Analytica rises from the ashes

The Lazarus-like revival of diagnostics company Analytica offers a ray of hope for young Australian biotechs caught in the current funding drought.

Analysts have been predicting mass extinctions among start-up biotechs who require fresh equity injections to survive.

Analytica was an early casualty of the funding crunch. Its shares were suspended by the ASX in March last year less than 12 months after it raised more than $7 million in a public float.

Instead of sinking into oblivion, Analytica will re-list on the ASX on Wednesday following a year of restructuring, management changes and the infusion of $1.3 million via a rights issue.

Analytica's restructuring required the sale of listed company Psiron's medical diagnostics business into Analytica while Psiron acquired the intellectual property rights to Analytica's sPLA2 anti-inflammatory project. The deal injected $800,000 into Analytica and gave Psiron a 60 per cent stake in the company.

What it gave Analytica was a core diagnostics business which has been operating for 15 years, says Analytica CEO Ron van der Pluijm. It will now be accelerated to throw off more cash with plans to more than double the number of products over the next six to 12 months.

It presents investors in either Analytica or Psiron with a simple choice, says van der Pluijm. They can invest in a trading company via Analytica's diagnostics products which will double in number over the next year or they can invest in Psiron with its higher risk, longer-term IP portfolio.

It is not a strategy available to biotechs with a strong R&D component but weak in revenue-generating products, van der Pluijm notes.

He believes the future is looking bleak for biotech companies whose R&D projects are not supported by any hope of near-term income.

In a slow investment market, their best hope of salvation is to find a partner with deeper pockets and a compelling interest in their R&D, he suggests.

They can maximise their chances by bringing their R&D to as mature as possible a stage, he says.

"Larger partners are usually more interested projects which are in Phase II trials rather than at the pre-clinical stage."

Going forward, all surviving biotechs "will find it important to keep costs under control and have an operating business that will generate cash," he says.

Even for a restructured Analytica, raising the final $1.3 million it needed to finance its re-birth was not an easy task.

In the end, less than half the 26 million shares in the rights issue were taken up by shareholders. Two institutions who underwrote the issue had to absorb 55 per cent of it.

The money will be ploughed into two development projects which "should have a good effect on sales by more than doubling our diagnostic product range before the end of this year and hopefully add another four products in the first six months of the 2003 calendar year," says van der Pluijm.

Analytica recorded a positive cash flow in the third quarter of last financial year followed by a $300,000 negative cash flow in the final quarter.

Overall, Analytica lost $3.5 million last financial year of which only $300,000 occurred in the second half.