Russia's first post-crisis IPO

By bne IntelliNews October 22, 2009

Ben Aris in Moscow -

One of Russia's leading commercial biotechnology companies, Human Stem Cells Institute (HSCI), will become Russia's first post-crisis IPO when it lists on the Micex stock exchange at the end of November or early December.

It will also be a pacesetter, as it will become the first high-tech (not to mention Russia's first biotech) company to list, just as the Kremlin is throwing billions of dollars of resources into creating a high-tech sector pretty much from scratch.

Not that the company has had any help from the state. Founded in 2003 as a private enterprise, the company's bread-and-butter business is the extraction and storage of stem cells from the umbilical cord of newborn babies. A technology that has been around for about a decade, parents of newborn babies can choose to have the stem cells in their baby's umbilical cord stored in case they are needed for medical treatments in later life; umbilical cord stem cells are amongst the most dynamic and versatile the body will ever produce, as their main job is building babies.

In 2003, HSCI set up Gemabank to create this industry in Russia and already has some 7,500 clients (or about 60% of the market), revenues of some $5m for this year and is now actively expanding into the Russian regions, Ukraine and Kazakhstan. "It is a fast growing business. In more developed markets like Germany and the USA this type of service has been around five and ten years respectively and provide the service to about 2-3% of new parents", says HSCI General Director Artur Isaev. Sources familiar with the company say there could be a 10-fold growth in this business in the next five years.

HSCI has already set the price range for the offering of about 20% of the companies stock at between RUB9 and RUB11 per share, which values the company at between RUB675m ($22m) and RUB825m ($28m). The shares will be listed on Micex's newly created "Innovative & Growing Companies" section, which is designed to help small-cap companies list, and the money raised will be ploughed back into development. Alor Invest is the manager and bookrunner for the offering.

The offer prices values HSCI's shares at about five times current revenues, which is on a par with peers in the West, however Isaev points out that these companies are operating in saturated markets whereas HSCI is only just starting to develop a massive market.

The kicker to the company is that unlike its counterparts in the West, it also has three commercial products in development, based on its expertise in stem cell technologies: a gene therapy that promotes growth in the vascular system; another gene therapy that treats post-heart attack problems; and cellular treatment for rejuvenating aging skin aimed at the beauty products market. All three treatments are in the clinical trial phase now and if any of them prove to be a success, they could send the company's revenues through the roof.

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