Share incentive trends for second half 2006 biotech floats

United Kingdom

We have reviewed the London floats of biotech companies in the second half of 2006. Below is a note on a number of points of interest, showing that option schemes continue to be important to the sector.

The following outlines the main points of interest relating to biotech floats in London in the second half of 2006:

  • 7 biotech companies floated on the main London list and AIM between 1 May 2006 and 31 December 2006. Many were structured as reverse take overs ie a biotech company moved into an existing quoted company.
  • The companies were Puricore, Curidium Medica, ValiRx, Kiotech International, Concateno, Peptech and Taihua.
  • Only one company floated on the main list (Puricore).
  • All companies have share incentive schemes - and most of them had used share schemes pre-float.
  • The general trend appears to be that less detail was provided in relation to the terms of the schemes - but this is likely to be related to the relatively small size of the companies and the small amounts being raised in this half: the smaller the company, the less detail likely to be sought.
  • Only one of the companies surveyed (Peptech) had a long-term incentive plan (which perhaps reflects Australian practice, as this is fundamentally an Australian company). The remainder all had option schemes. This continues to reflect the growing difference between biotech companies that are heavy users of options, and quoted companies generally, which are moving towards much greater use of long-term incentive plans.
  • Only one company did not have a tax-approved enterprise management incentive scheme (EMI) but some also had an unapproved share option scheme.
  • Only one company (Concateno) had an employee benefit trust, which was also the only company to give any indication of the performance/vesting conditions for its post-float options (which were based on absolute share price growth targets).

One company limited its discretionary post-float option scheme dilution to 20%. Others were at 10% or not specified. The potential percentage dilution disclosed on the basis of outstanding awards at the time of float ranged from 2.6% (Curidium) to 12.9% (Puricore). However, dilution figures need to be viewed cautiously as measures of employee remuneration because these may include warrants to investors and advisors, and there are a variety of factors at play - including the level of cash remuneration at the company which, if small, may justify higher share awards.