Now Trading in Tel Aviv: America's Most-Shorted Biotech Stocksby
Companies benefit as index funds shore up share prices
`For the Israeli public, this isn’t necessarily a good thing'
Israel has a reputation as a hotbed of tech innovation, yet the Tel Aviv Stock Exchange hasn’t seen much benefit as many of the country’s best startups have offered their shares in the U.S. instead. Now, an effort to get American companies to go the other direction is starting to pay off.
Four U.S. health care companies have completed dual listings on the bourse this year, including generic-drug giant Mylan NV on Nov. 4. As many as 10 more such deals are in the works, according to law firm Pearl Cohen.
“It’s a win-win situation,” said Uri Ben-Or, Chief Executive Officer of CFO Direct, a consulting firm that helped three companies with listings in Israel. “The exchange gets more volume while the companies find a new market where they can raise capital and boost liquidity.”
But three companies that have made the trip aren’t exactly Wall Street darlings. On the NYSE MKT, the smallest U.S. bourse, Navidea Biopharmaceuticals Inc. and BioTime Inc. are among the 10 most shorted issues (in which investors borrow shares and sell them, expecting to profit by buying them back at a lower price). Mannkind Corp. is the sixth most-shorted health care stock on the Nasdaq, according to data compiled by Bloomberg.
“If these companies are so successful, why don’t they just stay in the U.S.?” said Jerry Cutiesteanu, who helps oversee $4.7 billion in assets at Israel Brokerage & Investments Ltd. in Tel Aviv. The shares “are particularly risky.”
While the companies are little known at home, in Israel they’re relative giants. Their size means they have been added to indexes of the exchange’s biggest companies, which shores up their price as index-tracking funds buy their shares.
“In the U.S., these companies were among thousands of their size,” said Ilan Gerzi, a senior partner at Pearl Cohen who has worked on the listings. “Here, they are immediately catapulted into the Tel Aviv 75 or Tel Aviv 100. They get new capital, more liquidity. Why not?”
Some in Israel’s financial community say that including the new biotech shares in index funds, which make up about 35 percent of all Tel Aviv Stock Exchange equity turnover, increases the risk for investors.
“For the Israeli public, this isn’t necessarily a good thing,” said Meir Slater, head of research at Bank of Jerusalem Ltd. in Tel Aviv. “These listings are forcing the public to put money into companies that aren’t exactly safe.”
Navidea President Rick Gonzalez acknowledged that biotech investment is inherently risky, but said the company has gotten approval for a compound that can help diagnose cancer in lymph nodes, and that it’s building the commercial organization needed to market it.
Matt Pfeffer, Mannkind’s chief financial officer, said his company has an approved product, an inhaled insulin, that he expects to start gaining ground soon. The stock has fallen 19 percent since Oct. 29 when Sanofi, its partner, said the product wasn’t selling as well as anticipated. BioTime declined to comment.
The number of companies listed in Tel Aviv has dropped every year since 2007, and by September had fallen to 461 -- a 30 percent decline in the last eight years. In the past decade, by contrast, more than 40 Israeli companies held initial public offerings in the U.S., according to data compiled by Bloomberg, including stars such as car safety software-maker Mobileye NV and solar energy equipment producer SolarEdge Technologies Inc.
Bourse CEO Yossi Beinart said the listings dovetail with a strategy to make the exchange more technology-oriented. He says attracting biotech companies can help Israel by creating partnerships and boosting investment in research, and that the exchange is considering changes to the way the indexes are composed to ensure the risk profile doesn’t increase dramatically.
“We want to create an ecosystem of biotech and tech,” Beinart said. “No investor has a gun to his head to invest in these companies.”