CAPITAL RAISING – THE CREDIT CRUNCH

Peter Willcocks is a senior lawyer specialising in the Life Sciences and Biotechnology sector.  He has practised as a lawyer for more than 30 years, and was formerly general counsel and director of business development at Acrux Limited. 

Peter’s work in the biotech arena includes involvement in major mergers and acquisitions both in Australia and overseas.  He also has wide experience the preparation of prospectuses, conduct of due diligence, advice in underwriting and listing for biotechnology companies and the preparation of shareholders’ agreements, licensing and R&D agreements.

The Issue - capital access

Volatility in the world’s finance markets has a significant flow-through effect on biotechnology companies.  Biotechnology companies, almost by definition, have a continuing need for capital and for capital raisings.  This is especially difficult given the current economic climate.  As market pressures increase capital raising has become more expensive, less available and subject to global credit squeeze.

Volatility means that, at least in the immediate future, any windows of opportunity for capital raisings, either public or private, may be both irregular and brief. Therefore, biotechnology companies must be continually ready to take advantage of any capital raising opportunities that come along.  At the moment there simply isn’t time to wait for the opportunity and then prepare to take advantage of it.  The preparations must be done and constantly reviewed to be kept up to date.

Ready to Move

Being ready to raise funds means that opportunities can be taken advantage of which might otherwise be lost.  Timeliness can be the difference between success and mediocrity and, in some cases, the difference between commercial survival and failure.

In order to move quickly, companies must have a continuous due diligence program in place both to:

• ensure compliance with the ASX Listing Rules (continuous disclosure obligations); and
• rapidly provide accurate and complete information to prospective investors.
• Not only must the market be informed in the case of listed public companies but private equity will require similar but more detailed information and will require it immediately.

Options for Capital Raising

The most common methods of biotechnology companies raising capital in Australia are:

• Using the 20/12 rule or making private placements under the Corporations Act: Either of these approaches requires the company to be in a position to satisfy prospective investors’ questions. 
• If listed, using the new rights issue procedure under section 708 AA of the Corporations Act or using a special purpose prospectus.  Either of these approaches requires the company to be absolutely sure that it has satisfied all continuous disclosure requirements (without relying on any Listing Rule carve-outs).
• Selling or out-licensing technology.  This requires the company to be able to answer due diligence inquiries very quickly and completely.

What Companies Need to Do

• Understand what type of information must be disclosed to the market, if listed.
• Understand what type of information private investors need and in what form.
• Know where the information is and how it can be provided quickly.
• Have appropriate and effective internal continuous disclosure protocols to ensure that all information is up to date.
• Have appropriate and effective internal continuous disclosure protocols to ensure that all senior management and the board are fully informed.

Our Advice

Using our experience in having acted for, and negotiated with, biotechnology companies, private equity, investment bankers and stockbrokers (in Australia and overseas) we can work companies to ensure that they can take immediate advantage of capital raising opportunities as and when they present themselves.

We know what is wanted, why it is wanted and in what form.  We can advise on establishing ongoing due diligence protocols which will both enable the company to be ready at any point in time to raise capital and also ensure compliance with continuous disclosure obligations if listed.

About the Author

Peter currently holds the role of Special Counsel at Lander & Rogers lawyers.  He can provide advice on capital raising, mergers and acquisitions, agreements, licensing, commercial partnerships, technology transfer and other intellectual property issues.   For further information please contact Peter via email pwillcocks@landers.com.au or direct line 03 9672 9305.