LONDON _ Too little, too late sums up the views of many in theU.K.'s biotech sector to the news that the London Stock Exchange(LSE) is yet again lowering the barriers for listing companies. Thiswas the response to a presentation on the proposed rules at theBusiness Issues for Bioscience Companies conference organized lastweek by the U.K. BioIndustry Association.Paul Haycock, CEO of Cambridge, England-based CantabPharmaceuticals plc, spelled out the new criteria. Haycock, the BIA'srepresentative on the working party that looked at the issue for theLSE, said that the new regime is still very different fromNASDAQ's."The LSE, to a certain extent, still wants to be nanny," he said. Therules shift the onus for scrutinizing a company from shareholders tocompanies. But the underlying thrust of the proposed rules is toreduce the number of hurdles that a company has to negotiate beforeit can seek a listing.In December 1993, the LSE permitted entree for companies that didnot have three years of profitable trading before they could float. Themove was aimed specifically at the biotech sector, and came in thewake of the flotation of British Biotechnology Group, now BritishBiotechnology, in June 1992. In effect, last year's regulations werethe same as those agreed at the time of this flotation. Those rulesallowed companies to seek a listing as long as they could attractfunds from sophisticated investors, intended to raise at least 10million (U.S. $16 million), had a market capitalization of at least 20million before coming to the market and intended to create productsto generate significant revenue. Pharmaceutical companies are alsorequired to have two drugs in clinical trials.The LSE said that the aim of the latest revision of the rules is toinclude "companies involved in laboratory research and developmentin the areas of agriculture and food."The LSE will judge companies against a set of "significantcommercial milestones," the rules state. These are thatpharmaceuticals companies must have two drugs in clinical trials"under internationally accepted regulatory scrutiny." Companies thatare not in the drugs business "must have made progress throughappropriate trials under regulatory or official scrutiny."Rules Require Collaborations, Outside MoneyThe new rules also expect companies to have corporatecollaborations "with one or more independent companies which haveunconditionally committed not less than 5 million (U.S. $8 million)and in which the scientific research-based company retains asignificant financial interest." Alternatively, a company seeking alisting "must have spent not less than 20 million in research anddevelopment over a period of not less than three years which hasresulted in the creation of intellectual property of significant worth."The new rules also deal with a major concern of the venture capitalindustry. No longer are all major existing shareholders preventedfrom selling shares for two years. There is still a two-year lock in fordirectors and associates, and senior staff members. Majorshareholders, anyone holding more than 3 percent of the company'sshares, are locked in for six months, or before the publication of thefirst annual accounts, whichever is later, and cannot sell more than40 percent of their shareholding for two years.Like the NASDAQ model, the new rules require companies toprovide more information. For example, they have to produceindependent expert reports. They also have to give detailed financialprojections and spell out their funding requirements for the two yearsfollowing flotation. Another new requirement, Haycock explained, isthat companies have to spell out their valuation in a way that is easilyunderstood, with tables of who invested how much, when and atwhat price."The Exchange was quite tough about this," said Haycock. Ingeneral, this year's revision, which is likely to come into effect earlynext year, calls for companies to reveal far more information prior toa flotation.Access For Wider Range Of CompaniesNigel Atkinson, head of listing at the LSE, said that the new rules forscience-based companies "are intended to allow access for a widerrange of companies to the public equity market. At the same time,the provisions will enhance the credibility of those companies, byclarifying the information provided to investors in the listingparticulars, and by demonstrating the commitment of senioremployees and shareholders."This isn't quite how the biotech companies see it. Here the view isthat the LSE is desperate to ensure that British companies do not allfollow the example of Ethical Holdings plc, of Godmanchester,England, for example, and float on NASDAQ.The stock exchange, said Haycock, "is under a very great deal ofpressure to make this happen. There is a very great danger that theLSE is not going to be the place of action. They are very concernedthat they are going to miss out." For this reason, Haycock told hisaudience of biotech executives, the LSE is prepared to be flexible inits approach. "Go talk to them if you have any questions," he urged.Haycock told the conference attendees that the regulations forbiotech companies still have their critics. "Some venture capitalistsare furious," he said. He also pointed to continuing criticism of theneed to have two drugs in clinical trials. There are fears that thisrequirement could put drugs into the clinic before it's really justified.LSE Avoiding Flood Of Companies Going PublicWhile the LSE is keen to encourage companies to go public inLondon, it is not keen to have a flood of the sort that NASDAQ hasexperienced. "What they want is a steady trickle," said Haycock."They don't want a flood."Geoffrey Guy, chairman and CEO of Ethical Holdings, told themeeting that his views is that "the LSE rules will probably be revisedevery year until they look like the NASDAQ rules." Ethical Holdingswent public on NASDAQ in April 1993. He warned his audiencethat while there are advantages in the U.S. markets, the position canbe far more volatile. "When the window of opportunity for initialpublic offerings closes in the U.S., they close shut," Guy said.Ethical Holdings decided against a London placing in 1988, saidGuy. At that time it wasn't clear to the company that there would beany buyers for its shares in London. This has changed somewhat inthe past few years."I don't believe that there is any more money available in the U.S.than could be available in London," Guy said. On the other hand, hesaid, foreign companies will find a more receptive audience in theU.S. than they did not long ago. In the mid 1980s, said Guy, U.S.investors were very parochial. They didn't like investing "out ofstate" let alone overseas. "This has changed in the past five years."The new LSE rules are now out for review and should be publishedin December. n

-- Michael Kenward Special To BioWorld Today

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