share (equivalent to 33.4p after a share split) to £2.5 billion at 1,226p a share when it left in December 2022. That is an increase in the share price of more than 35 times in 17 years. The Nasdaq listing was obtained in 2021.
Abcam points out that Dr Milner was on the board when the Nasdaq listing was initiated, and he supported the cancellation of the AIM quotation.
One of the problems with the ADR agreement for the Nasdaq listing is that there is no right for shareholders to call a general meeting. This is required in UK corporate law. Even so, Abcam has agreed to hold a general meeting on 12 July. The resolutions include the removal of three directors and the reappointment of Dr Milner, who is also seeking reimbursement of his expenses.
Dr Milner argues Abcam has underperformed compared to similar companies since he stepped down in October 2020 to April 2023. Abcam has not performed that poorly recently, although this is partly down to the additional attention due to the recent criticism.
The Nasdaq Composite index has risen by one-quarter so far this year, having fallen by one-third last year, and Abcam has outperformed the index this year by rising more than 50%. The Abcam share price is not far off its high for the time on Nasdaq, having fallen below $13 at the beginning of April. So, in three months it has risen by more than four-fifths.
What’s so good about Nasdaq?
Companies move to Nasdaq because they believe that there is a larger pool of capital with expert investors. They also believe that they will have a greater profile with US analysts covering them.
Dr Milner says that no new major shareholders have joined Abcam’s shareholder list since 2020, but the company says that US-based institutions have been building stakes. Abcam management do say that there has been a 16% increase in average daily liquidity since leaving AIM.
Leaving AIM meant that the number of analysts in the UK covering Abcam fell from eight to two, while rising from four to five in the US, according to Dr Milner. Abcam claims that six new specialised analysts have started covering it since the Nasdaq listing, but that does not negate the subsequent loss of UK analysts since the end of 2022.
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Peel Hunt feels that communications and engagement with analysts deteriorated during 2022 prior to the dropping of the AIM quotation. The previous investor relations manager left during the year.
Abcam was the largest company on AIM, so it could attract attention from the main AIM brokers. In the US it is a relatively small company and will not get the same level of attention.
Abcam is probably the largest AIM company to move to Nasdaq and it is even more difficult for the smaller AIM companies. Getting a Nasdaq listing is not a route to an immediate boost for the share price.
Taking America by storm
GW Pharma is the big success, although it is highly unusual in the increase in value. Again, it was more mature when it moved joined Nasdaq. The cannabis-based medicines developer was on AIM for more than a decade before it decided to obtain a Nasdaq listing on 1 May 2013.
GW ditched its AIM quotation at the end of 2016. The initial price was $8.90/ADS (American Depositary Share) and GW Pharma was taken over by fellow Nasdaq company Jazz Pharmaceuticals eight years after Joining Nasdaq. The bid was $200/ADS in cash and $20/ADS in Jazz Pharmaceuticals shares, which was 0.12036 of one share. The current Jazz Pharmaceuticals share price is $128.27.
There are other companies that have been taken over. Amryt Pharma left AIM on 10 January 2022. The ADSs were equivalent to five shares and were already traded on Nasdaq. The AIM share price fell to 143p, equivalent to 715p/ADS, by the end of trading. The share price had been above 200p previously. The price drifted lower until a takeover bid by Italy-based Chiesi, which offered $14.70/ADS, a premium to the $7.00 closing price. There is also a contingent payment of up to $2.50/ADS.
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Realm Therapeutics was taken over by Essa Pharma, while GenMark Diagnostics, formerly Osmetech, was acquired by Roche for $24.05/share in cash. A merger turned Akers Biosciences into MyMD Pharmaceuticals. Motif Bio has been dissolved and 4D Pharma has also gone bust. Lombard Medical Technology has been given the push by Nasdaq and it is on the Over The Counter (OTC) market but there does not seem to be any trading and it has a nominal share price.
Biodexa Pharmaceuticals, previously known as Midatech, dropped its AIM quotation to concentrate on Nasdaq, but it is a tiny company that may find it difficult to retain the listing even after the recent share consolidation.
Programmatic advertising services provider Tremor International Ltd joined Nasdaq and it was valued at a discount to its peers that were already on Nasdaq. Tremor International raised $147.9 million at $19/ADS. The other current AIM companies with a Nasdaq listing are HUTCHMED (China) Ltd ADR (NASDAQ:HCM), MaxCyte Inc (NASDAQ:MXCT) and Renalytix ADR (NASDAQ:RNLX). All these companies are trading at a lower share price than when they joined Nasdaq.
Of the 13 existing and former AIM companies still traded on Nasdaq, 11 have lower share prices than when they joined and six of those have declined by more than 90%. The initial prices are either based on a fundraising or the starting price when dealings commenced. Some have had share consolidations.
Abcam and Verona Pharma ADR (NASDAQ:VRNA) are the only two of the 13 companies that gained a Nasdaq listing when they were on AIM that have higher share prices.
Verona Pharma raised money at $10.50 last August and the share price has more than doubled since then. It has already risen from a post-Covid low because of positive results from a phase 3 clinical trial for a COPD treatment. A New Drug Application should be submitted this summer.
If Abcam has found it difficult to attract attention, then much smaller AIM companies really will find it difficult. Some of the companies that have obtained a Nasdaq listing are not even capitalised at £100 million. It is not practicable for small companies to gain a Nasdaq listing.
News that an AIM company is gaining a Nasdaq listing is no reason to rush to buy the shares ahead of any move. It is not a magical booster.
Andrew Hore is a freelance contributor and not a direct employee of interactive investor.
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