Why I got involved with the biotech code of practice

he new AusBiotech/ASX code of practice for reporting by life science companies, launched last week, is being hailed as an important milestone in the development of the Australian biotech sector. Here, Igor Gonda, who was on the committee to review the code's first draft, explains why he believes the code is so important to the industry.

There is a large number of life science companies in Australia that are engaged in generation of socio-economic value through the development and commercialisation of products to improve the lives of millions of people. These development programs vary in their complexity, inherent risks and costs. Some companies are engaged in very early research that may be quite cheap -- but risky, and a long way from getting a product to the market. Other companies are quite close to market with the development significantly de-risked, but requiring good size of capital to complete the last stages of development and commercialisation. The underlying factor across the sector, however, is that substantial value generation cannot be accomplished without a significant medium to long-term financial investment, with some degree of risk at every stage.

The emerging Australian life science industry sector as a whole has been suffering from the lack of funding. This is despite the fact that we have some excellent examples of Australian companies that illustrate quite convincingly that very substantial socio-economic wealth generation can result from properly directed and managed investments in life science research -- take, for example, CSL, Cochlear and ResMed.

Different investors have different appetites for the balance between risk and reward and their investment horizons may vary, from very short-term trading to long-term value building. As our industry is relatively young, it is not surprising that the spectrum of value propositions that our sector offers is not well understood -- and, in fact, has not been well explained! The full recognition of this fact was the turning point for me -- while talking with a variety of investors around our initial public offering last year and since we listed, we realised that our Acrux team had to do a much better job explaining our business model and presenting the differentiating features of our company against the background of the whole life science industry.

In fact, it became very obvious to me soon after I got involved with the drafting of the code that all the participants in the working group had a lot to learn from each other. Understanding better the needs of the investors, their advisors as well as the regulatory bodies will help us, the managers of life science companies, to improve our reporting style. We have also got to appreciate that the code cannot be about 'one size fits all' -- the life science sector in Australia has companies with different products, business models and stages of development ranging from very early research all the way to mature profitable entities with several successful products on the market.

The ASX Listing Rule 3.1 already requires any listed company to immediately disclose to the market information that is likely to have a material effect on the share price or value of the securities of the company. So, I see the code primarily helping to clarify how the information in the disclosures should be explained rather than what should be disclosed because the need for the disclosure is already covered by the materiality test of the Listing Rule 3.1.

The launch of the code could not be more timely. There is a lot of activity in the sector on the intellectual property generation side and preclinical product development. Many of the emerging life science companies have now also moved out of the test tubes into advanced human clinical trials whose results are likely to have a major impact on their valuations. Providing a common set of expectations for investors and industry for the information content to be released to the market is in my view a major step forward. It should help investors to make better-informed decisions and, in turn, attract more of the 'smart' capital that will support the long-term growth of the life science industry in Australia. We do not have much time left to become globally competitive -- USA, Europe and Japan have already very well-established and growing life science industries, and China and India are rapidly expanding their capabilities.

The code is the world's first and in that sense provides Australia with an important leadership. Australia's strength has been in the past primarily in the quality of its research people but in recent years we have witnessed appointment of several experienced managers in the sector, with much improve financial savvy as well. Also, some highly successful Australian businessmen from other industries are joining boards of the emerging life science companies to provide them with strategic advice. We benefit from support from federal and several state governments, especially for the early stages of research and development. But we need now a much greater flow of funds from the investment community to put the capital to work to generate wealth through commercialisation of products in our sector.

A recently published investor perception study across industries in Australia has identified the clarity and transparency of disclosures as the most important investor relations issue. The general public globally is asking for a greater transparency in the conduct of industry, and specifically in informing about the results of human clinical trials. I therefore believe that those companies that will use the code as a guide for reporting their progress will benefit from greater confidence by the investment community and from the support by the general public as well.

-- Igor Gonda is CEO and managing director of Acrux (ASX:ACR).