AIM tech shares that broke America

Shifting your stockmarket listing to Nasdaq does not always guarantee riches. Former AIM writer of the year Andrew Hore reveals those who made it big and those that didn't.

AIM companies gaining a Nasdaq quotation is generally thought of as a positive thing, and there can be an initial boost to the share price in anticipation of the future prosperity. However, the underlying performances of the AIM companies that have obtained a Nasdaq listing have not all been good. In fact, some have been terrible. 

Realm Therapeutics is the latest AIM company to join Nasdaq. Realm has commenced two phase II studies in the past year and its operations are in America. One of the phase II trials is for a treatment for atopic dermatitis and the enrolment for that study has been completed. 

Firms quoted on the junior market will seek Nasdaq listings because they feel that US investors have a better understanding of pharma and technology companies, in particular. That, it is hoped, can lead to higher valuations for the shares. 

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Nasdaq is seen as a way of gaining access to additional investors, making it easier to raise more money. It has not always been easy to do that, though. Motif Bio delayed its Nasdaq float because it was initially unable to raise cash at the right share price. The float did go ahead eventually and further cash has subsequently been raised. 

Rare disease treatments developer MerioBiopharma is the latest to announce a Nasdaq listing only to decide that the market conditions are too challenging, although it could still happen. 

A brief history

There have been a limited number of AIM companies that have obtained a Nasdaq listing. A decade ago the tightening of regulations in the US meant that a Nasdaq listing was less attractive because of the added costs and time required in complying with those regulations. 

Bioprogress, which became Meldex International, gained a Nasdaq-listing in October 2005 and delisted two years later, which was blamed on the costs of regulatory compliance. Meldex lost its nominated adviser and AIM quotation in 2009. Meldex was dissolved in 2013. 

There have also been companies that were already on Nasdaq and got a secondary quote on AIM. Allied Healthcare International was already on Nasdaq when it joined AIM at the end of 2005 and left in August 2010. At the end of 2011, Allied was acquired by Saga for $3.90 a share. 

Cardiovascular treatments developer Amarin Corporation had a short stay on AIM, but Nasdaq was its main quotation. Clean Diesel Technologies, now known as CDTI Advanced Technologies, is another example but, unlike the Amarin share price, the CDTI share price has plummeted over the past decade. 

Two companies that had short stays on AIM and whose main quotations were on the Continent have gained a Nasdaq listing subsequent to leaving AIM. Galapagos NV ADRand Biofrontera AG ADR are both pharma companies. 

Galapagos joined AIM after it acquired AIM-quoted Biofocus at the end of 2005 and stayed until April 2008. Skincare treatments developer Biofrontera joined Nasdaq earlier this year. 

Bermuda-based oil and gas company Energy XXI was originally an AIM shell that subsequently gained a Nasdaq quotation in 2007 and left AIM seven years later. However, it filed for Chapter 11 bankruptcy protection in 2016 and lost its quotation. The restructured business is known as Energy XXI Gulf Coast Inc. 

Multicurrency digital payments provider Planet Payment Inc ditched its AIM quotation in August 2014 to concentrate on its Nasdaq listing and was recently acquired by rival Fintrax for $4.50 a share. At the end of July 2014, the Planet share price was 135p. 

AIM originals

The focus of the table below is to list those companies that were originally quoted on AIM and subsequently gained a Nasdaq listing, some of which did not stay on AIM. Those that did not are priced in US dollars - sometimes they are traded on Nasdaq as an ADS which includes a number of ordinary shares. 

The initial prices in pence are generally the equivalent of a US dollar issue price for the initial placing or the share price prior to the Nasdaq listing. GenMark Diagnostics Inc swapped one of its shares for every 230 Osmetech shares and the placing price is used. 

Source: interactive investor

Lombard Medical appeared to be progressing well when it changed domicile from the UK to the Cayman Islands and moved to Nasdaq in 2014. However, it subsequently exited the US market in 2016 after the FDA required a 50-patient clinical study of its Intelliflex delivery system for the Aorfix stent graft.

The shares were demoted from Nasdaq to the OTC market and, at the beginning of this year, Lombard defaulted on a loan from Oxford Finance and admitted that it did not have enough cash to last until the summer. KPMG was appointed as administrator to the UK and German subsidiaries. China-based MicroPort Scientific Corp acquired the two operating companies and that suggests that the products themselves still have commercial potential.

A few weeks ago, Summit Therapeutics ADR would have been viewed as a positive example, but the recent disappointment with its clinical trial for a treatment for Duchenne muscular dystrophy means that instead of being around 50% higher than in March 2015 it has fallen by three-quarters. Summit will focus on its antibiotics operations, where its C.difficile infection treatment is about to enter phase II trials. This means that there is potential to bounce back.

Diagnostics company Akers Biosciences Inc is an example of a company that has consistently disappointed and gaining a Nasdaq listing has not changed this.

Nasdaq threatens to delist companies if the share/ADS price falls below $1 and Midatech Pharma ADR has that problem. It is not like AIM, where a company can stay quoted however low the share price gets. Nasdaq jettisons companies on a regular basis.

A 16-bagger

The big winner in the table is cannabis-based medicines developer GW Pharmaceuticals ADR. GW was added to the Nasdaq Biotechnology index in December 2014 following a strong run for the share price over the previous 18 months. That share price rise also helped GW to raise more cash at much higher prices.

GW ditched its AIM quotation at the end of 2016. The company’s market capitalisation is currently more than $4bn, although it was already more than £2bn when it left AIM. GW was valued at £175m when it joined AIM in 2001 and it was not a smooth share price journey to the current valuation.

There are 12 ordinary shares in one GW ADS, so the current equivalent share price is probably around five times the original 2001 placing price of 182p a share.

GW spent more than £111m on R&D in 2017 but still had £241m in the bank at the year end.

Hutchison China Meditech Ltd ADR has also done well, with the share price more than doubling in just over two years. The broad range of oncology and immunology treatments in development has undoubtedly helped. The later stage oncology treatments offer potential upside in the next few years, although Hutchison remains loss-making despite significant revenues.

What Lombard shows is that even if a company has a Nasdaq quotation it does not mean that it can raise the money it requires to make the most of the commercialisation of its products.

How to break America

It does appear that the better the position of the company the more likely they are to prosper on Nasdaq – but that is true of AIM as well.

GW Pharma was on AIM for more than a decade before it sought a move to Nasdaq. It is not just time, though, Summit has been around, initially as VASTox, for nearly 14 years. GW Pharmaceuticals already had a commercial drug, although revenues are small.

This is not a sizeable sample of companies and they are all broadly risky businesses because their products are not necessarily proven or commercial, as yet. So, it is probably no real surprise that so many have done poorly. There will be big winners and losers when it comes to pharma companies, whatever market they are quoted on.

There is nothing wrong with a company getting a Nasdaq listing, but it is a mistake to assume that this means the company will succeed. However, some of the companies that have fallen back or not seen much growth in the share price could still come good in the end. Summit still has a potential lucrative antibiotic treatment. Motif Bio has enough cash until next year when the FDA regulatory process for the use of antibiotic iclaprim in the treatment of acute bacterial skin and skin structure infections (ABSSSI) should be completed.

Andrew Hore is a freelance contributor and not a direct employee of interactive investor.