Biotech made simpler: new code aims to help CEOs and investors

It's hardly surprising that one of the Australian biotechnology industry's biggest bugbears is a communication gap between companies and their investors.

Biotech companies -- which have to contend with often difficult science, risky business strategies, stiff competition, and intellectual property and regulatory minefields -- have, it can be argued, a few extra hurdles to jump when it comes to getting the message out to would-be investors.

But the launch today of a new code, by the Australian Stock Exchange (ASX) and industry group AusBiotech, could go some way towards helping to remove some of those hurdles.

The Code of Best Practice for Reporting by Life Science Companies has been months in the making, and is a world-first, according to its architects. "This is the first time in the world that such a code has been put forward in the biotech sector," said AusBiotech CEO Anna Lavelle at the launch in Melbourne today.

The code spells out ways that biotech companies can comply with ASX disclosure rules, intellectual property rights, licensing, and regulatory matters. Its launch today followed a long consultation phase with the industry and investment community.

Michael Hirshorn, chief executive of Nanyang Ventures' Nanyang Innovation Fund, chaired a 17-member committee formed in December 2004 to review the existing draft of the code, which was circulated in April 2004. The committee consisted of senior representatives of listed companies, analysts, and other stakeholders, and included Peplin CEO Michael Aldridge, Acrux CEO Igor Gonda, Bionomics CEO Deborah Rathjen, CSL investor relations manager Mark Dehring, Bioshares analyst David Blake, and EG Capital's Alison Coutts.

ASX deputy CEO and head of markets Colin Scully told the launch that one issue identified as a problem faced by life science companies was a "mismatch" between the understanding of investors and the brokers and the market. "Sometimes this understanding makes accurate assessments of the value of a life science company difficult," he said.

Scully said there were two reasons for this mismatch. Firstly, brokers and investors were often not in a position to understand the core science involved in some companies, and secondly, there was an overall lack of awareness of fundamental issues and drivers of biotech companies when making valuations.

"The release of the code today is recognition that there's an opportunity for steps to be taken to bridge that information gap," said Scully.

While the code is expected to be adopted widely, it is not mandatory. It is intended to complement existing disclosure obligations under ASX listing rules and follows the success of a similar initiative in the mining industry which developed a framework for investor understanding of technical mining reports.

AusBiotech's Lavelle said the code recognised that different companies in the biotech sector had legitimate reasons for reporting in different ways. She added that the code may assist new and first time CEOs by providing guidance in reporting accurately and credibly. "This is a practical tool as a result of trying to provide some assistance for educating investors," she said.

Victorian minister for innovation John Brumby said the code aimed to bridge a gap between the industry and its potential investors. "It sets out to ensure that life science companies provide transparent, and objective, financial reports in accordance with international best practices.

"That means that our Australian companies can be assessed and compared equally, and with integrity assured, with companies operating in other countries by local and overseas investors," he said.

The ASX and AusBiotech plan to set up a review committee to ensure the code retains its relevance and is of value to Australian biotech companies and their investors.

The code will also be launched in Sydney and Brisbane this week.