ASX-listed biotech companies are required to disclose material information without delay in order to comply with the ASX’s continuous disclosure rules.
They also operate in an industry where reputations can be destroyed through the premature release of scientific information that has not been appropriately stress-tested. In this article we consider whether it is possible to chart a safe course through these potentially competing obligations.
What are the requirements under ASX’s continuous disclosure rules?
Under the ASX Listing Rules, all listed entities (including biotech companies) are required to disclose ‘immediately’ any information that a reasonable person would expect to have a material effect on the price or value of their securities.
There are limited circumstances in which a listed entity can delay disclosure of material information, such as where the relevant information is a trade secret, or concerns an incomplete proposal or negotiation, or is insufficiently definite to warrant disclosure (provided, in each case, that the information remains confidential). These are known as the ‘carve-outs’ to immediate disclosure.
Why is this problematic for ASX-listed biotech companies?
Although there are some very substantial ASX-listed biotech companies (such as CSL Limited and Cochlear Limited, each with a market capitalisation in excess of $40 billion), there are also a significant number of smaller ASX-listed biotech companies with a market capitalisation below $25 million.
Particularly for the lower end of the market, any serious development with its key assets has the potential to be price-sensitive.
By way of example, for an early stage biotechnology company, information arising during the course of non-clinical R&D studies (i.e. studies performed in animals or in vitro) has the potential to be price-sensitive, particularly if this is the only objective evidence available as the value of the company’s key asset.
However, the premature public announcement of these results by ASX-listed companies can raise eyebrows, particularly in jurisdictions such as the US, where it may be seen to be questionable scientific practice to make a big deal out of early information arising out of pre-clinical trials.
Another example arises in the context of clinical trials (i.e. human therapeutic or medical device trials), where the results of the trial will be price-sensitive, but disclosure of results prior to peer review may in some circumstances be considered by the scientific world to be premature.
In this example, the ASX-listed company would need to rely on the ‘carve-outs’ to immediate disclosure, which only apply while the information remains confidential. This presents unique challenges in managing confidentiality throughout the peer review process.
What should an ASX-listed biotech company do?
The first stop for ASX-listed biotech companies when considering how to address tricky continuous disclosure questions should be the Code of Best Practice for Reporting by Life Science Companies (Second Edition) (the Code), which was updated in 2013 with input from the ASX, AusBiotech and the Victorian Government. The Code contains detailed guidance and suggested practice covering the disclosure of key value events in the life cycle of a biotech company (from early stage R&D, through clinical trials, to licensing and manufacturing).
More generally, the ASX’s own Guidance Note 8 (‘GN8’) sets out in significant detail the ASX’s guidance as to how listed entities should manage their disclosure obligations.
Together, the Code and GN8 provide a useful framework for ASX-listed biotech companies to manage their disclosure obligations in a manner consistent with international best practice in scientific reporting.
Despite this, many ASX-listed biotech companies will experience circumstances where the demands of the scientific community and the ASX are not so easily reconciled, where a more in-depth analysis of the disclosure rules and specific legal advice will be required.
James Burchnall is a Director in the Kain C+C Corporate team and a member of its Health & Medical industry group. With more than a decade of experience working in top-tier corporate law firms in Melbourne, London and most recently in Adelaide, James brings much sought-after skills specialising in public and private M+A, equity capital markets and advising on listed company compliance and corporate governance.