BioWorld International Correspondent

LONDON - The rules for listing biotechnology companies on the London Stock Exchange (LSE) are to be relaxed, in a move that is expected to increase the number of early stage businesses joining the market.

Currently, biotech companies must have a three-year trading record, and have achieved at least one "significant commercial milestone" of having two products in clinical trials, or a collaboration deal worth at least £5 million, or have spent more than £20 million (US$29.4 million) over three years on R&D, resulting in the creation of significant intellectual property.

The UK Financial Services Authority (FSA), which regulates the LSE, is proposing to remove these requirements. It wants to move to a disclosure-based system, in which companies applying to join the LSE will demonstrate the maturity of their business through detailed disclosures in the listing particulars.

The FSA has noted a trend away from pure product development companies toward involvement in a mix of products and services, for example the operation of sequencing databases. "We are concerned that the milestones set out [in the existing rules] may no longer be appropriate indicators of the stage of [a company's] development," the FSA said.

In the future the FSA proposes to "allow applicants to demonstrate the maturity of their business by explaining the milestones that are appropriate to their particular area of scientific research activity."

Daniel Abrams, chairman of the UK BioIndustry Association's (BIA) Finance Committee, who has been consulted on the proposals, told BioWorld International, "This will be very helpful in opening up the equity markets to more companies. The fact that it has a three-year trading record doesn't mean a company is more suitable for listing. Many companies in the past were entirely suitable, and were precluded because they had only an 18-month record.

"What we should be talking about is viable businesses, capable of commercialization in the short term," he said. "The current rules have outlived their usefulness. In the future it will be up to the financial sponsors to satisfy themselves that a company meets the criteria."

Abrams, who is the finance director of Xenova plc, believes the changes will help the LSE compete with the Neuer Markt in Germany. "The Neuer Markt is winning the competitive battle in terms of bringing new companies in the sector to market. Last year there were seven IPOs on Neuer Markt, compared to four on the LSE. Making the LSE rules easier will encourage more companies to list."

The FSA is inviting comments on the proposed changes, and said it is particularly interested to hear the views of biotechnology investors.