Biota rejects offer to drop lawsuit

Melbourne respiratory drug developer Biota Holdings (ASX:BTA) has reportedly rejected a confidential AUD$10 million offer from GlaxoSmithKline (GSK) to drop its lawsuit seeking compensation for loss of royalties from the Australian-developed influenza drug Relenza.

Biota's media spokesman, Tim Duncan, confirmed today that the company will continue its action in the Victorian Supreme Court against GSK, scheduled to begin on July 22.

He declined to comment on the accuracy of a report by Eli Greenblat in today's Australian Financial Review, claiming that Biota had been offered around $10 million to walk away from the deal.

"July 22 is when Biota go to court and that is when they will articulate the exact amount they are after," Duncan said.

Biota launched the case in May last year, alleging that GSK had breached its contract and failed in its fiduciary duty to promote and support Relenza since it was launched in 1999.

Relenza (zanamavir) is a neuraminidase inhibitor, developed by CSIRO and Australian National University researchers in the 1980s and early 1990s. CSIRO subsequently licensed the IP to Biota, which took in GSK as a big pharma partner to develop, produce and market the drug, in return for a royalty stream from its global sales, and exclusive revenues from the Australasian market.

By the time Biota launched its damages suit, Relenza's market share had slumped to only 2-3 per cent against Roche's rival product Tamiflu, which blocks the virus' replication by targeting the same, highly conserved region of its neuraminidase coat protein.

A major problem for both drugs was their short shelf life -- around three years. In the absence of a major flu epidemic, or pandemic, both GSK and Roche were forced to spend millions of dollars buying back large quantities of the drugs as they reached their expiry date.

Now, with international health authorities predicting that the H5N1 'bird 'flu' strain that has been ravaging poultry farms in Asia will spawn the next human pandemic strain, Roche is selling huge quantities of Tamiflu as national governments stockpile emergency supplies of the drug. But the revenues from the stockpiling would almost certainly be pale into insignificance if a pandemic sends consumers rushing to buy anti-influenza drugs.

And, in the event of an epidemic, the revenues lost to GSK, and the royalties that would have been due to Biota, would be enormous. Commenting on Biota's reported rejection of the GSK offer, Sydney market analyst Alison Coutts, of EGCapital, said, "They obviously think they can do a lot better than AUD$10 million.

"A bird in the hand is worth two in the bush, but they're not near the right number yet, and knowing Andrew [Andrew McDonald, Biota's CFO and company secretary] it will take a lot more than that.

"They've probably done the numbers, and realise the revenues that would be generated in a pandemic are well beyond that. Having said that, I wouldn't wish a pandemic on the world, because people have forgotten how deadly a pandemic can be."

The AFR article suggested Biota could demand as much as $AUD100 million in royalities, from a pandemic might have been as high as $100 million if GSK had promoted and marketed its drug in the same way as Roche.

Coutts believes Biota chose the wrong partner to commercialise zanamavir. "It just didn't live up to GSK's expectations, and once it had fallen below a certain level of calls, it became a self-fulfilling prophecy, and a nuisance for a major drug company."

Duncan also observed that the case was the most important law case that has hit the [biotechnology] sector.