International Finance

Genset
Initial Public Offering (IPO)

Case# 05
Ali Raza
Umer Farooq
Muhammad Usman
Ihsan Ullah
Azain

Genset
Pascal Brandys, is the chairman and CEO of Genset
Company discover the cure to the common cold and

many other diseases by revealing the secrets of

human gene
He wondered if 1996 would be the right time to take
his company public
Company was unique because it was both creating a
library of genes and researching genetic causes of
diseases

Genset
Competition was fierce to discover every human

gene
Brandys estimated that Genset would needed
$70million
$70million

$30million
Capital
Expenditure

$40million
R&D
Expenses

Genset
Capital Raising

$54.2 million

70.4%
Private
Placement of
Equity

13.5%
Bank Loan

7.2%
Government
Grant

8.9%
Other Loan

Genset
Although company expected positive earnings to

start in 1998
Genset had never made a profit
Its operations had consumed million of dollars of

cash each year

Genset

Objective
The company objective was to apply its genomics
technology to discover drugs to treat diseases and to
enter into strategic partnerships with pharmaceutical
companies that would develop and make these drugs

Genomics
Genomics refers to study of genes, which is total DNA content of an

organism that is identically present in each of its cell.

Genetic diseases are caused by small changes in order of DNA.

Different genes responsible for different diseases. Although science

thought environment and lifestyle were the root causes of most human
diseases.
By early 1996 scientists has discover very few genes and its functions,

there is always risk thats if discover gene has connect to any diseases
or not. If not than useless.

Genomics
In

future research analysts predicted that each

chromosome were listed at one page with its
description, function, related diseases. Which can be
useful in pharmaceutical companies, agriculture and
chemicals industries

Licensing agreements generate revenue by selling

some rights to future applications of genes, and

through licensing genomics companies decrease both
risk and the amount of time before positive earnings.

Profile of Genset
Company was formed in 1989
By 1995, Genset had become a global company
Headquarter was located in Paris, France
U.S investors provide half of the total global capital for

biotechnology sector
France provide Genset an advantage

Profile of Genset
Commercial

strategy

for its technology

was to

collaborate with global network

Genomics companies could be grouped into two types
Sequencing Companies
Discovery Companies
Genset was both gene-Sequencing & gene-discovering

company

Profile of Genset
Genset used patents and trade secrets to protect its

proprietary technology
Genset had entered into agreements with French

pharmaceutical company
In future company expected to earn revenues from

contracts

Financing options
There were three main financing options
Initial Public Offering (IPO)
Venture Capital Financing
144A/ Private Placement of Equity

American Depositary Receipts (ADRs)

If Brandys took Genset Public, he wondered if he

should market the company in US, France or both

In order to list on US stock exchange Genset would

need to issue (ADRs)

ADRs were US securities that represents shares of a

non-U.S company

Advantages of ADRs
ADRs offered an issuing company several advantages
When ADRs were listed on developed stock market

they could be bought by institutions that would not

typically invest in the issuing company native market
Both Institutional and individual investors could avoid
problems
ADRs programs overcame many of difficulties
associated with international trade

Risks of ADRs
ADRs also possessed certain risk for investors
Currency Risk
Low Liquidity
Political Instability
Difficult to obtain information about company

Public Offering vs. Private Placement

Public Offering:

U.S

exchanges required that minimum share holders and

capitalization like in NYSE required 2,000 shareholders, market

capitalization of at least $100 million and tangible net assets at least
of $100 million.
Issuing company needed to follow underwriting process of public

offering take several week and often market timing was critical.

Public Offering vs. Private Placement

Issuing company needed to observe ongoing SEC

disclosure requirements. Financial reporting needed to

be in dollar and in English could be demanding, time
consuming, and costly.

Public Offering vs. Private Placement

Private

Placement:

Private

placement was restricted to 4,000 Qualified Institute

Buyers and provided access to all major Institutional accounts.
No size constraints.

Total

cost of private placement is half of public offering's.

company required to prepare a single global prospectus, not
required certain special disclosure.

Timetable

is shorter as compare to public offering, and there was

an ongoing risk of spread. Future issuing company had limited
ongoing access to U.S securities

Public Offering vs. Private Placement

Genset

French Financial Markets

Three market made up the Bourse de Paris
Large public companies listed on Cote Officielle
Small & Medium size companies listed on Second

Marche
Nouveau
Marche
allow
companies
seeking
development capital to access the stock market
Other companies were traded the over the counter
market on the hors cote

Conclusion of Case
Brandys contemplated dual listed offering on Nasdaq

and Nouveau Marche

Dual listing give Brandys a headache
Brandys know that all issues related to international

trading were just beginning

Conclusion of Case
If Public offering did not succeed, he would lose

valuable time that he could have to use to raise equity

through
Venture capitalists
Corporate partners
Institutional investors

Questions
1. Why are there so few IPOs outside the United States?

2. What are the costs and benefits of an initial public

offering?
3. What is the business environment in the genomics
industry? What are the key success factors?
4. Is the genomics field competitive?

Questions
5. What are the economics of running a genomics
company? How does that affect funding needs?
6. What is the current state of the financial markets? Are
they conductive for an initial public offering by
Genset?
7. Should Brandys take such extreme measures to issue in
both France and the Unites States? Why is he doing it?