By Anna Sharpe and
Georgina Johnson.
Key Points:
Although the draft Code successfully identifies the key factors that distinguish biotechnology companies from the rest of the market, it needs extensive development before it will provide a useful framework for disclosure.
Difficulties arise for listed biotechnology companies in determining when to make disclosure under ASX Listing Rule 3.1 and the extent to which disclosure should be made. These problems are pronounced in the biotechnology sector due to such factors as the long lead times of projects and the highly confidential nature of company information (which may include, for example, patient information). There is a real risk of biotechnology companies making ill-timed, inadequate or meaningless disclosure.
In this context, the ASX and AusBiotech, the biotechnology industry's peak body, in consultation with leading participants from the biotechnology sector have developed a draft code aimed to provide guidance to biotechnology companies as to when, what and how they should make required disclosure under Listing Rule 3.1.
In April 2004, the first working draft of the code entitled the "Code of Best Practice for Reporting by Biotechnology, Medical Device and other Life Sciences Companies" was released. The stated objective of the Code is to promote improved communication and understanding between biotechnology companies and the market and enable the market to properly assess the value and prospects of biotechnology companies.
The Code has attempted to address the key factors of the operation and assets of biotechnology companies that drive the companies' value. In brief, the Code:
- Patents - recognises the importance of patents to the value of biotechnology companies and, in very general terms, outlines when (first when granted and in the following Annual Report) and what information should be disclosed to the market;
- Licensing, collaboration and partnerships - requires that the information disclosed about licensing, collaboration or partnership agreements be such that the market can make a proper assessment of the market significance of the transaction to the company. Notably, the Code also specifies that undue prominence should not be given to the potential revenue (so called "Biodollars") of such agreements;
- Clinical trials - requires results of clinical trials to be disclosure in the context of the trial's initial objectives. In its most detailed consideration of any issue, the Code specifies what information should be disclosed to the market at the beginning, throughout and at the end of clinical trials;
- Key staff appointments and separations - appointment to and separation from the business of key management and scientific staff are deemed material events in the context of a biotechnology company and are required to be disclosed to the market;
- Periodic reporting of activities and cash flow - for companies whose activities are primarily R&D, the Code requires the company to regularly reported (at least half yearly) on the progress and expenditure of company's R&D activities. No guidance as to what constitutes "primarily" is provided in the Code;
- Terminology - states that company announcements be such that the investors can comprehend the announcement and evaluate its significant. To this end, the Code suggests the use of glossaries or Q&A sections; and
- Confidentiality - acknowledges the significance of confidential information within biotechnology companies but only state a very general requirement that where information may be kept confidential, companies should have proper processes and procedures in place to do so.
- recognises the importance of patents to the value of biotechnology companies and, in very general terms, outlines when (first when granted and in the following Annual Report) and what information should be disclosed to the market; - requires that the information disclosed about licensing, collaboration or partnership agreements be such that the market can make a proper assessment of the market significance of the transaction to the company. Notably, the Code also specifies that undue prominence should not be given to the potential revenue (so called "Biodollars") of such agreements; - requires results of clinical trials to be disclosure in the context of the trial's initial objectives. In its most detailed consideration of any issue, the Code specifies what information should be disclosed to the market at the beginning, throughout and at the end of clinical trials; - appointment to and separation from the business of key management and scientific staff are deemed material events in the context of a biotechnology company and are required to be disclosed to the market; - for companies whose activities are primarily R&D, the Code requires the company to regularly reported (at least half yearly) on the progress and expenditure of company's R&D activities. No guidance as to what constitutes "primarily" is provided in the Code; - states that company announcements be such that the investors can comprehend the announcement and evaluate its significant. To this end, the Code suggests the use of glossaries or Q&A sections; and - acknowledges the significance of confidential information within biotechnology companies but only state a very general requirement that where information may be kept confidential, companies should have proper processes and procedures in place to do so.
The Code appears to have successfully identified the key factors that distinguish biotechnology companies from the rest of the market, however in its current form the Code requires extensive development before it will provide a useful framework for disclosure.
Recent discussions between the ASX and AusBiotech have confirmed that it will be AusBiotech's responsibility to develop, implement and administer what is likely to be a voluntary industry code, on the basis that the industry body is best placed to undertake this role. Going forward, AusBiotech intends to form a committee which will be responsible for the development and maintenance of the Code of conduct.
