Chemeq brings in $10.6m for factory fund

Pharmaceutical company Chemeq (ASX: CMQ) has completed a highly successful capital raising to fund construction of its $AUD25 million plant in Perth to manufacture its revolutionary antimicrobial polymer to suppress bacterial infections in livestock.

Chemeq chairman and CEO Dr Graham Melrose described the company's success in raising another $10.6 million through its January 31 2003 share options as "a hell of an achievement in a very difficult market."

Melrose said the capital raising, which brings the total amount Chemeq has raised in the past 12 months to $28.6 million, reflected shareholders' "absolute confidence" in the company's future -- "They exercised all their options, to the last dollar."

Alison Coutts, a director of investment banker eG Capital, said that although she hadn't seen it, "it's a big price to pay for a factory, even if it is FDA-approved.

"But $10.6 million is a large amount in the current market, and it's a particularly good result because Chemeq did it on their own, without an underwriter or any intermediary.

"Investor confidence in biotech stocks is patchy but there are some bright spots -- where companies can demonstrate they have viable products with a clear market, and prospects of substantial revenues, the market is voting with its money.

"Chemeq is one. Peptech, which recently raised $10.3 million, is another."

Chemeq's share price rose steeply in the past year, but has stabilised in the past three months. "Uncertainties in global markets are one reason, and investors are now waiting for the big announcement of us commencing production," Coutts said.

Production from the new Perth plant should begin around mid-year, depending on contractors' ability to supply important items of equipment, Melrose said.

Chemeq's antimicrobial, a large, polymeric molecule that is administered in solution to form a protective coating on the gut lining, has already been found to be highly effective in protecting bacterial infections in piglets and chickens.

The FDA has fast-tracked its approval process for the new antimicrobial, based on the urgent need for alternatives to the antibiotics used for decades in animal feeds to promote rapid growth. There is now convincing evidence that routine use of antibiotics in animal feed formulas has been a major factor in the emergence of multi-drug resistant human pathogens -- so-called 'superbugs' -- in hospitals around the world.

Melrose said the first batches from the new Perth factory would be sold in South Africa and New Zealand, which have already approved its use in pigs.

Australian authorities have not yet approved the drug - "Australia is a slower, more methodical regulatory jurisdiction," Melrose said.

"South Africa and New Zealand are faster, but well-respected jurisdictions -- receiving approval in those countries is a fair indication that the product is up to steam, and that can be very influential in countries that don't have regulatory agencies.

Chemeq is still awaiting final approval from the FDA to market its compound to the pig industry in the US. "But the US accounts for only 8 per cent of the world pig meat market -- China, other Asian countries, then Europe and South America, are much larger producers.

"The US is the biggest market for poultry, but our compound has not yet been approved for use in poultry in any country."

Chemeq has estimated that the global market for its antimicrobial, for both the pig and poultry industries, could reach $A10 billion.