Share price hit but Progen still upbeat
Liam Walsh - 23may05
IN a refurbished warehouse in outer blue-collar Brisbane, the pressure is mounting to capture a multimillion-dollar slice of the burgeoning cancer treatment market.
But with the crunch on, Progen Industries – a $100 million biotechnology company based in Brisbane's Darra – has taken a bruising on the stockmarket.
Investors savaged shares following trial results last week which the company had described as "encouraging". Shareholders are also agitating for news about a deal with a US pharmaceutical giant.
Yet for all the market pessimism, Progen has become known over the past decade as an established – albeit frugal – player in the national sector.
Industry sources also say Progen, listed on both the Australian Stock Exchange and the US Nasdaq, has solid trials under way and strong management. One analyst even says it's regarded as "leading in the sector in terms of prospects of success".
Progen's ambitions are focused on cancer. Its lead product is PI-88, a carbohydrate agent containing sugars derived from a yeast.
The idea is basically to stop tumours growing or spreading. One method of PI-88 is to attack the growth of blood vessels which feed the tumours.
While the description is not for the squeamish, Progen managing director Lewis Lee likens it to making sure the placenta can't supply the foetus.
Trials are examining PI-88's effectiveness against the likes of lung cancer and melanoma – a potentially deadly skin cancer which recently forced Australian rugby union player Steve Larkham to undergo surgery.
The prize is enormous.
A little over a year ago, California-based Genetech released its blockbuster drug Avastin which targets colorectal cancer and may work on tumours. Sales for the year hit $US555 million ($A731 million).
But nothing is guaranteed.
Progen's annual report filed with the US Securities and Exchange Commission blares in capital letters: "There is a significant risk that we may not be able to complete the development of PI-88 or (other compound) PI-166, or develop other pharmaceutical products."
There's still years to go before a sellable drug might be available – more time on an already long road. The company started back in 1989, reportedly founded by wealthy Taiwanese Australian doctors and other professionals, and floated on the stockmarket in 1995.
Hurdles have marked its development, a planned float in 1994 was called off following squabbles with the underwriters and a competitor.
That time has also seen Progen spend $US39 million ($A51 million) by mid-last year, and it currently burns through about $450,000 each month.
But Intersuisse investment research says Progen had a "healthy" cash position with $14.3 million at December's end and has demonstrated spending discipline.
"We're tight," Mr Lee concedes from Progen's visitor room, which contains a noisy coffee pot, a plain table and simple refreshments.
Mr Lee says the company avoids the glossy trappings and acts frugally.
"We have to be," he says.
Mr Lee, whose pay package (excluding options) was $291,000 last year, is one of about 45 staff at Progen. He joined Progen about five years ago after a successful spell with Swiss-based drug giant F. Hoffman La Roche.
Luckily, he chose to come back to Australia for personal reasons. Lee says another option was to chase a position with Merck's Vioxx division – the athritis drug recalled last year in a move wipe tens of billions of dollars from the American giant.
Progen also retains executive chairman Stephen Chang on a paypacket of $206,000 last year. The family trust of Mr Chang, a founding director, had a 1.24 per cent stake in the company last year.
Mr Lee says having an executive chairman helps when Mr Lee focuses on some areas, and Mr Chang has good connections. The position would be reviewed as the company moved forward, Mr Lee said.
Progen is also searching for a research manager after the last one resigned amicably two months ago.
That resignation raised some consternation, because the failure to announce it to the stock market was a violation of guidelines for listed biotech companies.
Mr Lee countered at the time that the departure did not have to be announced because it would not cause a "ripple in the water" in its research progress.
Progen's development has been also marked by share prices resembling the ups and downs of a yo-yo dieter.
Shares hit $13.18 in February 1997, then slumped to 74¢ by September 2001. By October last year, prices were back at $6.22 but closed on Friday at $2.84.
Some investors have been angered. Back at the annual general meeting in 2000, one woman complained of losing "thousands of dollars" on the fluctuating price.
That downward trend struck again last week when results were released for a trial of PI-88 injected into 44 melanoma-afflicted patients.
Progen promoted the results as "encouraging".
But the market thought otherwise and shares tumbled almost 78¢ over two days.
"This may be a result of the market expecting a stronger result from these studies," ABN Amro Morgans said in a note.
Another note from Taylor Collison biotech equities analyst Thomas Duthy said the announcement was not structured properly and "led to mass confusion" about the drug's effectiveness.
"We believe investors have focused attention on the fact that PI-88 was only able to shrink tumours in one patient, rather than the stabilisation of disease (27 per cent of patients) and survival data presented (9 months)," he said.
Another analyst, Mark Pachacz from Bioshares, said the results were not stunning but showed Progen was on the "right path".
The data was enough for Progen to conduct further trials combining PI-88 with a chemotherapy treatment.
By coming out with successful trials, Progen can add value it might reap from a partner.
A partner is necessary with the next round of big phase III trials – critical for US regulatory authorities – costing up to $US100 million ($A132 million).
"We're not sufficiently equipped, nor should we take on this level of risk," Mr Lee told investors recently.
So Progen has been trying to find a partner without rushing into an undervalued deal.
He said trying to go it alone would be "greedy" and could mean a missed opportunity to get PI-88 on to the market in time.
"We might have to give a bit . . . of the cake away," he said.
"You need to move fast."
Speed is almost important with almost 300 other indirect competitors to PI-88 being identified with almost 40 in clinical trials.
But Progen is also not rushing to seal a deal it regards as undervaluing PI-88.
Intersuisse points out PI-88 is technically years ahead of some competitors, but some indirect competitors will enter the market within two to eight years.
"Without commercial and clinical momentum, PI-88 may be left by the wayside," Intersuisse said.
Investors keen on a deal were disappointed this February when the company killed off self-generated suggestions that a major licensing deal would be completed in March. Now, it is "unable" to set a timeframe.
In the meantime, Progen is hoping to boost coffers by $8.9 million at the end of this month, with investors cashing in options to buy shares at $2.50.
As backup, it has secured a tentative agreement with investment bank eG Capital to buy up any shortfall.
The directors have also said they will buy their options.
This would appear an enormous task for Lee, who has almost 250,000 options to exercise (about $625,000 worth).
He declines to comment on whether he'll keep the shares. But such a large amount of cash for a job which had a pay packet of $291,019 last year likely means some kind of financing agreement is in the works.
Those taking the plunge might wonder if the share price can combat the current gloom in the biotech sector.
Intersuisse's Peter Russell says Progen's price looks attractive and potentially holds long-term value.
"But like all these biotechs," he says, "they have to prove that potential."
thecouriermail.news.com.au
|
