Athenex is about to take a big step in its evolution: going public.
The Buffalo-based biotech company hopes to raise $100 million in an initial public offering, to help pay for work to develop cancer-fighting drugs.
Only a handful of Buffalo-based companies have gone public in the past 25 years. It’s a path that can open the door to more capital, while also raising expectations about performance. Depending on how things turn out, a company might ramp up hiring and investment or be forced to make changes in management or even ownership.
Every IPO is different. But Buffalo executives who have gone through the process cite a common experience, of coping with new pressures and proving themselves to a wider audience.
David L. Rogers knows all about the challenges that come with moving a privately held company to the public stage.
In 1995, the company now called Life Storage was still known as Sovran Self-Storage. The real estate company had reached a crossroads. Some of its investors were ready to cash in, to pay for a daughter’s or son’s college education, or because they were retiring, said Rogers, who was chief financial officer at the time.
Sovran’s leaders settled on an IPO as the best way to allow investors to see a payoff, while at the same time raising more capital to support a company just hitting its stride.
“I’m not going to say it wasn’t risky, and there were concerns we had, because essentially you’re selling control of your company,” Rogers said.
As if the executives didn’t feel enough pressure, Rogers remembers a Barron’s columnist writing that Sovran’s IPO would be a “bellwether” for real estate investment trusts.
The public offering was a success that transformed the Amherst-based company, which rebranded itself as Life Storage last year, after acquiring a company with that name.
Life Storage now has about 700 properties around the country, compared to more than 60 at the time of the IPO. “We grew logarithmically,” said Rogers, who has been CEO since 2012. “It’s allowed us to become a dominant player in the sector.”
In retrospect, the IPO was an important test. “When you’re public and you have a good story and you’ve got a decent track record, you can access capital to grow,” Rogers said. “The IPO is the tough part. You don’t know how the market’s going to feel about your story, about your track record. There’s a lot of skepticism for a new company. You’ve got to overcome it.”
IPO a pathway forward
Athenex, as it prepares for an IPO, will open itself to new public scrutiny.
Formed as Kinex Pharmaceuticals in 2003, the company’s work extends beyond potential cancer treatments. It has diversified into drug testing and manufacturing under contract to other companies.
Athenex has reported raising more than $250 million in private financing through 2016, but has reached a point in its development where it needs additional financing mainly to fund clinical trials of its drugs. An IPO provides that pathway.
The company said in a filing it had $33.1 million in cash or cash equivalents at the end of 2016. In May, it also raised $20 million from investors through a debt offering. It plans to use most of the proceeds from the stock sale to support Phase 3 studies of its promising drugs, including about $28 million for Oraxol, a treatment for breast cancer, and $20 million for an ointment to treat actinic keratosis, a precancerous patch of crusty skin from sun overexposure.
Michael Dambra, assistant professor of accounting and law at the University at Buffalo’s School of Management, said the Buffalo Niagara region should benefit from some of the funds Athenex intends to raise.
“You can’t really quantify how much, but they’re going to use some of this probably to invest in the local economy, either through research and development, or employment,” Dambra said.
Athenex has its North American headquarters at the Conventus building on the Buffalo Niagara Medical Campus, and the state is pouring $200 million into a planned drug manufacturing plant in Dunkirk.
New public scrutiny
Rogers, the chief executive of Life Storage, said going public alters the way a company functions. He estimates he devotes 65 percent of his time to investor relations: talking to them on the phone, hosting them at the corporate offices, and the like. Life Storage has about 46 million shares outstanding, and about 150 of its shareholders are institutional investors who own at least $1 million of the company – some with much more.
“There’s a lot of people who, when the share price is up, you don’t hear that much from them,” Rogers said. “And when the share price is down, they want to know the whole story, they want to know the plan.”
The scrutiny comes with the territory. “You’re in the public eye all the time,” he said. “ I can’t go to the coffee shop or even my pizzeria or my barber without having them say, ‘Hey, great share price,’” or lately, ‘What’s going on with the share price?’”
When Sovran went public, it had about 30 local employees, compared to about 275 locally today, among 1,800 employees across its operations. The company added 21 employees in the Buffalo region due to the Life Storage deal. The company also buys services from firms like its insurance company, auditors, attorneys and printer, not to mention supporting charities. “To have a public company in Western New York is a good thing,” Rogers said.
Back in the mid 1990s, going public was “kind of the thing to do to raise capital, so it was kind of a normal step in the evolution of a company’s growth,” said Timothy Tevens, who retired as Columbus McKinnon’s CEO last year after 19 years in that role.
In 1996, Tevens was an executive at the Amherst-based material handling equipment manufacturer. The company needed capital to pay for a $60 million acquisition, and had a couple of other deals on the horizon.
“We saw what was coming and we wanted to strengthen the balance sheet and improve our capital position such that we could continue the growth,” Tevens said. The answer: an IPO. Taking that step would also allow some managers who had been part of a leveraged buyout in the 1980s to cash in.
Columbus McKinnon had been a privately held company for more than a century, so going public was a significant shift. It proved to be an eye-opening experience for the executives. The company tangled with a new investor who pushed for Columbus McKinnon to be sold.
“We didn’t realize that world existed out there,” Tevens said. “Our thoughts were strictly on the strategy and the growth of the company.”
Company executives also learned about the pressures that come with reporting results publicly each quarter.
“You miss a quarter or the earnings aren’t as strong as everybody would like them to be, and you have to answer to the shareholders,” Tevens said. “And that became a learning lesson for us: how to do that, how to communicate the story well.”
To that end, Tevens said going public “does sharpen your focus and your attention on producing results, period.” He believes Columbus McKinnon was driven to become a more-sophisticated operation.
Going public also opened up Columbus McKinnon to a new world of capital markets. Earlier this year, the company finished acquiring a German firm, coinciding with the sale of $50 million in common stock.
“Without being a publicly traded company, I’m not sure that deal gets done,” Tevens said.
He also sees a local impact, through hiring a wide range of employees. “You’re adding to the strength of the community with a diverse set of people, with different skills,” he said.
IPOs sometimes have different outcomes.
Synacor, a Buffalo-based tech company, had an IPO that fell flat in 2012. The company sold shares for $5 each, and its stock price has been stuck below $4 for years.
Battery maker Wilson Greatbatch had a successful IPO in 2000, 30 years after the company was founded. But in recent years, the parent company moved its headquarters to Texas and closed a Clarence manufacturing plant, diminishing its local presence.
Niagara Bancorp, the parent of what was then called Lockport Savings Bank, went through an IPO in 1998, but those shares were bought up by customers. A secondary offering in 2003 converted the company, by then called First Niagara, from a mutual holding company to a fully public company. First Niagara subsequently went through a growth spurt, but couldn’t capitalize on all its dealmaking and was sold to Cleveland-based KeyBank last year.
Where are the IPOs?
IPOs aren’t so hot these days. In 2016, there were only 106 of them across the country, the lowest total since 2009, according to FactSet.
But even when the number was rising nationally a few years ago, Buffalo Niagara wasn’t part of the trend.
Dambra, the UB assistant professor, thinks part of the answer relates to a company’s need for visibility.
“Typically, visibility is one the biggest benefits of IPOs, so you want exposure to analysts, to other investors,” he said. “IPO hotbeds are going to be Silicon Valley or New York or Boston, where there’s a lot of investors, a lot of analysts, a lot of exposure. So typically you don’t really get that kind of environment in upstate New York.”
Tevens, of Columbus McKinnon, said some companies aren’t eager to take on the regulatory burdens and the pressures from activist shareholders. Plus, companies can find other sources of financial support, such as private equity, without going public.
Dambra said it’s difficult to know how much a company might have grown had it never converted from privately held. He sees drawbacks and advantages to going public. “The research shows that firms that go public actually don’t invest enough, because they want to hit their accounting or earnings targets,” he said.
But Dambra also sees broader potential from an IPO.“Now these pre-IPO investors have a new influx of cash, and they might start their own startups,” he said. “So you might see job growth through more companies being created in Buffalo.”
News Medical Reporter Henry L. Davis contributed to this report.