Ebb & Flow Focus

OXFORD - Just over five years ago, Europe's entrepreneurial bioscience companies had very little choice if they wanted to access public equity. It was either a case of cranking up the air miles and go for an IPO on NASDAQ, or wait until the company could meet the stringent requirements associated with admission to Europe's senior bourses; which would entail a very long wait.

Since then, a whole range of options has sprung up and now aspiring companies look to be spoilt for choice. The past two years have witnessed the emergence of London's Alternative Investment Market (AIM), the pan-European NASDAQ clone EASDAQ, and several new junior markets created by the main exchanges in Paris, Frankfurt, Brussels and Amsterdam, which are organizing themselves into a pan-European network of high growth markets. Scandinavian exchanges are also admitting bioscience stocks.

Moreover, NASDAQ looks poised to take a more aggressive position within Europe in the coming months. The big question is: do European biotech companies risk losing out long term because no market is able to develop a high quality sector with enough critical mass to sustain it?

Starting gun

The London Stock Exchange was the first European market to consider the needs of entrepreneurial biotech companies when exchange officials recognized they were in danger of losing a whole new high growth sector to North America.

The warning bells really started ringing in 1992 when Cantab Pharmaceuticals (LSE:CTB, NASDAQ:CNTBY; Cambridge, U.K.) announced that it needed to raise public equity and was going to NASDAQ to do it. Soon after, British Biotech (LSE:BBG, BBIOY; Oxford, U.K.) was able to complete a dual listing on NASDAQ and the LSE, but only after London officials agreed to relax the listing rules.

Indeed, probably the most significant event in the development of the U.K. biotech sector was the relaxation in 1993 of LSE listing rules for research-based companies, the so-called Chapter 20 rules (see A3). However, even though the Chapter 20 rules have enabled many companies to raise public capital, gaining a full listing remains difficult.

But if the financing environment for U.K. biotech companies was considered bad, the situation in continental Europe had been nothing short of disastrous. Spotting this gap in supply of equity capital, the European Venture Capital Association announced that it would attempt to create EASDAQ as a distinct pan-European exchange to cater to entrepreneurially managed growth companies with international aspirations.

The EASDAQ announcement galvanized other exchanges into action. And before EASDAQ's screens could come on, London had established AIM. And the Paris Bourse, which originally had been in talks with the EASDAQ founders, had not only launched Le Nouveau Marche as its own high tech high growth-focused exchange, it was also finalizing plans for a pan-European network of new markets backed by the main bourses.

"We are pleased that there is now growing competition to cater for small-to-medium sized companies," said Katie Morris, chief executive at CISCO, the London-based lobby organization for smaller companies. "Monopolistic stock exchanges were just focusing on the large cap companies, while small companies, particularly those in high tech areas, suffered because of their size and the fact they were misunderstood."