The Benefits of Utilizing Depositary Receipts PHARMACEUTICALS & BIOTECHNOLOGY / HEALTH CARE EQUIPMENT & SERVICES SECTORS

Transcription

1 The Benefits of Utilizing Depositary Receipts PHARMACEUTICALS & BIOTECHNOLOGY / HEALTH CARE EQUIPMENT & SERVICES SECTORS

2 1 // THE BENEFITS OF UTILIZING DEPOSITARY RECEIPTS Introduction An active area of U.S. investor interest recently has been the Pharmaceuticals & Biotechnology / Health Care Equipment & Services (Pharma & Biotech / Health Care) sectors. The NASDAQ Biotechnology Index has almost tripled since 2013, beating the nearly 50% rise in the S&P 500 Index in the same period. 1 Non-U.S. companies in the Pharma & Biotech / Health Care sectors that wish to have their securities traded in the U.S. have several options. More than 800 companies from more than 50 countries, as of June 30, 2015 have established a Level I American Depositary Receipt (ADR) program to trade on the U.S. over-the-counter (OTC) market. As of June 30, 2015, nearly 400 non-u.s. companies have ADRs listed on the NASDAQ Stock Exchange (NASDAQ) or the New York Stock Exchange (NYSE) (Level II or Level III ADR programs). ADRs may be used to attract new investors, increase a company s research coverage, raise capital and/or make a U.S. acquisition. As of June 30, 2015, Pharma & Biotech / Health Care companies are the most active issuers of new ADR programs. Since the beginning of 2014 to June 30, 2015, 24 companies in these sectors have established a sponsored ADR program. Twelve are Level I ADRs that trade on the OTC market, and 12 are listed on the NYSE or NASDAQ. Since January 1, 2015, 11 companies in these sectors have raised more than US$ 950 million in ADR form. This represents 25% of all capital raised in ADR form in the first half of BNY Mellon s DR division is focused on the unique needs of ADR issuers from the Pharma & Biotech and Health Care sectors. BNY Mellon has been appointed as depositary for 59% of all Pharma & Biotech / Health Care sector companies that have established a sponsored DR program since Source: Unless otherwise noted, BNY Mellon and other depositary websites. 1 Bloomberg, as of June 30, 2015.

3 2 // THE BENEFITS OF UTILIZING DEPOSITARY RECEIPTS Case Studies Forward Pharma A/S, a Danish biopharmaceutical company, raised approximately US$ 235 million in its October 2014 IPO utilizing provisions of the JOBS Act. Forward Pharma listed DRs on NASDAQ, working with BNY Mellon as depositary. Mazor Robotics, an Israeli developer of innovative surgical guidance systems for spinal surgery listed its DRs in the U.S. with BNY Mellon as depositary. In May 2013, Mazor listed by introduction as a Level II DR program on NASDAQ (no DRs outstanding at inception). Within six months, Mazor had US$ 160 million in DRs outstanding equivalent to almost 60% of the company s outstanding shares. Mazor subsequently conducted a U.S. public offering of DRs, raising US$ 46.9 million. Ascendis Pharma A/S, another Danish biopharmaceutical company, raised approximately US$ million in its IPO, also using the provisions of the JOBS Act. Following Forward Pharma, this was the second Danish IPO brought to market in ADR form in less than four months. It was important for Ascendis to launch its capital raising during the first quarter of 2015, and with BNY Mellon as its depositary, they issued 6.9 million Ascendis Pharma ADRs in February Cross-Border IPOs FOREIGN PRIVATE ISSUER IPO VOLUME VIA U.S. LISTINGS BY YEAR Companies raised US$ 35.9 billion through 66 cross-border IPOs (inclusive of those via DRs) in 2014, more than five times the value raised through the 38 cross-border IPOs in 2013, US$ 6.9 billion.¹ $90 $80 $70 THE JOBS ACT OF 2012 The Jumpstart Our Business Startups Act of 2012 (the JOBS Act) liberalized the U.S. federal securities laws in a variety of ways. The emerging growth company provisions of the JOBS Act, designed to encourage initial public offerings by smaller companies, give qualifying companies certain exceptions to procedural and disclosure requirements on a transitional basis at the time of the capital raising and for up to five years thereafter. Qualifying companies may include issuers with total annual gross revenues of less than US$ 1 billion during the most recently completed fiscal year. The procedural and disclosure relief includes the potential to submit documents to the U.S. Securities and Exchange Commission (the SEC) for confidential review, greater freedom to communicate with potential investors to test the waters, the ability to submit only two years (rather than three) of audited financial statements to the SEC and partial exclusion from specific Sarbanes-Oxley audit requirements. These advantages may also reduce the time required to prepare documents and the associated legal and accounting costs. $60 $50 $40 $30 $20 $ Proceeds in US$ billion. Source: [accessed 8/05/15]. 1 Renaissance Capital,

4 3 // THE BENEFITS OF UTILIZING DEPOSITARY RECEIPTS Pharma & Biotech / Health Care Capital Raising ADR Programs Listed on Leading U.S. Exchanges January 1, 2013 to June 30, 2015 DR ISSUE SYMBOL EXCHANGE MARKET CAP (US$ MILLION) COUNTRY INDUSTRY GW Pharmaceuticals GWPH NASDAQ 2,694 United Kingdom Pharma & Biotech Galapagos GLPG NASDAQ 2,057 Belgium Pharma & Biotech Cellectis CLLS NASDAQ 1,451 France Pharma & Biotech ikang Healthcare Group KANG NASDAQ 1,360 China Health Care Adaptimmune Therapeutics, PLC ADAP NASDAQ 1,232 United Kingdom Pharma & Biotech Mazor Robotics MZOR NASDAQ 1,089 Israel Health Care DBV Technologies S.A. DBVT NASDAQ 1,003 France Pharma & Biotech Ascendis Pharma ASND NASDAQ 390 Denmark Pharma & Biotech Innocoll AG INNL NASDAQ 313 Germany Pharma & Biotech Biotie BITI NASDAQ 219 Finland Pharma & Biotech RedHill Biopharma RDHL NASDAQ 165 Israel Pharma & Biotech Summit Therapeutics SMMT NASDAQ 133 United Kingdom Pharma & Biotech Forward Pharma FWP NASDAQ 46 Denmark Pharma & Biotech Can-Fite BioPharma CANF NYSE 24 Israel Pharma & Biotech BiondVax BVXV NASDAQ 16 Israel Pharma & Biotech Source: BNY Mellon and other depositary websites as of June 30, 2015.

5 4 // THE BENEFITS OF UTILIZING DEPOSITARY RECEIPTS Level II And III Programs U.S. LISTING SHARE STRUCTURE CONSIDERATIONS Non-U.S. companies may be eligible to list ADRs or local shares on a primary U.S. Exchange such as NYSE or NASDAQ. In connection with a potential U.S. Listing and/or IPO, while listing an ordinary share in the U.S. is possible, the simplicity, flexibility, and lower cost provided by the Depositary Receipt structure offers numerous advantages. These advantages are the reason an ADR program is a valued alternative for non-u.s. issuers listing in the U.S., even in the case of a single market listing. ADRs are an accepted, proven, and economical way for non-u.s. companies to access U.S. capital markets. Several factors should be considered when selecting a U.S. listing structure: The structure should be simple and easily understood by the market participants, including brokers, investors, clearing organizations and custodians. Maintaining a diversified institutional and retail investor base in the U.S. is important. Investors should receive the same services they are accustomed to receiving when investing in the shares of a U.S. company. Cross-border settlement (when and if dual-listed) should be efficient and follow well-established procedures. Issuer benefits of establishing an ADR program include: The establishment of an ADR program (versus the U.S. listing of ordinary shares) does not require any changes or reconciliation with current local administrative, governance, and registrar procedures. The underlying shares of ADRs are included in the issuer s home country register, and do not require reconciliation of multiple registers. ADRs are a U.S. security and therefore trade, settle, and transfer according to U.S. procedures. ADRs can be an important tool for an issuer to design company investmentbased options for its U.S. employee benefit plans. When listing as an ADR, the depositary acts as or manages various agents required to support a U.S. listing. DR voting distribution and tabulation for annual meeting and certain corporate actions services are supported by the depositary. ADRs are issued at a ratio to ordinary shares, facilitating adjustment of the ADR price to meet U.S. market sensitivities. Unlike ordinary shares, an ADR program is based on a contractual structure that the company can terminate. A depositary bank may offer investor relations support, including working with clients to assess liquidity and visibility and to build relationships with the sell side, institutional and retail investors. Utilizing ADRs for a U.S. Listing FLEXIBILITY OF A DUAL LISTING An ADR allows the option for another primary or secondary listing in either a company s home market or another market. A listed ADR structure avoids the need to establish a new share class and multiple register(s) with the associated register removal procedures and interchanges required in cross-border trading of ordinary shares. With ADRs, even if trading in two listed markets, there is only one ordinary share class and home market jurisdiction, thus simplifying proxy/agm and regulatory procedures. Cross-border settlement is simplified and more efficient for investors and brokers utilizing the ADR mechanism.

6 5 // THE BENEFITS OF UTILIZING DEPOSITARY RECEIPTS Level II ADRs Non-U.S. companies looking to increase U.S. market interest in their securities and list on a U.S. stock exchange but not raise capital when listing can establish sponsored exchange-listed ADRs. These issuers must register under the Securities Act of 1933 and report under the Exchange Act of 1934 by filing an initial registration statement and periodic reports on Form 20-F. Issuers must reconcile their financial statements to U.S. GAAP or IFRS, meet the listing requirements of the chosen stock exchange and meet strict corporate governance requirements mandated by the Sarbanes-Oxley Act. In exchange for meeting these strict regulatory requirements, these types of ADRs can be listed on the major U.S. stock exchanges, the NYSE, NYSE Amex or NASDAQ, and are often widely covered by the U.S. financial analyst and media communities, providing investors with increased information about the issuer and its securities. Establishment Timetable for Level II ADRs: Secondary Listings WEEK 1 WEEK 2 WEEK 3 WEEK 5 WEEK 7 WEEK 11 WEEK 12 WEEK 13 Appoint advisors Prepare and submit Form 20-F Prepare and submit Exchange Listing Application and Agreement Prepare Fee Letter Agreement for review and signing Prepare and submit Deposit Agreement and F-6 Form 20-F is approved Form F-6 declared effective Stock exchange, FINRA and DTC are notified of trading date PARTY RESPONSIBLE Issuer BNY Mellon Issuer Counsel Prepare DR certificates, obtain CUSIP number, request DTC eligibility U.S. SEC BNY Mellon Counsel Investment Bankers Trading of DRs commences Announcements distributed to investment community and financial media

7 6 // THE BENEFITS OF UTILIZING DEPOSITARY RECEIPTS Level III ADRs A U.S.-listed ADR is the primary capital markets tool used by many non-u.s. companies to list and raise equity capital in the U.S. These exchange-listed, capitalraising ADRs can obtain maximum visibility and liquidity for the issuer. For Level III ADR programs, which, unlike Level II programs, include a capitalraising portion, issuers must prepare and file a Form F-1 registration statement with the SEC. The Form F-1 includes the prospectus and provides a detailed description of both the issuer and the capital raising transaction. Issuers with Level III programs also file annual reports on Form 20-F. DOCUMENTATION FOR ESTABLISHMENT OF PROGRAMS For Level II and Level III ADR programs An issuer must: Reconcile its financial statements to IFRS or U.S. GAAP Meet the listing requirements of the chosen stock exchange Unless exempted under the provisions of the JOBS Act, meet the strict corporate governance requirements mandated by the Sarbanes-Oxley Act File annual reports (Form 20-F), interim financial statements, and current developments (Form 6-K) with the SEC on a timely basis, to the extent such information is made public or filed with an exchange in the issuer s home country, or distributed to shareholders File Form F-6, a simple SEC registration statement that includes the formal corporate name and address, a contact name, telephone and fax number, the par value of the shares represented by DRs, etc. The agreed form of Deposit Agreement and form of depositary receipt are filed as exhibits to the Form F-6. This form requires the signatures of a majority of the issuer s Board of Directors Complete a standard Deposit Agreement. This is the contract among the issuer, the depositary and the DR holders that details the responsibilities of each party. FOR FOLLOW-ON OFFERINGS An issuer may also raise capital in subsequent offerings. In such a follow-on offering, the issuer may be able to file an abbreviated registration statement (Form F-2 or Form F-3) with the SEC. Establishment Timetable for Level III ADRs: IPOs and Capital Raisings WEEK 1 WEEK 2 WEEK 3 WEEK 5 WEEK 7 WEEK 13 WEEK 14 CLOSING DAY Appoint advisors Prepare and submit prospectus, Form F-1 and Form 20-F Prepare and submit Exchange Listing Application and Agreement Underwriter delivers cash proceeds to issuer Prepare Fee Letter Agreement for review and signature Prepare and submit Deposit Agreement and F-6 Form F-1 and Form 20-F are approved and F-6 is declared effective Depositary s custodian receives underlying shares PARTY RESPONSIBLE Issuer BNY Mellon Prepare DR certificates, obtain CUSIP number, request DTC eligibility U.S. SEC BNY Mellon Counsel Announcements distributed to investment community and financial media Depositary delivers DRs to underwriter Issue is priced and trading commences Issuer Counsel Investment Bankers

8 Why BNY Mellon There are many compelling reasons to select BNY Mellon as the depositary for your ADR program. INDEPENDENCE FROM THE INFLUENCE OF INVESTMENT BANKING, TRADING AND RESEARCH BNY Mellon s DR Division is independent of the influence of investment banking and segregated from trading and research functions. This allows us to align our services with your goals, working effectively with the full range of buy- and sell-side firms in North America and elsewhere to enhance the liquidity and visibility of your ADR program. EXTENSIVE EXPERIENCE AND EXPERTISE IN TRANSACTION STRUCTURING AND EXECUTION With broad corporate actions and transaction experience, as well as in-depth knowledge of capital markets infrastructure and regulations, BNY Mellon s Transaction Structuring and Execution team assists with complex cross-border transactions for issuers and investors. With a keen understanding of the global securities regulatory environment, our professionals are among the most experienced transaction structuring and execution teams in the industry. EXCELLENCE PROVEN BY MARKET LEADERSHIP BNY Mellon s DR Division is the market leader in all significant DR market share categories, including total number of DR programs, number of DR programs listed in the U.S., DR trading volume and value, capital raised, and DR program successorships. 1 You will be in good company, be able to access the most vibrant markets, and benefit from a seasoned and active group of industry professionals working on your behalf. ABOUT BNY MELLON BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of June 30, 2015, BNY Mellon had US$ 28.6 trillion in assets under custody and/or administration, and US$ 1.7 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on or follow us on 1 BNY Mellon Market Review, January 2015, BNY Mellon and other depositary websites as of June 30, Contacts NEW YORK David Stueber david.stueber@bnymellon.com Sandra Friedrich sandra.friedrich@bnymellon.com LONDON Graham Marshall graham.marshall@bnymellon.com Elsa Drebitko elsa.drebitko@bnymellon.com bnymellon.com This document, which may be considered advertising, is for general information and reference purposes only and is not intended to provide legal, tax, accounting, investment, financial or other professional advice on any matter, and is not to be used as such. BNY Mellon does not warrant or guarantee the accuracy or completeness of, nor undertake to update or amend the information or data contained herein. We expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon any of this information or data. We provide no advice nor recommendation or endorsement with respect to any company or securities. Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities. This document is not intended for distribution to, or use by, any person or entity in any jurisdiction in which such distribution or use would be contrary to local law or regulation. Similarly, this brochure may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized, or where there would be, by virtue of such distribution, new or additional registration requirements. Persons into whose possession this document comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this document in their jurisdiction. The information contained in this document is for use by wholesale clients only and is not to be relied upon by retail clients. If distributed in the UK or EMEA, this document may be a financial promotion and is for distribution only to persons to whom it may be communicated without breach of applicable law. Depositary Receipts: NOT FDIC, STATE OR FEDERAL AGENCY INSURED MAY LOSE VALUE NO BANK, STATE OR FEDERAL AGENCY GUARANTEE Trademarks and logos belong to their respective owners The Bank of New York Mellon Corporation. All rights reserved 08/2015