AFT Pharmaceuticals to raise $33.2 mln in IPO to fund R&D pipeline

Friday 27th November 2015

AFT Pharmaceuticals, the Auckland based company whose products include Maxigesic pain medication and Maxiclear PE nasal decongestant, plans to raise $33.2 million to fund a research and development pipeline over the next two to three years.

The Auckland based company set the price of 11.9 million shares to be offered at $2.80 apiece, following an institutional bookbuild, valuing AFT at $269 million, it said in a statement. The IPO includes $30.2 million of new capital to fund growth at AFT with the ability to accept over-subscriptions of up to $4 million, while the trustees of the Atkinson Family Trust, associated with founder Hartley Atkinson and wife Marree, will raise $3 million, selling their stake down to 76 percent.

Of the funds raised, about 71 percent will go to clinical trials, and AFT estimates the bulk of R&D will be completed within two to three years, according to its product disclosure statement. The company didn't provide forecasts, saying the outcome of the trials and regulatory approvals threw up too much uncertainty "to reliably determine reasonable assumptions" and that any estimates "would be likely to mislead or deceive potential investors."

Still, AFT will target positive earnings before interest, tax, depreciation and amortisation once the period of heightened R&D wraps up, and a covenant attached to a loan from Capital Royal Group would see the company's second biggest shareholder able to increase its stake if AFT doesn't exceed revenue of $64.5 million in the 2016 financial year, $73.5 million in 2017, $84 million in 2018, and $96 million in 2019. It generated revenue of $56.2 million in the year ended March 31.

Chief executive Atkinson told BusinessDesk the company has five or six products in the development pipeline, most of which are in a late stage and should be ready to come to market within the R&D period.

"A lot of what we're doing is improving existing drugs, which is mostly a lower-risk business proposition," Atkinson said.

Because AFT negotiates distribution agreements with other companies overseas to use their existing networks, it doesn't need to spend much expanding its sales and marketing team, and along with the portability of registration dossiers, is a "very scaleable" business, he said. "Internationally, the important thing is when we get our licensees, it's them that do the sales and marketing."

The pharmaceutical industry is insulated from economic cycles, with a steady demand for healthcare services and medicines, Atkinson said.

"If the economy goes bad, it doesn't really make too much difference," he said. "We keep growing if the economy's good or bad."

The Atkinsons started AFT Pharmaceuticals in their garage in late 1997 and today the company sells more than 100 products in New Zealand, Australia, Asia, and in Europe.

Atkinson said the company will target Europe and the Middle East for its initial global expansion, with North America "a second cab off the rank."

Capital Royalty Group will lift its holding in AFT via a US private placement that will occur at the same time as the IPO, the statement said. Capital Royalty has about US$2 billion under management, it said.

"For them to further increase their stake in AFT speaks volumes about the future direction of our business,” the company said.

The broker firm offer is scheduled to open on Dec, 4. First NZ Capital is the sole lead manager for the offer.

BusinessDesk.co.nz

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