Shareholders at XTL Biopharmaceuticals, the London-listed Israeli drug company, threw out a motion yesterday to allow the group to ignore pre-emption rights on up to 10 per cent of the company's share capital.
The revolt, which came at the group's annual meeting, is thought to be the first time shareholders have stopped a company from waiving pre-emption rights, a strategy which loss-making biotech companies use to raise finance. Under UK company law, shareholders must be consulted if the company wishes to issue shares equivalent to more than 5 per cent of the company.
However, many biotech companies prefer to have the right to offer larger stakes to investors instantly due to the competitive nature of the industry. The short-term result of such a move, however, is to dilute substantially the holdings of existing shareholders.
The news comes days after it was announced that Paul Myners, the chairman of Marks & Spencer, is to conduct a Government-sponsored inquiry into pre-emption rights to determine whether there needs to be a change to UK regulations.
Shareholder associations are opposed to any change, arguing that it would be a violation of investors' rights. However, the biotech industry is keen to have the threshold raised to a similar level as the US, where companies can issue up to 20 per cent of a company's existing share capital without consulting shareholders. Dr Martin Becker, the chief executive of XTL, played down the significance of losing the vote, saying he was confident he would be able to get shareholder approval as and when the right deal came along. However, he conceded that consulting shareholders would slow things down, which could jeopardise potential deals.
"I think [Mr Myners] should look carefully at the US biotech market and its ability to fund itself, and where it sits today vis a vis some of the European biotech companies," he said. "This is a business which is very competitive. I think this issue needs to be explained better to shareholders and the public."
Last year, XTLstaved off a move to oust its management by Shore Capital, a boutique investment bank, which took a 20 per cent stake in the company.