Australia: Seven commandments of continuous disclosure

Services: Corporate & Commercial
Industry Focus: Life Sciences & Healthcare

What you need to know

  • The ASX Listing Rules require ASX-listed companies to "immediately" disclose to the ASX any information concerning them "that a reasonable person would expect to have a material effect on the price or value" of their securities.
  • Given their inherent scientific and regulatory complexities, life sciences companies must be particularly careful to disclose all required information in terms that are clearly understood by investors, allowing them to assess the commercial significance of that information.
  • We suggest seven 'commandments' for companies considering how best to meet their disclosure obligations.

Obtaining listing on the ASX is an exciting milestone for any company. It also carries with it some important obligations including the requirement to give 'continuous disclosure'.

In this article we explore practical compliance with ASX continuous disclosure requirements in the particular context of the life sciences industry. We then suggest 'seven commandments' to assist life sciences companies in understanding and meeting their continuous disclosure obligations.

Immediate and balanced disclosure

ASX Listing Rule 3.1 requires that ASX-listed companies "immediately" disclose to the ASX any information concerning them "that a reasonable person would expect to have a material effect on the price or value" of their securities.

ASX Guidance Note 8 explains the "immediate" disclosure requirement as a requirement to disclose "promptly and without delay".

In practice, this means that companies need to be both proactive and reactive to ensure they meet their disclosure obligations. Being appropriately reactive means sufficiently monitoring publicly available information regarding their securities, including any commentary in major newspapers and social media, to promptly respond to market rumours or any loss of confidentiality.

The social media landscape in particular has the potential to throw up tricky issues for life sciences companies conducting clinical trials, given the risk that the trial participants may make claims or statements to which a company might need to respond. This is precisely the scenario that Neuren Pharmaceuticals faced a few years ago when, part way through its Phase 2 clinical trial of a drug to treat adolescents and adults with Rett Syndrome (a severe genetic disorder of the nervous system), some of the participants' parents posted comments on social media about the positive effect the drug was having on their children. As a result, Neuren Pharmaceuticals issued a clarifying statement in August 2013:

[Neuren] would like to assure the market that these comments reflect subjective impressions that have not been validated by analysis of clinical data. In particular, we would like to reiterate that, as the study is a randomized, double-blind trial, neither Neuren, the clinical investigators nor the parents can be or are aware of the treatment assignment (NNZ-2566 or placebo) for any subject. To the best of our knowledge, the blinded nature of the trial has not been compromised. The clinical benefit, if any, of NNZ-2566 compared to placebo will not be known until treatment assignment is unblinded and the trial data are analysed. Neuren will communicate the results of that analysis when it has been completed and reviewed by the appropriate parties, which is anticipated to be in the second half of 2014.

The events that unfolded for Neuren are a clear illustration of the need for life sciences companies to keep close tabs on public discussion or debate about their business activities, and be ready to respond when required.

It is also important for companies to consider the expectations of the 'reasonable person' in determining what is to be announced. Companies should not 'cherry pick' information – for example, by publishing positive but not negative results of clinical trials. If a company needs time to assess the impact of new developments, it can request a trading halt to do so.

When you can hold back

Under Listing Rule 3.1A, a company is excused from disclosure when all of the following three requirements are satisfied:

  • at least one of the following five situations applies:
    • disclosure would break the law
    • the information relates to an incomplete proposal or negotiation
    • the information comprises matters of supposition or is insufficiently definite
    • the information is prepared for internal management purposes
    • the information is a trade secret
  • the informtion is confidential; and
  • a reasonable person would not expect the information to be disclosed.

These exemption criteria must be considered with care, as there are significant consequences of getting it wrong and failing to disclose something that should have been disclosed.

The cost of getting it wrong

The Corporations Act 2001 (Cth) (Corporations Act) imposes penalties for failure to disclose in accordance with the Listing Rules. In particular:

  • Individuals involved in the failure may face criminal charges with a fine of up to $36,000 and/or up to five years imprisonment,1 or a civil penalty fine of up to $200,000,2 unless they took reasonable steps to ensure the company complied with its disclosure obligations and had reasonable grounds to believe it did.
  • The company itself may face a civil penalty fine of up to $1 million.3 Alternatively, ASIC may issue an infringement notice to the company,4 attracting a fine of between $33,000 and $100,000 depending on the company's size, type and track record.5

Failure to disclose may also attract class action suits against the company.

Specific guidance for life sciences companies

Acknowledging that life sciences companies routinely engage in activities that can throw the continuous disclosure requirement into stark light, the ASX and AusBiotech have jointly published an industry-specific guide to disclosure for Australian listed life sciences companies. This is known as the "Code of Best Practice for Reporting by Life Science Companies" (Code).

Now in its second edition, the Code provides a recommended disclosure framework around the key drivers of value for life sciences companies, including R&D, clinical trials, intellectual property and manufacturing. It offers guidance on the circumstances in which disclosure obligations might apply and the level of detail required, as well as explanations of various technical terms. Here are some highlights:

  • Companies should bear in mind the importance of ensuring their announcements are clear, particularly since many investors will have a limited understanding of the science underlying their activities. Announcements should explain the implications of the information disclosed and thus facilitate the evaluation of its significance.
    For example, when reporting on clinical trials, companies should clearly explain how the study is linked to the relevant regulatory process so that investors understand the trial's commercial or regulatory significance. Trial results should be disclosed with reference to the initial goals (were the endpoints achieved?), structure and key aspects of the trial protocol.
  • Companies whose activities are primarily in the R&D space are encouraged by the Code to provide periodic reports to the market (at least half yearly) on their R&D activities in the preceding period, including a summary of related expenditure. Information regarding R&D activities needs to be fair and balanced so that investors can assess the commercial prospects of the proposed or pipeline product.
  • It is common for life sciences companies to enter into licensing arrangements, co-marketing agreements, joint ventures or similar engagements for various commercial or other reasons. In disclosing these types of arrangements, companies need to balance commercial sensitivity with the need to enable investors to properly assess the value of the relevant arrangement or transaction. This requires proactive engagement with the other party as to the content of announcements.

Seven commandments

The practical implications of the continuous disclosure requirement will look different for every company.

As a starting point, we suggest these 'seven commandments' to guide companies in meeting their disclosure obligations:

1. Be quick: Understand the need to disclose market sensitive information "immediately".

2. Be savvy: Understand the exceptions to disclosure.

3. Be fair: Don't cherry pick your disclosures (for example, don't rush to share the good news and hold back the bad).

4. Be prepared: Have a protocol for preparing and signing off updates to the market, and use trading halts to give yourself time if you need it.

5. Be appropriately proactive and reactive: At each board meeting, ask 'have we decided anything today that ought to be disclosed?' Also ensure there are sufficient measures in place to monitor the media and identify issues that might require a response.

6. Be commercial: Consider the company's key drivers of value in determining what should be disclosed.

7. Be practical: Don't just provide information, but explain its implications for the company and unpack its significance if there is dense scientific or technical content involved.

While the details and intricacies about the continuous disclosure regime can sometimes be overwhelming, a common sense approach that draws upon these seven commandments should go a long way towards helping life sciences companies communicate well with the market.

Footnotes
1Corporations Act 2001 (Cth) s 1311(1), Schedule 3; Crimes Act 1914 (Cth) s 4AA(1).
2Corporations Act s 1317E, 1317G(1B)(a).
3Corporations Act s 1317E, 1317G(1B)(b).
4Corporations Act s 1317DAC.
5Corporations Act s 1317DAE(2)-(7).

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions