Financial agreement takes the pressure off for pSivida

Porous silicon drug delivery company pSivida has received a multimillion dollar vote of confidence in its prospects from New York's GEM private equity group.

GEM is extending a $7.5 million equity line of credit that pSivida can drawn on at its discretion over the next three years.

Quite apart from giving pSivida a buffer against the volatility of the market, the line of credit offers other benefits to the company, according to managing director Gavin Rezos.

It was GEM which made the offer to pSivida rather than pSivida directly approaching GEM, he said. "That fact tells our shareholders that we are viewed as having substance by an international financial group."

Over the past 10 years, the New York financial group has made more than $US1.3 available in investment funds, according to its website.

One of its investment targets is Australian infotech company eSec but pSivida appears to be only its second Australian biotech investment. It reportedly has a similar line of credit arrangement with Melbourne medical technology business Norwood Abbey.

The beauty of the GEM agreement is that it does not dilute existing shareholder arrangements until such time as pSivida wants to trigger it, Rezos said.

pSivida pays an upfront commitment fee for the but that is a minor expense compared with the cost of issuing equity directly, Rezos said.

The line of credit arrangement is not well understood in Australian biotech circles, he said.

Recipient companies must meet certain liquidity levels for their stock as measured by trading volumes.

The amount of money that can drawn down at any one time is for up to five times the average daily volume.

Against any draw downs, GEM receives an equivalent amount of equity at a ten per cent discount to the share price at the time of the transaction.

Annual results just posted by pSivida show losses for the year of $3.99 million against total accumulated losses of $6.75 million and cash reserves of about $5 million. Revenues for 2001-2002 jumped ninefold to $916,000 compared with the previous year, but pSivida's products are still under development and the increase was due to the sale of a non-core property asset.

R&D expenses plus $1 million worth of administration costs made up the bulk of pSivida's total expenses of $4.9 million for the year.

Although still in product R&D phase, pSivida is moving closer to early stage revenue from upfront milestone payments from potential licensees, Rezos said.

Its lead candidate for a revenue-generating product is an anti-cancer brachytherapy project which forms the focus of a joint venture equity pact struck recently with Singapore General Hospital.

The joint venture, pSiOncology has been launched in Singapore to use pSivida's porous silicon technology to deliver active agents into cancerous cells.

The joint venture expects current pre-clinical trials to give way to human clinical trials in the first half of 2003.