Stem cells go to IPO: diagnosis is clear, prognosis is not
Diagnosis: Putin
Will the "Human Stem Cell Institute" be able to live happily ever after with such a diagnosis and will the company's shares be saved from Russian risks by the initiated diversification?
Well, isn't it time to talk about something else? For example, about the rosy prospects, God forgive me, of the Russian cord blood market. Little–known (it is little–known to the author of this article, and quite the opposite is true among specialists - VM) JSC "Human Stem Cell Institute", which collects umbilical cord blood and extracts stem cells from it with subsequent cryopreservation, unexpectedly announced plans to hold an IPO in the fall and sell 15-25% of shares for 120-150 million rubles.
This is the first Russian IPO this year, and even in the innovation and biotechnology sector. It seems like there is something to be proud of. After all, in Russia, the commercial success of advanced innovative technologies is still a rarity. Despite the crisis, in the first half of 2009, the revenue of the "Stem Cell Institute" increased by 25%, net profit – 2.5 times. And the prospects look simply exciting.
"10 times more stem cells can be isolated from umbilical cord blood than from other sources in the body. In Russia, such blood is still thrown out with other waste in many maternity hospitals," the Institute's report for the second quarter of 2009 says. – The volume of the service market is currently 0.1% of the total number of births per year in the country." That is, an increase to 1%, which, in general, is not so much, will give a market growth of 10 times.
What are the risks of this promising business that Russian doctors warn investors about in their report? About very unexpected:
"Due to the ambiguity of Russia's role in world politics and the contradictory image of the Russian Federation in the world community, as well as due to the possibility of a discrepancy between Russia's political and economic interests with other states, international organizations and political coalitions, Russia's actions in the political arena can provoke such adverse consequences as: the outflow of foreign capital from the country, fluctuations in the national currency, the introduction of sanctions on the export/import of products (both from foreign states in relation to Russia and from Russia in relation to foreign states). All these factors can cause an increase in inflation and a slowdown in economic growth in the country, which in turn will affect the level of effective demand, the income level of citizens of the Russian Federation and the standard of living of the population as a whole, which may negatively affect the financial results and the value of the issuer's shares."
Like that. The "medical" fact is attested: the war with Georgia, the gas wars with Ukraine, the trade wars with Belarus, the ban on the import of Georgian and Moldovan goods and many other exploits of Russia rising from its knees, all of them lead to capital outflow from the country, to inflation, slowing economic growth, falling incomes and living standards in the country. Not the other way around. This is how the "counter-revolutionary" voice of Professor Preobrazhensky, by the way, also a doctor, is heard: "Devastation in the heads."
"The lack of an unambiguous understanding of the goals, scope, content and subject of economic and political reforms, as well as the rapid development of the Russian legal system in areas that do not take into account the needs of civil and commercial turnover, call into question the possibility of applying and the very constitutionality of laws, and also lead to ambiguities, contradictions or anomalies. Possible arbitrary actions of state authorities, as well as their actions that do not comply with the legislation and norms of international law, may negatively affect the Company's activities and share price," the report of the Human Stem Cell Institute says further.
How can advanced medical technologies be protected from such misfortunes and arbitrariness of the authorities? "The Issuer plans to expand the geography of services in the short term, including starting operations outside the Russian Federation. The diversification of the client base will help to level out country and regional risks in the Russian Federation in the future," the authors of the report signed by the Director General of the Institute, Artur Isaev, optimistically argue.
The company did not delay the diversification. In the spring, a deal was completed to purchase 44% of the shares of the German SymbioTec GmbH in order to enter the German market, and last year expansion was launched to Ukraine, where the Stem Cell Institute is going to occupy 30-50% of the market. It is planned to allocate a third of the proceeds from the upcoming IPO to the development of Belarus, Ukraine and Kazakhstan.
The success of the "Institute" is based on the Russian scientific methodology developed by the doctors of the Moscow Oncological Center named after N.N. Blokhin. There is also a cryobank with stem cells, the main value of an IPO company. Unfortunately, I recently had to become an avid visitor to the Oncological Center and make sure that doctors work there "not because of, but in spite of." Shocking diagnoses are a professional habit for them. "Of course you will live. People live with Putin and Medvedev, and nothing is normal," a wonderful oncologist surgeon soothed a cancer patient before surgery.
Let's see if the Human Stem Cell Institute can live happily ever after with such a diagnosis and whether the company's shares will be saved from Russian risks by the diversification it has started.