ASX to help lift biotech's public image

The Australian Stock Exchange (ASX) is poised to take an active role in the development of a healthy public biotech sector in Australia.

Speaking at the AusBiotech 2002 conference in Melbourne last week, the ASX's Richard Murphy said that the organisation had identified biotechnology as a growth area in the Australian market, but recognised the difficulties faced by biotechnology companies in listing at an early stage.

The stock exchange organisation plans to work with companies, investors and the government to lift the profile of the industry.

"We really see it as important that we concentrate on this sector and promote it to both the government and to investors," Eddie Grieze, the ASX's national manager for listing business development, told Australian Biotechnology News.

He explained that about 20 years ago, the stock exchanges worked closely with the mining industry to develop codes for reporting ore reserves to ensure that the announcements from mining companies would be better understood by the market.

"Perhaps there is a similar role we can play for biotechnology," Grieze said. He explained that this might involve providing guidelines so that analysts could make sense of market announcements, or accompanying listed companies on their road shows to provide support.

Grieze also noted that the ASX was aware that biotech companies were often forced to come to the market too early, explaining that while there was initially a flurry of enthusiasm, companies often ended up in a cash strapped position with difficulties in raising funds from the market or from private equity.

"These companies are caught between a rock and a hard place as they can't tap investors in either the public or the private market," he said.

One possibility described by Grieze would create a market structure that would allow small cap companies to gain the profile of a market listing but provide better access to the private equity market.

But Grieze said that while the ASX has several ideas, they are conceptual at present and require input from the industry and investors.

"We'd like to work very closely with AusBiotech and companies, venture capitalists and AVCAL," he said.

In addition, Grieze said that the ASX was willing to get involved with the Federal government to develop educational approaches and tax incentives to improve investment in the industry.

He noted that one of the issues that came through quite clearly in discussions he had at the AusBiotech conference was that companies had real problems in getting their messages out to investors.

One change the ASX has already made that will directly benefit the industry is a change in its rules on pre-float investors to encourage venture capitalists to invest in companies.

Previously, securities issued to investors before a public float were locked in escrow to ensure that promoters of the float could not just walk away with a quick profit after the listing. But as an unintended result of this, genuine venture capital equity interests were caught, unable to exit their investment until the escrow period ended.

The new rules mean that genuine venture capitalists will be put on the same footing as other seed capital investors with the escrow period dependent on the length of the investment in the pre-float period.

"We've recognised that this is not appropriate for venture capitalists and have removed the restriction," said Grieze.

London calling

Delegates at AusBiotech 2002 also heard that the London Stock Exchange (LSE) was an alternative to other international markets like NASDAQ for secondary listings of Australian companies.

The LSE has developed an international market for biotech and the medical sciences industries, techMARK Mediscience, as a spin off from its techMARK market for high-tech companies.

James Woodley, the LSE's Asia-Pacific business development manager, said the LSE had more international companies listed than any other exchange in the world, and had the most liquid international equity market.

"The majority of Australian companies go to the LSE as a secondary listing," he said.

Woodley said that one of the benefits of listing on the LSE was that Australian accounting standards could be used, making listing a simple, more timely process.

In addition to the main market, LSE has a second international market, AIM, for smaller growing companies. AIM head Simon Brickles told the conference that AIM was designed to be user-friendly, with simpler rules. "It's a second board that isn't second best," he said.

Brickles said that AIM was the fastest growing market in Europe, with 43 initial public offerings so far this year, including 11 biotech listings.

"We deal with earlier stage, smaller companies. Because of that we will never be the biggest market but will be the most dynamic," he said.