Finnil Instruments and Markets - Creso Pharma Company and Adalta Company - Case Study Example

Finаnсiаl Instruments and Маrkеts Name Institution Course: Tutor: Date: Table of Contents Firm’s Name 3 Date of listing the company 3 Capital to be raised 3 Underwriter 3 Creso Pharma main Business Activity 3 Key Company’s Personnel 4 Executive Chairman 4 Managing Director and Co-Founder 4 Non-Executive Director and Co-Founder 4 Reason for raising capital 5 Risks of Investing at IPO 5 Director’s Interest 6 Publicity/Advertisement 6 Reasons to accept or reject the investment 6 Adalta Company 7 Name of the Company 7 Date of Listing the Company 7 Capital to be raised 7 Underwriter 7 What the firm does 8 Key Company’s Personnel 8 Board of Directors 8 Non-Executive Chairman 8 Managing Director/ CEO 8 Non-Executive Director 8 Reasons for raising capital 9 Risk of Investing at IPO 9 Directors’ Interest 9 Publicity 9 Reasons to accept or reject investment 10 Recommendations 10 Invest in Creso Pharma 10 References 11 Firm’s Name The firm is called Creso Pharma and its stock ticker is at $ 0.20 per share. Date of listing the company Creso Pharma Company is expected to be quoted on the ASX on 12th October, 2016 after issues of shares and dispatch of holding statement. Capital to be raised Creso Pharma is looking into raising $5,000,000 of capital through the issuance of 25,000,000 shares at an issue price of $0.20, (Creso Pharma Prospectus, 2016, p.14). The c0ompany does not accept any minimum and maximum issue price. Underwriter The company does not indicate any company as their underwriter, which means they issue the shares on their won. Underwriters usually facilitate selling of shares at IPO on behalf of a company. They can also arrange with institutional investors to sell shares (Chemmanur, Hu and Huang, 2010, p.2). Creso Pharma main Business Activity Creso Pharma deals in medical and therapeutic products through commercializing pharmaceutical-grade cannabis and Hemp-based nutraceutical products. The company is raising capital in order to facilitate the development of technology-driven products that contain cannabis as an ingredient for therapeutic and medical purposes. Key Company’s Personnel Executive Chairman The executive chairman is Boaz Wachtel and the co-founder of Creso Pharma Company. He was a former Managing Director at MMJ-Phytotech Limited. Apart from that, Boaz is a certified research manager and graduated in University of Maryland as a holder of MA in Management and Marketing. Despite working with the government and various NGOs as a medical advisor, Boaz was the founder of the Green Leaf Party. He was also an active participant in the implementation of National Medical Cannabis Program. Managing Director and Co-Founder The managing director is Dr. Halpherine Wernl, a co-founder of Creso Pharma. Dr. Halpherine has worked in the biopharmaceutical industry for over 25 years of leadership on a strategic and operational capacity. She has been a proficient personality and holds a legacy in product development, research and development, and strategic marketing. Her skills and experience in the biopharmaceutical industry cuts across various aspects such as drug development, registration and strategic marketing. With exceptional experience in a busy and highly established health environment in Australia and beyond, Dr. Halpherine qualifies to offer leadership in Creso Pharma in areas of product development, strategic marketing and corporate governance. Non-Executive Director and Co-Founder The non-executive director and co-founder of Creso Pharma is Adam Blumenthal. Adam Blumenthal has profound experience in Corporate Finance. He has adequate skills and experience in the financial and capital market. His professional input in financial solutions to a couple of unlisted and listed companies in the Australian environment is on record. He has also been acting in an advisory capacity for corporate organisations across industries. His extensive knowledge and expertise in the financial market and organisational financial management dominions, makes him a reliable and qualified to handle financial matters such as project appraisal, financial allocation and management in general. The above key personnel are considered very productive and skilled to take Creso Pharma to the next level. Given that the company has highly and very expensive personnel whose input are based on their levels of experience, the company may have to pay them a lot and retain less post-floatation. The company will have to operate for various years until it cuts on its operational costs, which results from high salaries paid to the above mentioned personnel among others. Reason for raising capital The main purpose of the fund is to facilitate the process of listing the company in the ASX. The company aims to use the funds to meet the expenses of the offer, to invest in technology and product development. The capital raised will be allocated for development of scientific supporting materials, product development with cannabis ingredients using Glatt and INNUtriGEL technology. The company also aims at allocating 5% for the working capital. This indicates appropriate use of finance raised because the allocation was supposed to be done between product development and business model. Risks of Investing at IPO The risks of investing in this company is that the company’s future cash flow operations are uncertain. The company operates in an industry whose future expenditure are uncertain, so is their returns (Creso Pharma Prospectus, 2016, p.62). Considering the past financial performance of the company, it records negative profits and this explains a lot in terms of how they manage their operations. In their prospectus, the company mentions that it may not be able to implement its company’s growth strategy post-offering. According to them, it may affect the company’s performance because of associated expenditure. This means that returns may not expected anytime soon and growth may take long to materialise. . The company also seems to have under-priced its shares at IPO and this causes the risk of losing market share in case litigation risks are not adequately hedged (Hanley and Hoberg, 2012, p.235). Director’s Interest The directors or proposed directors do not hold any amount or interest following the lodgement of the prospectus with respect to formation or promotion, property acquisition and offer as an incentive (Creso Pharma Prospectus, 2016, p.136). Publicity/Advertisement The company does not indicate whether their IPO has been advertised. However, the IPO has been covered by certain Media Centre even though not in conventional media. The publicity was made by one of the Medias known as Finnews network. The IPO has also been advertised in the ASX and other social media platforms and websites. Reasons to accept or reject the investment The number reason I think the investment in Creso Company is a good investment is because the company’s aim is to maximise shareholders’ wealth. This is evident from the fact that the company mentions in their prospectus that they may not be able to implement their growth strategies as it may affect their financial performance. In addition, the company has set very professional marketers and product development manager who will ensure that their products reach the market and effectively. The reason why I think this investment is not a good investment is the fact that the company is operating in an industry whose returns are very uncertain. Therefore, due to this, investors may expect huge returns because of high risks of uncertainties which may be difficult to be met by the company. Adalta Company Name of the Company The company is referred to as Adalta Limited Company and its stock ticker is $. 0.25. Date of Listing the Company The expected date of quoting Adalta Company in the ASX is on 22nd August, 2016. Capital to be raised Adalta Limited Company is expected to raise gross proceeds from the offer of $8,000,000 through the issue of $32,000,000 shares. Underwriter The company does not have any underwriter. This means that the company solely issues its shares on its own. What the firm does Adalta Company deals in pharmaceutical drugs in Melbourne. The company’s recent activities to raise finance through issuing shares is so as to develop i-bodies, an innovation that will facilitate treatment of certain diseases in human beings. Key Company’s Personnel Board of Directors Non-Executive Chairman Paul Macleman is the non-executive chairman of the board of directors. He is the founder of biologics Australia and a former managing director of an ASX listed company called IDT Australia. Paul has adequate experience in an executive capacity having worked in various companies. Managing Director/ CEO The managing Director is Samantha Cobb. She is also the founding CEO of Adalta. Samantha Cobb has experience in raising equity has she has worked for many companies in that area. In addition to that, she also has experience in management and excellent skills in commercialisation acquired for 15 years. Non-Executive Director James Williams is the non-executive director a former investment director of Yuuwa Capital LP. Having been the founder of iCeutica and Dimerix limited, James has also gone on record by acting as a director of a number of Australian biotech and Agritech companies. Reasons for raising capital The company is raising capital in order to boost its lead drug candidate, AD-114 in clinical tests. Secondly, the company is also aiming at improving their therapeutic pipeline and marketing strategies. Lastly, Adalta seeks to also get working capital to boost its operations. Risk of Investing at IPO There is the risks of insufficient funds to facilitate growth and development of the company. Lack of insufficient funds may make the company opt to acquire debt finance which will affect the capital structure of the firm and so are the future returns. The risk of uncertainty regarding success or failure of the drugs being developed is quite compelling. This means that in case of failure, then the company may incur losses and shareholders may not get returns anytime soon. Additionally, there is the risk of maintaining internal qualified management. In order to yield better future results, the company needs to maintain qualified personnel. In addition, there is the risk of ability to maintain qualified staff, protection of intellectual property and product liability risk (Adalta Prospectus, 2016, p.13). Directors’ Interest The directors are going to hold 12,000,000 shares once the company has picked operations (Adalta, 2016, p.33). This is because the directors are allowed to participate in the offer. Publicity Adalta Company’s offer was publicly announced and was even advertised by several conventional media and other business-related websites. From the news insight of Business News Australia (2016), there is an important message by Cobb that there is a demand for new treatment of fibrosis and development of antibodies technologies. Reasons to accept or reject investment The number one reasons I think investing in IPO in Adalta Company is a good investment is because the company has highly qualified management that can take the company far. This means there might be a bright future for the company and its shareholders. The reasons as to why I think that investing in IPO of Adalta is not a good investment is because the company’s decisions may be highly influenced by the directors who are majority shareholders and not the minority shareholders. The mangers also participate in the offer and because of their huge investment in the company, there could be rampant conflict of interest as therefore, maximising the wealth of the minority shareholders may not be achieved. Recommendations Invest in Creso Pharma I would recommend that you invest in Creso Pharma Company. The company has a reliable and highly qualified and experienced personnel, who do not have any interest arising from the offer. The agency problems therefore, may be minimal as managers would try to maximise shareholders wealth through improvement of operations. Higher returns can be realised if the company experiences information (Lowry, Officer and Schwert, 2010, p.2). This is because, empirically, information asymmetry makes companies to under-price their offer. Therefore, Creso Pharma’s issue price may have been lower than Adaltas’ because they may have information asymmetry to their advantage. In addition, even though the company operates in an environment of uncertainty, returns can be predicted based on the probability of external events which may affect the company’s financial performance. Investing at IPO in this company will also improve the company’s liquidity position and leverage (Chen, Chen and Kao, 2010, p.31). Therefore, long-term performance will be realised References Adalta, 2016. Prospectus. Retrieved from http://adalta.com.au/wp-content/uploads/2016/07/AdAlta-Prospectus-FINAL-web.pdf Business News Australia, 2016. ADALTA LAUNCHES $10M IPO TO DRIVE FIBROSIS TREATMENT. https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&ved=0ahUKEwiQxIzmmt3PAhWqJsAKHSLYDYIQFgg7MAU&url=http%3A%2F%2Fwww.businessnewsaus.com.au%2Farticles%2Fadalta-launches--10m-ipo-to-drive-fibrosis-treatment.html&usg=AFQjCNF4UzRc-Z2dIYH6kpFSdMXkdG8enQ&sig2=Zni0Ju69HSHjxRgfBFL0rA&bvm=bv.135974163,d.ZGg&cad=rja Chemmanur, T.J., Hu, G. and Huang, J., 2010. The role of institutional investors in initial public offerings. Review of Financial Studies, 23(12), pp.4496-4540. Chen, A., Chen, L.W. and Kao, L., 2010. Leverage, liquidity and IPO long-run performance: evidence from Taiwan IPO markets. International Journal of Accounting & Information Management, 18(1), pp.31-38. CRESO PHARMA LIMITED, 2016. ACN 609 406 911 PROSPECT. Retrieved from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0ahUKEwjIt6Szn93PAhULiRoKHXhICnUQFggbMAA&url=http%3A%2F%2Fcresopharma.com%2Fwp-content%2Fuploads%2F2016%2F07%2FCreso-Pharma-Prospectus.pdf&usg=AFQjCNFwrmPtdfiF9n1g7JMCr_WlSPIPwg&sig2=gHvl2NYqgSCOVJHBRbNP0g&bvm=bv.135974163,d.ZGg&cad=rja Finnews Network, 2016, Medicinal cannabis provider Creso Pharma to list on ASX. http://www.finnewsnetwork.com.au/MediaCenter/MediaCenter.aspx?site=FNN09&gareport=Medicinal-cannabis-provider-Creso-Pharma-to-list-on-ASX&LNID=123979&ntype=News&search=Creso-Pharma Hanley, K.W. and Hoberg, G., 2012. Litigation risk, strategic disclosure and the underpricing of initial public offerings. Journal of Financial Economics, 103(2), pp.235-254. Lowry, M., Officer, M.S. and Schwert, G.W., 2010. The variability of IPO initial returns. The Journal of Finance, 65(2), pp.425-465. Read More