Luke Reid recalls his first meeting in 2014 with the founders of Microba Life Sciences (ASX: MAP). At the time, Dr Reid was an Associate Director at UniQuest, a technology transfer company at The University of Queensland.
Five years later, Dr Reid led the company’s Initial Public Offering (IPO) and listing in early April 2022. Microba raised $30 million in a challenging global market for biotech listings.
Like other technology sectors, listed biotech companies have collectively underperformed this year amid a rotation from growth to value stocks. The S&P/ASX 200 Healthcare Index, a barometer of ASX-listed healthcare and biotech stocks, is down about 8% on a year-to-date basis. In the same period, the S&P/ASX 200 is up 1%.
Sector underperformance did not deter Microba from listing. The Brisbane-based company was set to list on ASX in 2020 but delayed its IPO when COVID-19 struck and global sharemarkets tumbled.
“In hindsight, those extra couple of years were really valuable for Microba because we were able to further de-risk the technology and further grow our revenues,” says Dr Reid. “We came to market this year as a more established company (compared to 2020), which was reflected in Microba’s valuation and in the quality of its shareholder base.”
Microba was capitalised at $123.4 million at listing, making it the largest biotech IPO on the ASX this year. Institutional investors in Microba include Perennial Value Management, Thorney Technologies and Macrogen, a large South Korean precision-medicine company. The University of Queensland continues to have a stake in Microba.
Dr Reid says Microba considered staying privately owned for longer or listing on the Nasdaq in the United States. But an ASX listing was always Microba’s preference.
“We believed the biotech market on the ASX had matured significantly and that Microba was well suited to list in this market. Also, we thought Microba had a clear point of difference; there was nothing like our company on the ASX.”
In its prospectus, Microba cites forecasts that value the global microbiome sector at US$4.89 billion. The company expects microbiome discoveries will generate therapies to treat disease and match patients with treatments.
The microbiome is the trillions of microorganisms like bacteria, viruses and fungi that live in and on the human body. About 90% of these organisms reside in the gastrointestinal tract. Over the past decade, a large body of research has shown that a healthy gut microbiome can aid human health and reduce chronic disease.
Microba’s technology measures the human gut microbiome. The business has three parts: First, it has sold more than 20,000 microbiome test reports to customers and healthcare practitioners with leading distribution partners in the US, Europe, the Middle East and Australia and New Zealand.
Second, Microba has a databank of over 1.2 million microbial genomes that pharmaceutical companies can use for the discovery of novel therapeutic leads.
Third, Microba’s therapeutic discovery is leveraging this databank to develop multiple novel therapeutic assets to treat chronic disease.
“Microba is part biotech, part data company,” says Dr Reid. “The company has a fast-growing services business delivering testing solutions to patients and researchers internationally, and servicing large multinationals accessing our technology and databank to develop new products. We believe gut-health data has significant value.”
Dr Reid says Microba had good support from the ASX on its listing. “The ASX team was very helpful on the listing aspects of the offer. We had a virtual listing ceremony in Brisbane and rang the ASX bell. It was a chance to commemorate the day with the founding team from UQ, and Microba’s key stakeholders and investors.”
Microba shares fell 22% on their debut, prompting negative media headlines. Dr Reid was unperturbed. “Microba is not your typical biotech. There are short-term revenue and growth milestones combined with the typical longer-term therapeutic story. The fact is we raised $30 million and bucked the trend in a tough market for biotech IPOs. In the current risk-off environment for tech stocks, some short-term selling did not surprise.”
Having fallen to as low as 33 cents on its debut, Microba was almost back to its 45-cent offer price by mid-April.
“The IPO was an incredibly busy time and an important validation for Microba. But as I told our staff and stakeholders at the listing event, this is just the start as we begin life as a listed company with many new shareholders and support to continue executing on our growth strategies.”
Dr Reid, a biotech commercialisation expert, believes more biotech companies will list on the ASX in the next few years.
“The key is developing the right structures, talent and support to commercialise our amazing research and create economic value for shareholders and social value for communities with these medical breakthroughs.”
Forming the right board is critical, says Dr Reid. Microba’s Board is chaired by Pasquale Rombola, an investment-banking expert and experienced company director. Professor Ian Frazer, one of Australia’s leading clinical scientists, is Deputy Chair. Frazer is best known as the co-inventor of technology that enabled Gardasil, the leading vaccine used to treat cervical cancer. Co-founder Professor Gene Tyson is a non-executive director.
“Microba’s Board has a mix of directors with deep scientific and commercial expertise,” says Dr Reid. “It’s important for an emerging biotech company to get that balance right and build a Board that has the expertise required to execute confidently.”
The share register is another consideration. When privately owned, Microba brought in strategic shareholders, including fund managers and family offices, through several rounds of capital raisings. As the company’s technology and commercialisation strategy developed, Microba achieved a higher valuation at each raising.
“We wanted to attract shareholders that brought more than capital,” says Dr Reid. “For emerging biotechs, it’s critical to build a credible, supportive shareholder base that believes in the company’s long-term vision and its potential.”
However, building a small group of cornerstone investors creates other challenges. Microba’s six largest investors own almost 71% of its stock. About 58% of Microba’s shares are escrowed, meaning these restricted securities cannot be sold for up to 24 months after listing. That could create liquidity challenges for Microba stock.
Dr Reid says Microba has given much thought to its investor-relations program after listing. Bell Potter Securities and Canaccord Genuity were joint lead managers and underwriters to the IPO.
“Over the last few years, we’ve built relationships with broking firms and anticipate research coverage on Microba over time.”
Dr Reid says news flow and communication are critical for newly listed biotechs.
“When you list, you have to change gears very quickly from communicating with a relatively small group of investors to communicating with a much larger base of investors, including retail investors. You must be more accessible to investors and able to communicate a consistent, understandable story, which is not always easy with complex biotechnologies.”
Running a privately-owned biotech as though it is listed, in the lead-up to its IPO, is also important, says Dr Reid. “We knew early on that Microba may list on the ASX. So, we became publicly unlisted early in Microba’s journey with applied corporate governance and audit processes. That made the transition to a listed company much easier and smoother.”
At a personal level, Dr Reid has enjoyed leading Microba. He is among the youngest CEOs of an ASX-listed company.
“During my PhD in molecular biology, I became really interested in the commercialisation side of biotech. I developed my skills in that area doing licensing deals and spinning out companies while at UniQuest. Now, as Microba’s CEO, I’m able to apply those scientific and commercial skills to grow a company that can improve millions of people’s lives globally.”
Dr Reid says Microba is an example of the benefits of university and industry collaboration. “Australia has world-class biotech researchers. The challenge is to turn more of that promising research at our universities and medical-research institutes into listed companies. IPOs are a lot of work but being listed on an exchange like the ASX is typically a key part of a biotech’s journey.”
 Performance to 26 April 2022. Source: S&P Global
 At the 45-cent offer price
 By capital raised and company value.
 Frost and Sullivan Report, Growth Opportunities in Human Microbiome Market, Forecast to 2023, (2019).
 Microba shares traded at 41 cents on 19 April 2022 on ASX.