Chugai hasn’t told us about sell-off: Amrad CEO

Amrad (ASX:AML) has not received specific instructions from Japanese drugmaker Chugai that it intends to sell of its 9 per cent stake in Amrad, CEO Peter Smith said today.

Smith offered Australian Biotechnology News a guarded response to media reports that claimed Chugai was looking to sell out of the Melbourne firm.

“We certainly haven’t received any specific instructions from Chugai and I don’t think it’s our place to second guess what they may do,” said Smith.

But he went on to say that Chugai’s shareholding was now “vestigal”, and that he believed the Japanese company was unlikely to see its Amrad stake as strategically important.

Last year Amrad and Chugai terminated a long-standing joint research contract -- covering cytokines and natural screening -- under which Chugai had invested AUD$20 million in Amrad.

“One would expect that [the shareholding] would become available, but we don’t have any specific information on the timing,” Smith said. “We have had conversations with them in order to responsibly manage our shareholder base.”

Smith was perplexed by a report in the Australian Financial Review last Thursday which alleged that an Amrad director was acting for Chugai to sell the stake. "There hasn’t been a director who has been in power to dispose of the stake -- I’m not sure where that came from,” he said.

Avexa spin-out

Amrad also confirmed today that it would spin out its anti-infectives drug portfolio, and planned to list it on the stock exchange by September with a market capitalisation of AUD$24 million. The new corporate entity, to be known as Avexa, will be brought about by demerger to existing Amrad shareholders. “Amrad will put in $12 million of cash and slightly over 80 per cent of that new business will go to Amrad shareholders,” said Smith.

Smith explained that the two arms of the company had diverged to the point where they were completely discreet, as the anti-invectives group focussed on proteins, antibodies, immunology and inflammation and Amrad was centred around traditional drug discovery, optimisation and development. “It’s the board’s view and certainly my view that both of these business areas will develop more easily as stand-alone companies,” he said.

There are three projects in gestation at Avexa. The first targets the HIV-integrase enzyme, aiming to yield a new weapon in the armoury to keep HIV infection under control, and the second is a hepatitis B therapeutic.

Candidates for the HIV program are currently being optimised, said Smith, and will go into proof of concept studies next year. Smith distinguished Avexa’s lead hepatitis B molecule from other hepatitis B therapeutics, many of which are nucleoside inhibitors of the hepatitis B polymerase enzyme. “[The candidate] will be going into a model of human hep B infection later this year,” he said.

Avexa also has an antibiotic project -- effectively a second-generation vancomycin. “It has taken 30 years for [the bacteria to develop resistance to vancomycin and for] the amino acid to change,” said Smith. He said Amrad’s candidate targets the same co-protein in the cell wall -- and the company is betting on bacteria taking just as long to achieve a resistance-causing mutation.

“Within the next 18 months we’d expect to have proof of concept,” said Smith. “The animal models will tell you an awful lot.”

Smith sees Avexa’s risk profile – characterised by early data from these proof of concept trials – as an asset which will become clear as the company steps out of Amrad’s shadow.

The spin-out is subject to an independent valuation of Avexa and to shareholder approval at a General Meeting expected to be held in September.