Bye-bye biodollars: ASX code calls for realistic biotech reporting

Technospeak and blue sky 'biodollars' will be frowned upon and plain English encouraged under the Australian Stock Exchange's new biotechnology reporting code.

The code -- which the ASX says is to "remain fluid and be constantly reviewed" -- aims to improve the information gap between the biotechnology industry and the investment community, encouraging rigour, structure and frequency in company announcements.

It recommends a framework for keeping investors well-versed in company developments -- a framework which is additional to current continuous disclosure obligations under ASX listing rules, but not compulsory.

"There is no dire need for regulation. It is about industry development," said the ASX's head of listings, Richard Murphy, at a Securities Institute briefing on Monday.

"You need to be able to help build a communication bridge, and put some shape around it so that people can understand," said Murphy. "If that turns out to be a blueprint for regulation so be it, but it is really only the first stage in a long ongoing process. We're not making it obligatory."

Clinical trial result announcements should cover such details as the commencement date and expected duration of the trial, and include a list of the trial endpoints the company hopes to achieve, he explained.

Companies announcing a granted patent would be wise to include the PCT number and filing date, and the code recommends that companies provide investors with an annual stocktake of granted patents.

Information about transactions such as licenses, collaborations and partnerships should be filled out with specifics, including royalties, details of exclusivity clauses, termination clauses, and the timetable of payments.

Other things that investors use to value biotechnology include the comings and goings of the management team and senior scientific staff.

Murphy explains the code was triggered by the realisation that capital was not flowing into the industry because of confusion and technospeak.

"Big companies in US have got used to reporting on a consistent basis and they know what it is the analyst wants to hear," he said. "The companies are very good at understanding the science but not good at understanding the capital markets. There was plenty of information out there but it wasn't in a particular format and certainly not very understandable."

Murphy believes potential investors will also need to familiarise themselves with the rudiments of biotechnology.

International funds manager Richard Haiduck, director of the Strategic Partnering Group at San Francisco's Burrill & Co also spoke at the briefing.

"The milestones are important value-creators along the way [as are] future revenue and profits," he said. "The things a lot of people have trouble coming to terms with in the biotech industry is the meaning of these milestones. I think the work that is being done to explain these milestones is a good idea.

"The companies have got to communicate in a more complete and comprehensible way and analysts and investors have to take this information and understand it as a way of understanding the changing value of the industry. "The companies who can't explain their technology in lay terms doesn't deserve to be invested in."

Murphy would like the ASX to have a separate biotechnology index, reflecting the real performance of the sector without the current healthcare heavyweights.

"We are talking to Standard & Poor -- the index provider -- about doing one, but S&P is subject to its world-standard for indices [at the moment], and that is healthcare and biotechnology."

The ASX will also publish a lexicon of biotechnology terms on its web site.