Chairman Jim Mellon is quoted as saying, "We are delighted that the London AIM IPO has been completed successfully. We believe that recent progress in medical research is opening up opportunities for biopharmaceutical companies to develop new treatments for many of the diseases that impact on life expectancy and life quality. The Company will invest in public companies, which offer the benefit of liquidity, and private companies, which offer the attraction of additional capital gains if acquired or upon completion of a successful IPO."
Overview of Listing on London's AIM
Port
Erin Biopharma Investments, a London AIM Investing Company incorporated in the Isle of
Man, will be focused on making investments in U.S. West Coast
biotechnology and biopharmaceutical companies, raised $5 million in its recent
IPO on the London Stock Exchange’s Alternative Investment Market (AIM).
The
Company’s Chairman is a renowned global investor, entrepreneur and author with
an estimated net worth of $800 million.
The Company intends to co-invest, wherever possible, alongside its Chairman
in investments he identifies. The
Chairman has spent the last three years researching the sector, has acquired a
portfolio of investments and is now partly based in San Francisco. He is becoming well-known in the U.S.
biotech/biopharma industry and is approached frequently about potential opportunities.
The
Company chose the London Stock Exchange's AIM for its IPO for many of the typical reasons; AIM’s public
profile, its broad investor base, liquidity and access to London AIM institutional and
other investors. While the Company’s
Chairman is obviously wealthy, as is often the case, the accumulation of great
wealth is the result of intelligence, hard work and the use other people’s
money, therefore, it is access to the world’s deepest pool of
internationally-focused investors on the London Stock Exchange's AIM that will be most important over
the medium-to-long-term.
Before
summarizing the details of Port Erin Biopharma’s London AIM IPO, it is important to
understand that London AIM-listed investing companies are subject to some additional
specific rules and regulations. These
are outlined in the section below at a high level, with further details
appearing at the end of this post.
London Stock Exchange’s AIM
Rules for an Investing Company
In
accordance with the London Stock Exchange’s (LSE’s) AIM Rule 8, an
investing company must:
- raise a minimum of £3 million ($5 million) in cash via an equity fundraising on London's AIM;
- state and follow an investing policy;
- seek the prior consent of its London Stock Exchange AIM shareholders for a material change in its investing policy; and
- if it has not substantially implemented its investment policy within 18 months, seek the consent of its London Stock Exchange AIM shareholders for its investing policy at its next annual general meeting, and on an annual basis thereafter, until such time that its investing policy has been substantially implemented.
An investing
company is defined as having as its primary business or objective, the
investing of its funds in securities, businesses or assets of any description.
An investing
policy is defined as the policy the investing company will follow in
relation to asset allocation and risk diversification. The policy must be sufficiently precise and
detailed to allow the assessment of it, and, if applicable, the significance of
any proposed changes to the policy. It
must contain as a minimum:
- assets or companies in which it can invest;
- the means or strategy by which the investing policy will be achieved;
- whether such investments will be active or passive;
- how widely it will spread its investments and its maximum exposure limits, if applicable;
- its policy in relation to gearing (i.e. leverage) and cross-holdings, if applicable;
- details of investing restrictions; if applicable; and
- the nature of returns it will seek to deliver to London AIM shareholders and, if applicable, how long it can exist before making an investment and/or before having to return funds to London AIM shareholders.
London AIM Investing Policy
Port Erin Biopharma intends to establish a
portfolio of 20 - 25 investments in biotech/biopharma companies. The majority of these companies are likely to
be based in the U.S. The Company will
invest in public companies, which offer the benefit of liquidity, and private companies,
which offer the attraction of additional capital gains upon completion of a
successful IPO. The Company will be a
passive investor.
Because of the high risk nature of investment
in companies engaged in drug discovery and development,
the Company will restrict the amount invested
in any one company to an amount not exceeding 10% of the net asset value of the
Company at the time of investment. In order
to ensure that it has some liquidity for new and/or follow-on investments, the Company
will invest a maximum of 40% of its net asset value in private companies at the
time of making its final private company investment.
The Company intends to deliver capital growth
by realizing capital gains when it considers that the valuation of individual
investments looks to be excessive or, as is often the case in this sector, as a
result of investees being acquired.
While there is no formal limit on the Company’s borrowing powers, the
Board does not intend to use borrowings to fund investments.
Identification
of Potential Investments
The Company’s Chairman has spent the last
three years researching the sector and is now partly
based in San Francisco. He has acquired a personal portfolio of relevant
investments, is becoming well-known in the U.S. biotech/biopharma industry and
is approached frequently about potential investments.
The Chairman evaluates potential investments in
terms of the size of the potential market for a product or drug and the stage of
clinical trials passed; arriving at a risk-weighted assessment of future income
streams. When reaching his personal
investment decision, the Chairman occasionally seeks industry assistance in verifying
the prospects for individual products or drugs.
Where possible, and only to the extent he deems necessary, he conducts
his own due diligence on potential investments. As part of his due diligence, he will generally,
but not always, meet the prospective investee company’s management.
If the Chairman decides to invest personally
in any given company, he will, at his discretion, and if the
company
in which he is investing permits, inform the Company of the general details of
his investment.
London AIM Investment Process
The Directors intend that the Company will,
if and when afforded the option to do so, seek to invest in the same companies
that its Chairman invests in and, where possible, on similar terms. The amount of each individual investment will
be determined by the Company’s Chief Investment Officer (CIO), who is responsible
for implementing the Company’s investing policy. When the Chairman provides his rationale for
a proposed investment, the CIO will conduct a ‘desktop-based verification’ of
such rationale.
The Company will appoint an advisory panel
with industry experience in the biotech/biopharma sector; however, at the time
of its London Stock Exchange AIM IPO, the Company had not appointed an advisory panel or an investment
manager. As deemed appropriate, the CIO
will consult with the advisory panel. If
the CIO is satisfied that the proposed investment is suitable for the Company,
he will provide his endorsement and release funds.
If the Chairman has liquidated an investment where
the Company has also invested, he will, when able to do so, inform the CIO who
will decide whether to also liquidate the Company’s investment. The execution of all investment is the CIO’s responsibility
and will be overseen by the London Stock Exchange AIM-listed Board.
Track Record
While the Company’s Chairman has invested
widely in the biotech/biopharma sector, this has been in a personal capacity
and not via a fund or investment company.
The track record of the Company’s CIO is in the public domain as a
manager of regulated Unit Trusts, where he is ranked 2nd and 4th
in the U.K. Alpha Fund Manager Performance Table over one and three years,
respectively, however, he has not invested in the biotech/biopharma sector. As such, the Directors cannot provide a
meaningful record of historic investment success via a listed vehicle or Unit
Trust operating in the biotech/biopharma sector.
Valuation
and Reporting
The Company will publish a quarterly
statement of net asset value per share.
Private company investments will be valued at cost or with reference to the
most recent funding round. Public
company investments will be valued at their mid-market share price immediately
prior to the publication of the quarterly statement.
Key Listing Metrics
- $4.8m gross was raised in the London Stock Exchange AIM IPO, $4.4m net of offering costs
- Offering price of £0.10 ($0.16) included one common share and one warrant
- Shares listed on London's AIM but warrants not listed on London's AIM and not transferrable
- Warrants exercisable at £0.125 ($0.20)
- Holder may exercise within two years of the London AIM IPO
- Company may compel exercise if London AIM-listed shares close above £0.20 ($0.32) for five days
- Offering costs on the London Stock Exchange's AIM amounted to 8.8% of the gross capital raised
- Undertaken on a ‘best efforts’ basis, as opposed to being underwritten
- AIM Nominated Broker commission of 5.0%
- Corporate finance fee of £50k ($80k)
- Dilution to founding shareholders of 90.9%
- Opening market capitalization upon listing on London's AIM of $5.3m
- Free float upon listing on London's AIM of 66.3%
Shareholder Base
The
pre-IPO shareholders consisted of entities owned or effectively controlled by
the Company’s Chairman and/or CIO. The
London AIM IPO fundraising attracted a wide range of U.K.-based Investment Managers,
Private Client Brokers and High-Net-Worth Individuals.
In
accordance with AIM Rule 7, since the Company had not been in existence for at
least two years, all related parties (i.e. the Directors, 10%+ shareholders,
etc.) are subject to a 12-month lock-in on London's AIM.
In addition, these related parties agreed to orderly market provision
for a further 12 months.
London AIM Board of Directors and
Corporate Governance
The
Board consists of one Executive Director, the CIO, and two Non-Executive
Directors; one of whom is Independent and the other is the Chairman. The Company established an Audit Committee,
which is chaired by the Independent Non-Executive Director and the CIO is the
other member. The Company did not
establish a Remuneration Committee since the CIO’s compensation is share-based and
strictly performance-linked. In fact,
both the CIO and Chairman are to be compensated via the issuance of shares
equivalent to 7.5% of any increase in the net asset value of the Company over
each quarterly period. The Independent
Non-Executive Director is paid a quarterly in cash. The Board intends to meet four times per year
and whenever deemed necessary.
Companies listed on London's AIM are not required to comply with the U.K. Corporate Governance
Code, which is mandatory for companies listed on the Main Market of the London Stock Exchange; however, the
Company intends to apply its principals as far as practicable and appropriate
for a company of its nature and size. The
Company intends to comply with the Corporate Governance Guidelines for Smaller
Quoted Companies published by the Quoted Companies Alliance; however, the
Directors are determined to keep administrative fees to a minimum in order to
ensure that the highest percentage of funds raised is used for investment
purposes.
London AIM Legal Considerations
Since
the Company is incorporated in, and its ‘place of central management and
control’ is, the Isle of Man, a U.K. Crown Dependency, one of the three most
important elements of English corporate law, relating to London AIM share ownership
disclosure, does not automatically apply.
As is customary, the Company amended its constitutional documents to
incorporate the notifiable interest requirements. The three main differences between U.K. and
U.S. corporate law are:
- Pre-emption rights (i.e. anti-dilution) – Shareholders must be offered the opportunity to participate in the issuance of London AIM-listed shares for cash.[1]
- Notifiable Interests – Shareholders are required to notify the Company of, and the Company is required to publicly announce, holdings at or above the 3% level and whenever a full percentage point is breached in either direction.
- Takeovers (i.e. mandatory offer) – If any party, or parties acting in concert, accumulates a holding of 30% or more, they must make a cash offer to the other London Stock Exchange AIM shareholders at the highest price they paid for the Company’s shares listed on London's AIM during the last 12 months.
Since
the Company is incorporated in the Isle of Man and the London AIM IPO was not subject to
Regulation S of the U.S. Securities Act of 1933, the shares are eligible for
dematerialization and trading within CREST, the most common electronic system
for the holding and transfer of shares in the U.K. As such, it was not necessary to appoint a Depository
and create Depository Interests, as would be the case for a company incorporated
outside the U.K., Channel Islands or Isle of Man.
London AIM Accounting Considerations
Since
the Company is incorporated in the Isle of Man, it is required to report using IFRS. The Isle of Man Member Firm of an
international accountancy network acted as Reporting Accountant and audited the
financials from inception, which only reflected the seed capital provided by
the pre-IPO shareholders and some minor administrative expenses. The Company has chosen to use British pounds
Sterling as its reporting currency.
An
unaudited pro forma statement of net assets is never required in connection
with a London AIM IPO and was not provided in this instance given the simplicity of
the Company and its London Stock Exchange AIM IPO.
London AIM Rule 8 Guidance Notes
The London AIM
Rules include some guidance notes with respect to investing companies. As is common throughout the London AIM Rules, the ambiguity
of some of the language below is intentional so that judgment may be employed
by the company’s AIM Nominated Adviser (Nomad) and the London Stock Exchange (LSE).
The investing
policy must be sufficiently precise and detailed so that it is clear,
specific and definitive. The investing
policy must be prominently stated in the London AIM Admission Document (i.e. the U.S.
equivalent of a Prospectus or S-1) and any subsequent circular (i.e. shareholder
document) relating to the investing policy.
The investing policy should be regularly notified (i.e. delivered to a
Regulatory Information Service for distribution to the public) and, at a
minimum, should be stated in the investing company’s annual accounts (i.e.
financial statements).
Any
circular convening a meeting of London Stock Exchange AIM shareholders for the purposes of obtaining
consent for a change in investing policy should contain adequate
information about the current and proposed investing policy and the reasons for,
and expected consequences of, any proposed change. It should also contain the additional
investment company disclosures that were required in the London AIM Admission Document.
In
making the assessment of what constitutes a material change to the published
investing policy, consideration must be given to the cumulative effect of
all the changes made since shareholder approval was last obtained for the
investing policy or, if no such approval has been given, since the date of
listing on London's AIM. Any material change to
the specific points set out in the definition of the investing policy is likely
to constitute a material change requiring shareholder approval.
In
making the assessment of whether or not an investing company has
substantially implemented its investing policy, the London Stock Exchange (LSE) would consider this
to mean that the investing company has invested a substantial portion (usually
at least in excess of 50%) of all funds available to it, including funds
available through agreed debt facilities, in accordance with its investing policy.
In
relation to any requirement to obtain London AIM shareholder approval of the investing
policy, such as where the investment policy has not been substantially
implemented within 18 months, if such shareholder approval is not obtained, the
company would usually be expected to propose amendments to its investing policy
and seek shareholder approval for those amendments, as soon as possible. A resolving action, such as the return of
funds to shareholders, should be considered if consent is again not
obtained. The company’s AIM Nominated Adviser (Nomad) must keep
the London Stock Exchange (LSE) informed if such a situation occurs.
For the avoidance of doubt, if London AIM shareholder approval for the change to
investing policy is not obtained, the company’s existing investing policy will
continue to be effective.
Separate Note Published by the London Stock Exchange for Investing Companies
Separate Note Published by the London Stock Exchange for Investing Companies
From
time-to-time, the London Stock Exchange (LSE) publishes separate notes, which form part of the London AIM
Rules. Only two such notes have ever been
published; one for investing companies listing on London's AIM and the other for mining and oil and gas
companies listing on London's AIM. The investing company note
sets out specific requirements, rule interpretations and guidance relating to
prospective issuers and existing investing companies. If an AIM Nominated Adviser (Nomad) believes that provisions set out
in a note are not applicable or appropriate to a particular London AIM-listed company,
they should contact the London Stock Exchange’s AIM Regulation Team.
Definition of an Investing
Company
If there is any doubt
concerning whether or not a prospective issuer or an existing London AIM-listed
company should be treated as an investing company, the London Stock Exchange (LSE) should be
consulted. The definition of investing
company does not include a London AIM-listed company which is a holding company for a
trading (i.e. operating) business but it does include entities such as cash shells,
blank check companies and special purpose acquisition companies.
Appropriateness for Listing on London's AIM
The investing company should
usually be a closed-ended entity of a similar structure to a U.K. plc,
not requiring a restricted investor base.
It should be straightforward and not complex in terms of its structure,
securities and investing policy and should issue primarily common shares.
Where an AIM-listed investing company
takes a controlling stake in an investment, there should be sufficient
separation between the company and the investment to ensure that the London AIM-listed investing
company does not become a trading company.
There should also be sufficient separation between the investment and
any other investments the London AIM-listed investment company has made; cross-financing or
sharing of operations, for example, should be limited.
If a London AIM-listed investing company is
intending to undertake an acquisition that might result in it becoming a
trading company, the reverse takeover rules should be considered.
A
London AIM investing company’s exposure to risk through any cross-holdings should
be considered.
If the London AIM-listed investing company
principally invests its funds in another company or fund that itself
invest in a portfolio of investments, the impact of this on the company’s
investing policy should be considered.
This should include an assessment as to whether the London AIM-listed investing company’s
investing policy should mirror that of the master fund.
An AIM Nominated Adviser (Nomad) must satisfy itself
that the Board and any investment manager are appropriate and have
sufficient experience for the investing company and the investing
policy. There should be appropriate
agreements in place between a London AIM-listed investing company and investment manager. Where there is an investment manager, a
London AIM-listed investing company should have in place sufficient safeguards and procedures to
ensure that its Board retains sufficient control over its business.
The London Stock Exchange (LSE) would usually expect
the Board of a London AIM-listed investing company, as a whole, and its AIM Nominated Adviser (Nomad), to
be independent from any investment manager. Whether or not this is the case should be
disclosed in the London AIM Admission Document, with any subsequent changes notified. The London Stock Exchange (LSE) would also usually expect the Board and
AIM Nominated Adviser (Nomad) to be independent of any substantial shareholders or investments
comprising over 20% of the gross assets of the London AIM-listed company.
London AIM Admission Document Requirements
In addition to the standard
disclosures required under the London AIM Rules in a London AIM Admission Document, investing
companies should also disclose the following:
- the expertise its Board has with respect to the investing policy;
- where there is an investment manager:
- the name of the investment manager;
- the experience of the investment manager and its expertise with respect to the investing policy;
- a description of the investment manager’s regulatory status, including the name of the regulatory authority by which it is regulated, if applicable;
- a summary of the key term(s) with the investment manager, including fees, length of agreement and termination provisions; and
- its policy in relation to regular updates, if applicable
- its taxation status and any policy or strategy in relation to taxation, if applicable
Interpretation of the London AIM Rules in the Context of Investment Companies
The London AIM Rules apply to an
investment manager, and any of its key employees that are responsible for
making investment decisions in relation to the London AIM-listed investment company, in the same
manner as they apply to the Board with respect to lock-ins, related party
transactions and restrictions on deals (i.e. close or blackout periods in the trading
of shares).
The London Stock Exchange (LSE) would usually expect
that the minimum of £3 million raised as a condition of listing on London's AIM be
accomplished via an independent fundraising and not raised from related
parties.
The AIM Nominated Adviser (Nomad) should consider,
with the London AIM-listed investing company, whether periodic disclosures, such as a net
asset value statement or details of main investments, should be notified in
order to update market participants, with reference to market practice and the
activities of the London AIM-listed investing company. The
approach to making updates should be included in the London AIM Admission Document or a
relevant circular and any changes to this should be notified. Any periodic disclosures would be in addition
to the general requirement to disclose price sensitive information.
The appointment,
dismissal or resignation of any investment manager, or any key personnel
within the London AIM-listed investing company, or investment manager, which might impact the
achievement or progression of the investing policy, would generally be
considered price sensitive information, requiring notification without
delay. Any such notification should
include information on the consequences of the appointment, dismissal or
resignation.
When making an assessment of
whether notification of an investment or disposal of an investment is required,
the cumulative impact of a series of investments or disposals should be
considered.
The company’s AIM Nominated Adviser (Nomad) should
assess, with the London AIM-listed investing company, whether any change to the information
disclosed in the London AIM Admission Document should be notified.
If a London AIM-listed investing company disposes
of all, or substantially all, of its assets, it will have 12 months to
implement its current investing policy.
If this is not fulfilled, the London AIM-listed investing company’s shares will be
suspended from trading on the London Stock Exchange's AIM.
[1] It is customary for London AIM-listed companies to
have a standing authorization from their shareholders for the issuance of
London AIM-listed shares for cash of up to 10% of the then outstanding shares listed on London's AIM over a 12-month
period. This flexibility increases the
certainty and speed of small capital raises and reduces transaction costs,
since further communications with, and approvals from, shareholders are not
required.
