Marco Estermann, Head Issuer Relations of SIX Swiss Exchange in the Greater Zurich Area sat down with OneMedRadio to discuss the growth of the Swiss biotech sector and particularly different strategies this sector employs to raise capital. Estermann notes that Swiss entrepreneurs are more conservative in their approach. “When companies get established, they don’t aim to become global leaders straight away. They do not have any aggressive growth strategies which would urge them to actually tap the capital markets and grow fast and aggressively. That’s not how they work,” he says. SIX Swiss Exchange is located in downtown Zurich, in the heart of the Greater Zurich Area.
Click below to hear the full audio interview and see transcript that follows.
Matthew: Greetings from OneMedRadio, I’m Matt Margolis. Today I’m with Marco Estermann, Head Issuer Relations of SIX Swiss Exchange in Switzerland. Marco and I will be discussing the growth of the Swiss biotech sector and particularly different strategies this sector employs to raise capital. So firstly, let’s start with the public markets. So Marco, what is the state of the Swiss IPO?
Marco: Switzerland is a small country, so in general, we have on average about 5 listings per year.
So while this doesn’t give us a whole lot of new companies to the stock exchange, it gives more visibility and more attention to each transaction, to each IPO that is performed on our exchange.
And the second thing I would like to say is that Swiss entrepreneurs are – and I think this is kind of part of our culture as well: We are more conservative. So when you look at the environment of entrepreneurs and companies active here in Switzerland: When companies get established, they don’t aim to become global leaders straight away. They do not have any aggressive growth strategies which would urge them to actually tap the capital markets and grow fast and aggressively. That’s not how they work. They usually are relatively conservative and they finance themselves out of their cash flows if they’re generating cash flows and/or what they also do is – and this is given our well-functioning banking sector and strong banking sector – is that they get credit from banks.
So they’re usually not so used to use the Swiss capital market, so therefore, we do not have that many IPOs a year, and in general, we do not have that many companies listed on our exchange. But when the companies go for a listing, they are usually market leaders, be it on a global scale or European scale, and it might be, you know, that there are global leaders in a niche market. When you look at the companies listed on our exchange, we generally have global leaders.
Matthew: Do you find that Roche and Novartis are particularly altruistic to Swiss companies and willing to fund small projects?
Marco: The most crucial thing for the large pharma companies is the pipeline. Roche as well as Novartis, they have established their VC funds quite some time ago.
And what they do is they finance small companies. They want to keep them independent, but they help them go through the development phase, and if they see an opportunity and believe that it makes sense to actually in-source kind of the company, they will take it over and integrate it into their structures. But if they feel that it is more advantageous to them to actually keep the company independent, they keep on funding the company, and maybe – I mean there are some examples over the last 10 years, 8 years or so where we have seen the floating of some biotech companies, some spin offs from – specially Roche for instance…and actually, this Roche spin off called Basilea is one of the more successful biotech companies that’s listed on the Swiss Stock Exchange over the last years.
So I think the large pharma companies, they do actually help the smaller companies that they feel will be helpful to them to actually fill their pipeline.
Matthew: What is the demand like for foreign capital? Or are Swiss emerging growth companies content with the current situation?
Marco: I think what we see here in Switzerland is that there’s lots of liquidity around, but there’s not enough of quality companies to invest in. So for the amount of cash that is available to be invested in, we do not have enough companies here. So I think that the companies, the start up or branch of companies active here in Switzerland, they’re well funded or they not necessarily have the funding problem as such, but I think a lot of these companies, they’re actually open to foreign investments when they see some additional advantages, you know. If they can bring in and investor not only give them money and have some finance their projects, but also brings with him some expertise, be it, distribution, sales expertise or be it some specific product know how and so on.
Matthew: You’re saying there’s a lot of liquidity out there, and one thing we haven’t talked about yet is the desire of foreign companies to actually enter and venture into Switzerland. So do you think that there are foreign companies who should be taking advantage of the vast liquidity and access to capital?
Marco: Absolutely. I mean at the stock exchange, this is one of our strategic thrusts [goals] that we, you know, are pushing ahead quite strongly to try to attract more foreign companies to the Swiss market because the money that is available here is looking to invest in foreign markets.
It’s looking to invest in emerging markets, but also in interesting investment cases globally.
So you know, we are already one of the most international stock exchanges in Europe. When you look at the 5 largest stock exchanges, we are behind London, we are the most international stock exchange. 16% of all the companies listed here are actually foreign origin and many of them are US companies. Most of the US companies are secondarily listed, but still, they are here because they want to profit from the Swiss investor base.
Switzerland is actually, or Swiss Institutions, financial institutions are actually managing more than $4 trillion dollars in funds, and…
Matthew: And what percentage of that 16% do you think is in the biotech medical device world?
Marco: I mean we had, you know, companies like Synthes, a US company. Then we have some Israeli companies. We have Italian companies listed here. So I would say – I mean I didn’t do the analysis, but I would say it’s about 30% of these foreign companies…
Matthew: So it’s a noticeable number.
Marco: Absolutely because, you know, it’s – I mean the Life science sector has been a focus of the exchange for more than 10 years now.
We’ve been marketing the Swiss financial market to Life science companies for the last 15 years. And we are actually – you know, in terms of when you look at the market capital for listed companies here, 40% of the overall European Life sciences market capitalization is listed here on SIX Swiss Exchange.
Matthew: Do you find that foreign companies or Swiss companies are sort of having trouble navigating through red tape, or does the government make it easy or perhaps appealing?
Marco: Yes. I think what we’ve seen over the last 5, 6 years is that actually, a lot of companies relocated their either European headquarters or even global headquarters to Switzerland because of the tax structure, because of the R&D environment and also because of the IP protection. What I understand from my, you know, IP lawyer friend, Switzerland has a very strong IP protection and that actually led several companies to base their IP here in Switzerland.
Marco: And then, after a few years, they started to establish more structures. They started to establish then their holding company and started to use that to actually further expand within Europe, also using the strong currency to acquire foreign businesses, and so that definitely helped.
Matthew: Do you find that there is a significantly larger majority of companies with the potential to jump into an IPO will instead be acquired by a foreign entity?
Marco: Yes. I mean what we’ve seen over the last 5, 6 years, which have been very difficult for Life sciences, specifically biotech companies, that whenever a company needed money or the investors wanted to exit the company, they were going for a dual track process meaning they were looking to – well, they were preparing the company for public floating of the shares, but at the same time, they started negotiations with strategic buyers, and buyers could have been foreign companies, but also one of the most successful companies here in Switzerland.
It’s not the case that companies are specifically looking for foreign investors, but they’re definitely taking that into account when they’re looking to sell the company definitely
Several transactions over the last years that foreign companies actually have taken over Swiss Life Science companies. For instance, just recently, Oridion has been taken over. The Oridion is an Israelian medtech company that is listed here. It has been taken over by a foreign investor or foreign company. We’ve seen Synthes being taken over by Johnson and Johnson. $21 billion of Swiss francs transaction.
We’ve seen the privately-held Nycomed, a pharma company, Swiss pharma company has been taken over by a Japanese company called Takeda.
So yes, we’ve seen several of the M&A transactions where the Swiss target company has been acquired by, taken over by a foreign company.
Matthew: The root of my question was will the majority of biotech companies view themselves as eventually being acquired by or funded by Novartis and Roche, or will they have as much success with foreign companies, at the M&A stage?
Marco: No, I think foreign investors are as active as Novartis and Roche here in Switzerland.
Matthew: So what would be the advantage maybe in your own words of an early-stage Life science company that’s seeking to explore foreign public markets? What would be the advantage of making Switzerland their primary listing?
Marco: I think, as I mentioned, it’s the investor base, very diverse investor base that the deep pool of assets not only by institutional investors, but also by private money, and I think the advantage of private money is that they’re less price sensitive. They’re usually long-term investors and they’re very wealthy people as well.
Obviously, the strong currency, using a listing or floating on the Swiss market to raise capital and use that capital to grow internationally, acquire companies in Europe or the US where development of these currencies has been very positive for Swiss denominated securities or Swiss capital to invest.
Matthew: So which kind of companies may find now Switzerland to be an advantage over exploring other markets in Europe?
Marco: For Swiss companies having or being conservatively financed, they don’t have big issues that a lot of companies, you know, European companies have.
And Switzerland doesn’t have a lot of issues that other European countries have. We do not have a debt crisis, and while this is an advantage for some companies, it is a disadvantage for other companies exporting their goods to Europe or other, you know, be it the US or other regions because Switzerland is already quite expensive, and it has become a lot more expensive now since the crisis.
Now, you know, this is why I said it kind of depends on the point of view whether you are a company active in the export industry, whether you are a company looking to acquire other companies from the strong position of a Swiss-based, Swiss franc denominated company where it is cheaper to buy now a European company than it was like 5 years ago.
Matthew: From a quality of life perspective, if I were an American early-staged biotech company, exploring foreign markets, why Switzerland over others?
Marco: It’s the stability and, I mean stability, regulatory, as well as the fiscal and political stability of the country, but still the openness of our culture being a very small country, we always had to be very open. The education system, the universities, the flexibility of the labor market, the availability of educated people, and then, yes, the quality of life in general, international schools, affordable international schools. So it’s not only about the company. It’s also about the people that come to work for the company. They find an attractive tax environment, not just for the companies, but also the individuals joining the company to work here.
Matthew: That was Marco Estermann, Head Issuer Relations of SIX Swiss Exchange, discussing the state of biotech company growth development in Switzerland. With OneMedRadio, I’m Matt Margolis, signing off.