For many companies in the medtech and diagnostic sectors, identifying the next source of capital is high on the board’s agenda. While a significant number opt to secure their next round of financing from venture capital firms, there is an alternative source of capital that is becoming increasingly popular.
The London Stock Exchange’s Alternative Investment Market (AIM) offers access to a supportive, high-quality investor base within a flexible regulatory regime that allows companies to go public at a much earlier stage than would normally be expected for a listing in the US. In the life sciences sector, medtech and diagnostic companies that have secured FDA approval, are generating revenue, and ideally have international aspirations, are all potential candidates to raise money via AIM.
This article explains the opportunity it provides and why several North American companies have looked to AIM to raise money.
AIM was launched in 1995 by the London Stock Exchange as an international growth market for small and medium-sized companies to help them access capital from the public markets. Since its launch, more than 3,800 companies from around the world have traded on AIM, raising nearly £112 billion (approximately $144 billion) in funds.
Companies on AIM operate in over 100 countries and represent 40 different sectors, ranging from financial services to healthcare and technology. As of the end of December 2018, 89 of 922 companies trading on AIM were in the healthcare industry and they collectively raised over £480 million (approximately $617 million) on AIM during the period between January and December 2018.
The London exchanges are inherently international in their outlook and there are more international companies listed in London - including approximately 120 North American companies - than on any other exchange. There is a particular opportunity for North American companies to take advantage of this route at the moment; in 2017 there were 21 North American (US and Canada) listings, five times the 2016 number. Several US-based healthcare companies, including Maxcyte (Maryland), Polarean Imaging (North Carolina), and Renalytix AI (New York), have raised money on AIM in the last 24 months.
The principal benefits for companies listing on AIM include the following:
AIM companies are required to appoint and have a nominated adviser (Nomad) at all times. The Nomad is responsible for ensuring that the listed company complies with the AIM rules. In turn, Nomads are regulated by the AIM exchange.
An AIM company must prepare and publish annual audited accounts. The accounts must be prepared under international financial reporting standards (IFRS) for companies incorporated in the European Economic Area (EEA), but issuers incorporated in the US may choose to adopt and report under US GAAP. An AIM company must also prepare and publish half-yearly reports. There is no requirement for AIM companies to publish quarterly financial reports.
In order to carry out a UK listing, the company will need to consider its existing board structure and may need to appoint additional directors to make it suitable for a listing. In general, and depending on the size of the company, it is likely that the company will need to have at least two independent, non-executive directors appointed. At least one member of the board is also likely to need to have prior UK listing experience and be resident in the UK for investor access.
Where there is one or more shareholder who has a significant interest in an AIM company, the company will usually enter into a relationship agreement with the shareholder(s) that will set forth how the company will be run and govern the relationship between the parties while the company is admitted to trading on AIM. This can demonstrate that the company has good corporate governance, will be run for the benefit of shareholders as a whole, and consequently is appropriate to be trading on AIM. Although there is no hard and fast rule on when a shareholder is deemed to be ‘significant’, anyone who holds (or is interested in) 30 per cent or more of the share capital of the company will likely be considered to have a significant interest.
AIM companies have a general duty to disclose without delay any inside or price-sensitive information. In addition, AIM companies must announce the following: (i) details of substantial transactions and related party transactions; (ii) reverse takeovers; (iii) fundamental changes of business; (iv) changes in directors, holdings of significant shareholders, Nomad, and broker; and (v) changes in accounting reference dates, legal name, and registered office address.