Changes to UK Stock market laws to encourage more Healthcare and HealthTech companies to list in London

Lloyd Price
Apr 30
6 min read

UK Stock market laws to encourage more Healthcare and HealthTech listings

Recent changes to UK stock market regulations aim to make London, particularly the Alternative Investment Market (AIM), a more attractive destination for healthcare and biotech companies to list.

These reforms address the competitive challenges faced by the London Stock Exchange (LSE) compared to markets like New York and seek to bolster the UK’s position as a hub for innovative firms.

Below is a summary of key changes and proposals relevant to encouraging healthcare companies to list, especially on AIM, the junior market.

Key Regulatory Changes and Proposals

Overhaul of UK Listing Rules (Effective July 2024):

The Financial Conduct Authority (FCA) introduced significant reforms to the UK Listing Rules, the most substantial in three decades, to make listing in London more appealing. These changes include:

Single Listing Category: The previous premium and standard listing segments on the LSE Main Market were replaced with a single Equity Shares Commercial Companies (ESCC) category. This simplifies the listing process and reduces compliance burdens, making it easier for growth-oriented companies, including healthcare firms, to access capital.

Relaxed Requirements: Companies no longer need shareholder approval for significant transactions like takeovers or related-party deals, reducing administrative hurdles. The FCA also lowered the minimum free float requirement from 25% to 10%, enabling founders to retain more control, a feature attractive to founder-led biotech firms.

Dual-Class Share Structures: Allowing dual-class share structures on the ESCC category enables founders to maintain voting control, a structure often favoured by innovative healthcare companies. This aligns London’s rules more closely with US exchanges like NASDAQ, which are popular among biotech firms.

While these changes primarily affect the Main Market, they indirectly benefit AIM by creating a more flexible ecosystem, encouraging companies to consider London as a whole. Some AIM companies may also transition to the ESCC category to access a broader investor pool.

Prospectus Rule Reforms

The FCA increased the threshold for requiring a prospectus for further share issuances from 20% to 75% of issued share capital. This reduces costs and regulatory burdens for companies raising follow-on capital, which is critical for healthcare firms that often need multiple funding rounds to support R&D.

This flexibility is particularly relevant for AIM-listed companies, as it streamlines secondary offerings, making it easier for healthcare firms to tap public markets for growth capital.

Tax and Incentive Proposals:

Proposals have been made to offer tax benefits to attract high-growth firms, including healthcare companies, to list in London. These include:

Exemption from Capital Gains Tax: Similar to stocks and shares ISA wrappers, shares bought and sold within an initial period (e.g five years) could be exempt from capital gains tax.

Stamp Duty Exemption: A 0.5% stamp duty on share trades could be waived for new listings, reducing costs for investors and improving liquidity.

Inheritance Tax Relief: AIM shares currently benefit from Business Property Relief, offering up to 100% inheritance tax relief. There are concerns about potential changes to this relief in the 2025 budget, which could deter listings, but no changes have been confirmed.

These incentives, if implemented, would make AIM particularly attractive for healthcare firms, as they enhance investor appeal and reduce the cost of capital.

Pension Fund Reforms

The UK government, under Chancellor Rachel Reeves, announced plans in November 2024 to create pension “mega funds” to pool capital for investment in UK equities, including growth sectors like healthcare.

This could increase liquidity and institutional investment in AIM-listed companies.

Collaboration with the British Business Bank and initiatives like the British Growth Partnership aim to deploy pension fund capital into growth businesses, directly benefiting healthcare firms seeking funding.

Proposed Closure of AIM and Integration with Main Market:

A thinktank report from the Tony Blair Institute in October 2024 recommended closing AIM and creating a rapid listing route on the LSE Main Market with time-limited tax and regulatory benefits tailored for high-growth sectors like healthcare and biotech. This route would offer similar flexibility to AIM but with greater visibility and access to institutional investors.

While this proposal is not yet adopted, it reflects ongoing discussions about restructuring the UK’s capital markets to better support innovative companies, potentially impacting healthcare firms’ listing decisions.

Support for Secondary Listings

Reforms are being explored to streamline secondary listings for innovative companies already listed on other major exchanges (e.g., NASDAQ). This could attract international healthcare firms to list on AIM or the Main Market, drawing on the model of Hong Kong’s Chapter 19C.

Automatic waivers from certain listing requirements and a more efficient process could make London a viable secondary listing venue for US-based biotech firms.

New Intermittent-Trading Venue

The UK plans to create a new venue for intermittent secondary-market share trading, such as employee share sales. This could benefit healthcare startups by providing liquidity for early investors and employees, making AIM listings more appealing. The venue aims to attract institutional investment by encouraging companies to indicate future IPO windows.

Specific Relevance to Healthcare Companies

AIM’s Appeal for Healthcare Firms: AIM’s relaxed regulations, such as no minimum market capitalization or trading history requirements, make it ideal for early-stage healthcare and biotech companies that may not yet have revenue but need capital for clinical trials or product development. Over 3,600 companies, including many in healthcare, have listed on AIM since 1995, raising over £130 billion.

Recent Examples: The listing of US-based medtech firm AOTI on AIM in June 2024, raising £35.1 million, highlights AIM’s growing appeal for healthcare companies. AOTI’s choice of London over US markets was attributed to AIM’s flexible rules, no minimum free float requirement, and the UK’s strong healthcare ecosystem.

Sector Representation: Healthcare is a significant sector on AIM, alongside technology and consumer services. The FTSE techMARK mediscience Index tracks mid- and small-cap healthcare companies, providing visibility and investor interest.

Challenges and Criticisms

AIM’s Decline: AIM has shrunk to 695 companies by October 2024, its smallest size since 2001, with 92 delistings and only 10 new listings in the past year. Concerns about potential inheritance tax relief changes and high capital costs have deterred listings.

Regulatory Risks: Critics argue that relaxed rules (e.g., reduced shareholder oversight) could dilute market quality, potentially deterring institutional investors wary of speculative healthcare ventures.

Competition with the US: US markets like NASDAQ offer higher valuations and greater liquidity, attracting many biotech firms. The UK’s reforms aim to close this gap, but challenges like stamp duty (which reduces company valuations) persist.

The UK has implemented and proposed several reforms to make London, particularly AIM, more attractive for healthcare companies. Key changes include simplified listing rules, tax incentives, pension fund investments, and increased flexibility for capital raising. While AIM remains a vital platform for early-stage healthcare firms due to its relaxed regulations, proposals to integrate its functions into the Main Market or create new trading venues could further enhance London’s appeal. However, challenges like AIM’s declining size and competition with US markets remain. Healthcare companies considering listing on AIM can benefit from the UK’s supportive ecosystem, as demonstrated by recent successes like AOTI, but must weigh risks like regulatory uncertainty and market liquidity.

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