Associate

Editor's note: This story is part two of a two-part series. Part one ran Friday.

Nominated advisers, or "nomads," are crucial to the functioning of the London Stock Exchange's AIM market. Every company must convince a nomad to represent it in order to be listed on AIM. When the scenario of a typical struggling U.S. biotechnology platform company with no product revenues and sizable debt was posed to a nomad in London, he allowed that the biotech company "might be OK," but also suggested it might be difficult to find a nomad "to take you on."

The London Stock Exchange's rule change to allow certain publicly traded companies easier, cheaper access to secondary listings on its Alternative Investment Market could open European financial doors to a lot of companies. How many of those will be biotechnology firms remains to be seen.

The rule change stipulates companies listed on nine selected global markets - including Nasdaq and the New York Stock Exchange - now can use their most recent regulatory filings to gain a secondary listing on AIM, the London Stock Exchange's market for smaller, growing companies. Previously, companies needed to submit a full prospectus, a procedure that is both time-consuming and costly.

While the London Stock Exchange (LSE) said the change was made to "encourage U.S. companies, particularly those in the life sciences, technology, gaming and natural resources sectors, to join London's markets" to enhance their visibility with international investors and increase their access to capital, the nature of AIM might make it difficult for young U.S. biotech firms - those living on scientific promise, devoid of revenue and rich in debt - to make the jump to a secondary listing in London.

Nomads regulate AIM-listed companies and in turn are regulated by the London Stock Exchange. Every company seeking an AIM listing must find a nomad to bring it to market. The advisers performs due diligence and then "put their neck on the line," said Ian Campbell, press officer for the London Stock Exchange, by getting the company listed on AIM. Once listed, the nomads ensure companies adhere to LSE regulations.

There are 69 firms that provide nomads for the roughly 700 companies listed on AIM. In the case of biotech companies with little more than a platform and a vision, a nominated adviser, who asked to remain anonymous, suggested a nomad might agree to represent a company, but increase his or her due diligence. However, that would increase the cost of obtaining the secondary listing, something the rule change is designed to avoid.

But, he said the decisions are made on a case-by-case basis and whether to take on a company is "absolutely" up to the individual nomad.

Cost Of Listing On AIM Can Vary

It's hard to discern just what a secondary listing on AIM would cost a company under the new rule change, as the fees charged by a nomad can vary greatly. The LSE, though, charges a listing fee that slides from £5,000 (US$8,260) to £50,000, based on a company's market cap.

When companies raise public funds on AIM, the nomad takes a percentage of the offering. But when a nomad is merely doing due diligence to bring a company to London's investors via AIM, there isn't money being raised and there is no fixed percentage for an adviser to take. What the nomad charges will be set by the amount of due diligence he does, and all that's really known at this point is that the figure is expected to drop significantly. Estimates suggest the entire process could cost as little as half of what it used to.

The idea behind the rule change isn't for companies to generate funds through public offerings in London - that would require a prospectus. It's meant to give companies exposure to international investors and to raise their profile internationally.

"By coming to London and being quoted in London and releasing their news on the London Stock Exchange system, [companies] can address a lot of problems they are having in the U.S.," said Graham Dallas, head of business development for the Americas at the LSE. "It's a different pool of capital. There are more international funds in London than anywhere else in Europe. It's an institutional market more so than in the U.S."

YM BioSciences Survives By Using AIM

Although no company has yet to take advantage of the new rule change, in general the atmosphere in London now is similar to the U.S. in that markets are not responsive to public offerings and new technologies.

The UK market, though, might provide an option for those struggling to stay afloat on Nasdaq, since the AIM market does not have minimum or maximum market cap restrictions. BioProgress Technology International Inc., a company with patented technology in the water soluble and biodegradable films areas, recently made the jump to London, Dallas said.

"They traded very recently on the Nasdaq OTC BB market," Dallas told BioWorld Today. "They reorganized their corporate structure, set up a new UK entity to own the BioProgress assets, and they came to AIM."

He admitted the scenario of a company giving up its U.S. status and moving to AIM is "unusual," but said the company placed its shares at 16 pence, which moved to 26 pence on the first day of trading. The company raised about $8 million, he said, and added that BioProgress "seems quite pleased with the process so far."

For YM BioSciences Inc., of Mississauga, Ontario, the AIM market simply allowed the company to survive. Faced with dwindling financial resources and a 2002 tight-fisted North American market, it was raise funds or die for YM.

"We had to go public," said YM CEO David Allan. "We concluded that we could not raise money from the private market.

"The purpose [of the AIM market] was to increase the target population of prospective investors. That was important to us because we were doing an IPO in a desert of IPOs. There had not been one in Canada in 2002 and there had not been one of any consequence in terms of size in the year before that."

Staring across a barren IPO landscape, YM surveyed two continents, sold shares "to every [interested] person who was breathing or standing," and simultaneously went public on the AIM market and the Toronto Stock Exchange. (See BioWorld Today, June 14, 2002.)

It had set a range of C$15 million (US$9.74 million at the time) to C$40 million and managed to raise the minimum, but that IPO was "one of only five or six in the entire [biotech] world in 2002" and the only one in Canada in 2002, Allan said.

"It was crucial," he said. "It was the difference between survival and going broke, within the context of the time."

Allan said that the majority of that money came from Europe, and "at least half of the Europeans would not have come in without the AIM listing."

YM is not profitable. Its lead product, tesmilifene, is readying for a Phase III combination trial in advanced metastatic/recurrent breast cancer; the FDA has approved the protocol. YM lost C$2.9 million for the three months ended Dec. 31 and C$4.2 for the six months ended Dec. 31. It had cash and short-term deposits of C$10.4 million at the end of 2002. In North America, that description fits many biotech companies, but selling that to a nomad might have been difficult. YM had a dash of good luck, however.

"Serendipitously, the [Canadian] broker was Canaccord [Capital]," he said. "They were one of only two North American brokers who are permitted to be nomads on the London Stock Exchange."

Thus persuading a Canaccord nomad was easier. Piper Jaffray is the other North American firm with nomad representation, Allan said, but added, "I think you'll find that will change dramatically."

While Allan had the unfortunate task of readying for two IPOs, a task he called "hugely expensive and hugely painful," in part because of the dual prospectuses, he sees the rule change as a positive for biotech. The idea of joining AIM based on already-filed paperwork should entice others.

"There is going to be a whole lot more from the U.S. and from Canada [going to AIM] because of this," he said.