Emerging Australian life sciences companies are increasingly interested in directly accessing foreign capital markets, in order to grow not only their investor base but also their reputation and profile in particular countries as their distribution channels and operations become increasingly international. A direct listing on an international exchange or a cross-listing on multiple exchanges and the use of depositary receipt programs are being considered more and more by these emerging companies.

Dual-listing and cross-listing

Two life sciences companies that have recently adopted the full cross-listing structure are HeartWare International, Inc. (which now has a market capitalisation of close to US$1 billion) and Unilife Corporation (which now has a market capitalisation in excess of US$300 million), both of which are represented by DLA Piper. Both of these emerging medical device companies were Australian companies listed on the ASX that recently successfully redomiciled in the US by adopting a new US holding company structure whereby that company is now listed on NASDAQ and the shares in the holding company are also traded on the ASX in the form of Chess Depositary Interests (CDIs). Both groups before the redomiciliation had an Australian holding company, whose ordinary shares were only listed on the ASX. By adopting this structure, both companies were able to retain their strong connection to their Australian investor base and also to access directly the large US investment community (many members of which are restricted from investing in non-US securities). A number of other Australian companies are also currently considering adopting the same model for their groups.

Cross-listing can provide a company with a number of benefits, although the value of cross-listing will be highly dependent on each company's individual circumstances and is clearly not suitable for all companies. Where a company is seeking access to a market that provides significant scope for capital raisings, the liquidity of the market will be a key determinant, as well as the different types of investors to which the company will be given access. In addition, some markets are known for being particularly receptive to certain industry sectors. For example, NASDAQ is a natural target for life sciences and IT growth companies.

Depositary receipts

The HeartWare and Unilife model is, however, a major step for a company to take. Currently, the more popular method of accessing foreign equity markets is through the use of a depositary receipt program, which is seen primarily as a way to improve liquidity in a company's shares.

These programs essentially involve the issue of tradeable depositary receipts, which represent interests in the underlying securities of a company. A depositary receipt program can be appealing to local investors in the relevant foreign market because it provides access to international companies (and therefore diversity in investments) while enabling trading and settling in the local currency and in accordance with local procedure.

Based on 2009 activity, there has been an increase in the number of companies electing to conduct their initial public offerings using depositary receipts, with the majority being from the Asia-Pacific region.

The use of American Depositary Receipts (ADRs) by Australian companies as a means to access US investors has also increased in recent times, being a particularly attractive option for smaller companies that are not large enough to list in the US. 141 ADR programs were launched by Australian issuers between 1983 and 2008, with the number of ADR programs on issue doubling between 2002 and 2008.

Conclusion

While the events of the last few years have caused many companies to look inwardly, the attraction and importance of accessing foreign capital will continue to increase for Australian companies, not just from the traditional markets of the US and the UK, but also the emerging markets of Asia and India, which are increasingly keen to have foreign companies listed on their exchanges. The options available to Australian life sciences companies will be numerous, but the key for any interested company will be to ensure that it chooses the right market and adopts the right strategy in doing so.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.


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