Last week, the cracks in the buoyant US biotechnology sector started to show. The NASDAQ biotechnology index, which peaked at 2,854 at the end of February, started to slip at the start of March and last week took a 4.4 per cent drop in a single day's trading - its sharpest decline since 2011. New life sciences entrants to public markets have commanded ambitious valuations over the last 12 months - both in the US and the City - but, probably wisely, London's latest newcomers have shown some much-needed realism in their offerings.
Cambian Healthcare will be the first care-home float in London since the collapse of Southern Cross five years ago. The story has similarities: investors should be rewarded by an expanding specialist care services market which currently boasts high barriers to entry. But Cambian's property structure could help set it apart. Unlike Southern Cross, which only held its 750 care homes in leasehold arrangements, Cambian's more modest 249 properties are predominantly fully-owned, carrying a cumulative value of £577m, and Cambian also boasts higher barriers to entry due to its specialism in providing care and services to adults and children with mental health issues and learning disabilities.
Nonetheless, Cambian is only valuing itself at 12 times current earnings with its planned fund-raising of £20m - a sum that has been labelled "positively unambitious". The float also comprises a partial sale of shares by parent company GI Partners.
Fellow newcomer Horizon Discovery, which started trading on Aim on 27 March, benefited from a tail wind following a year of optimism for biotechnology stocks. The company, which provides 'tools' for genetic research, raised an additional £15m on top of the initial £25m proceeds target, and chief executive Darrin Disley admitted the timing was "fortunate", but emphasised "there was no plan" to capitalise on current trends. Instead, Mr Disley said the company will come to market "in top shape" having started life during the height of the recession.
Both companies adopted more modest ambitions approaching the market, but probably benefited in the wake of Circassia's mammoth IPO in March. The allergy company raised a staggering £200m making it the biggest biotech fund-raising in Britain for nearly a decade. While impressive, effervescent US trends no doubt buoyed demand for the stock.
