In conversation with Todd Wyche

By Len Zehr

As CEO and a co-founder of Brinson Patrick Securities, Todd Wyche has championed the use and growth of at-the-market offerings (ATMs) for the past 17 years for REITs, energy companies and most recently, biotech and life sciences companies. Prior to founding the broker-dealer, Mr. Wyche was the founding principal of a predecessor firm, Brinson Patrick Capital Management, where he structured and executed over $9-billion of equity transactions. In this interview with, Mr. Wyche, who holds a degree in economics from Yale University, discusses the value proposition for the use of ATMs and how this alternative financing vehicle may overcome the financing challenges that life sciences companies face today.

Let’s begin with a brief description of Brinson Patrick and ATMs.

We were formed in 1996 to focus exclusively on at-the-market offerings.  We initially focused on real estate investment trusts, which are still the biggest users of ATMs. Since 1995, REITs have raised $23.6-billion through ATMs, with life sciences companies raising nearly $1-billion. About eight years ago, we began to focus on life sciences and biotech companies after realizing that they had become comfortable filing shelf registration statements.  This was not the case when we form the firm 17 years ago.  Given that they are constantly in need of raising capital that is often very expensive, our expertise is helping clients think through their financing options—and how and when to best utilize an ATM offering.

ATMs enable issuers to efficiently raise large or small amounts of capital over an extended period of time, with little or no negative market impact and unnecessary dilution, which favors an organization’s existing investors. Our differentiating service is called a Dynamic Offering of Common Stock or DOCS ATM, which is faster, less expensive and more flexible than other types of offerings.

How are ATMs used?

There are three ways. The first is the dribble out method where we sell an issuer’s shares daily in the open market. In this case, it’s possible to sell 10% to 15% of the shares that make up the daily trading volume without adversely affecting the stock price. The second is an opportunistic method where some catalyst specific to the issuer, like clinical data or an FDA decision, or news related to a competitor drives up the stock price. In this case, it’s possible to sell more shares into the open market through an ATM offering than the dribble out method. And the third is the sale of shares in a block to an institution or interested investor through a targeted ATM offering. In this case, a larger sale of shares can be achieved than the dribble out and opportunistic methods. The dribble out approach is the most common ATM offering, but as ATMs have evolved, the targeted method is becoming more popular in the life sciences sector.

Why should an issuer’s financing options include ATMs?

Strategically, biotech companies should have a number of financing options to access capital rather than rely solely on any one method, because their need for capital is tremendous. ATMs are more cost effective to execute than traditional equity offerings, thereby reducing the cost of capital. And the opening and closing of the traditional financing window may not line up with an issuer’s needs. So, having multiple tools to access capital is critically important for a development-stage biotech company.

Are there any other advantages to using ATMs? 

The other thing I should mention is that ATMs don’t require a lot of executive time, because road shows are not needed.

Can you explain why ATMs are more cost effective?

The cost of capital in life sciences generally includes an underwriters’ fee, a market discount on the sale of shares and the value of warrants in many cases. Sometimes, a drop in share price of as much as 10% to 15% can occur immediately preceding the pricing of a traditional offering.

With traditional follow-on offerings, the average cost of capital is about 25% and with PIPEs [private investment in public equity], the cost of capital can hit 40%. Compare that with ATMs (where there are no warrants, shares are sold at the current market price, so there is no discount, and fees are much less) the cost of capital for ATMs averages around 3%.

What’s the average size of an ATM?

They tend to be around $25-million but can go up to $50-million.  In 2011 and 2012, we raised $430-million in ATMs for our clients. And at any one time, we can have a number of clients actively engaged in ATM programs. Some clients dribble out shares daily over many months; others have a more defined time period, depending on their capital raising goals.

What are the trends in the ATM market?

The number of issuers and the amount of capital being raised are growing.

In 2011, the life sciences sector raised $228-million through ATMs, which rose to $405-million in 2012. For the first quarter this year, a record $161-million was raised. One thing we’re seeing these days is that larger life sciences companies are putting ATMs into place.

What’s the state of competition for ATMs?

Before the financial crisis of 2008 and 2009, investment banks tried to discourage clients from using ATMs, because it cut into their higher margin business, where they could receive a fee of 6% or 7% for a traditional financing, compared with an ATM fee of 3% in life sciences. During the financial crisis, when financing deals weren’t getting done or the cost was prohibitive, a lot of traditional investment bankers were idle. But they soon realized that ATMs were a valid method of raising capital even during a time of crisis. Now, more investment banks are out talking about ATMs and have helped increase awareness of ATMs.