Chemeq cuts jobs, delays US marketing

Veterinary drug developer Chemeq Ltd (ASX:CMQ) announced today it would reduce its staff by 15 per cent - 11 people - and delay its work towards entering the US market, because of the likely time and cost involved in securing independent regulatory approval from the powerful US Food and Drug Administration.

The lay-offs follow an internal review which Chemeq has been conducting following a $22 million cost blowout in the construction of Chemeq's production plant in Rockingham.

Chemeq founder and chairman Dr Graham Melrose described the job cuts, which will mainly involve administrative and support jobs, as "unfortunate", but necessary to place Chemeq on a sound financial platform as it became a full-scale veterinary drug manufacturer.

Melrose said the cost reductions would not affect Chemeq's ability to move to commercial production and sales in the short term.

"The timetable for the commercialisation of our Chemeq polymeric antimicrobial requires us to focus on establishing (it) in the market before pursuing longer-term strategic goals," he said.

Chemeq will also implement another recommendation for the review to defer planning and design of another manufacturing plant that will lift its production capacity from 50 tonnes to 400 tonnes a year.

Earlier this year investors battered Chemeq's share price after delays in bringing the plant on line, and the cost blowout.

The company has a chicken-and-egg problem, according to a consultant to Chemeq, John McGlue.

McGlue said that in the longer term, it will need to build multiple manufacturing plants to meet international demand as early buyers confirm the protective antimicrobial properties of its product.

But it cannot build new plants until it develops a substantial revenue stream.

Malaysian contract

Chemeq has a foot in the front door of the Asian veterinary drug market after signing a deal under which Malaysia's Pahang Pharmacy will market its antimicrobial agent to the Malaysian pig and poultry industries.

Chemeq is currently awaiting approval from the Australian Pesticides and Veterinary Medicines Authority (APVMA) to license full commercial production of the polymeric antimicrobial from the company's new, US$30 million production plant at Rockingham, south of Perth.

McGlue said the APVMA is responsible both for the manufacturing quality assurance and product approval aspects of new veterinary products, and its final quality-assurance tick is accepted by most nations. Regulatory agencies in other nations must then approve the product's commercial use in their own jurisdictions.

Chemeq has already secured product approval in South Africa and New Zealand, while Malaysia has taken its cue from these nations; Chemeq can begin shipping to these markets as soon as the APVMA signs off on its manufacturing plant.

The APVMA has given conditional approval for the company to manufacture and stockpile the product, but full approval is now dependent on an audit of several validation batches from the plant.

McGlue, said the company hoped an unconditional licence would be forthcoming within weeks, rather than months.

Pahang Pharmacy is a major supplier of veterinary products to the Malaysian pig and poultry markets. With 2.5 million pigs, and half a billion poultry, Malaysia's markets are similar in size to Australia's.

The distribution agreement is the third signed by Chemeq -- it is also ready to begin marketing to the South African and New Zealand pig and poultry industries.