PI-88 now has licensing appeal
Kayt Davies
Thursday, 18 January 2007
INTERSUISSE analyst Dr Darren Grubb has clocked the long-term dollar value of Progen's royalty obligation divorce from Medigen – announced on Tuesday – at $A53 million and called it "a very important event" for a couple of reasons.
Stephen Chang
Progen and Medigen's announcement related to an agreement of strategic alliance signed in May 2000, requiring Medigen to undertake and complete certain clinical trials of PI-88 and giving it, on completion, a 15% royalty on the anti-cancer drug's proceeds of commercialisation received by Progen.
The removal of the 15% royalty obligation means Progen now retains a much larger portion of PI-88's proceeds, and in return Medigen will gain increased equity in Progen and the potential to earn future milestone payments.
According to Grubb the end of the royalty deal not only increases the valuation of Progen by about $1.20 per share, "most importantly it allows the technology to be licensed to a pharmaceutical company."
He explained: "Although the company has not stated the later implication, most pharmaceutical companies expect the licensor to have ownership of all of the royalty stream before entering into any potential agreement.
"The reason for this is because the licensee potentially gains a greater proportion of any potential revenue, as the licensor has a lower required royalty rate to provide a material return to shareholders.
"If the licensor has to further pay royalties, the sale value of the drug would have to be higher to provide a material return to shareholders once (if) sales of PI-88 occur."
With the royalty deal now over, Dr Stanley Chang and his alternate, Eugene Cheng, will resign from Progen's board and Progen's two representatives will resign from Medigen's board.
Progen executive chairman Stephen Chang said: "The alliance between the two companies has formed an important foundation for the development of PI-88. Medigen has played a central role in our clinical trial program, particularly in the liver cancer trial.
"The Progen board extends its gratitude to Dr Chang and Mr Cheng for their contribution to the company as directors. Their commitment to PI-88's development in liver cancer has been critical to our current ability to proceed as rapidly as possible towards commencing a Phase 3 trial of PI-88 in liver cancer."
Progen shares closed at $5.66 on Monday and rose to $6.00 on Tuesday with higher than usual volume of shares traded. The price settled to close at $5.95 yesterday.
Grubb said that while the company was currently trading at an estimated enterprise value comparable to its peers he tipped its 12-month price target, incorporating a revaluation expected at the point of commencement of the Phase 3 liver cancer trial, at $8.22 per share.
Background Notes
Progen gained considerable media attention late last year when its lead candidate, PI-88, representing a new class of anti-cancer drugs, showed positive Phase 2 results in a liver cancer trial.
The drug is now set to proceed to Phase 3 human clinical trials, and it has been granted Special Protocol Assessment status by the FDA meaning that only one pivotal Phase 3 trial is required, saving up to two years on the time for the trial. Phase 2 clinical trials for lung cancer, melanoma and prostrate cancer are also underway.
Medigen is a Taiwanese company developing and commercialising new therapies and technologies related to oncology, immunology and complementary medicines derived from its proprietary Nucleic Acid Testing (NAT) platform.
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