GroPep restructures, outlines new directions

Adelaide growth factor biobusiness GroPep (ASX:GRO) has laid out its path to profits by announcing plans to concentrate on growing its pharmaceutical cell culture division.

The decision resulted from a review of operations by new chief operating officer Dr Chris Goddard, who joined the company in April after founding managing director Dr John Ballard was dumped by the board.

Goddard has detailed plans to lead the company back into the black by 2003/4 after it forecast a loss of $4 million this year.

Included in the plan is a focus on its pharmaceutical cell culture division, which provides the company's major revenue stream, a shift towards a smaller number of drug development projects and aggressive out-licensing program for non-core competency projects, and the closure and sale of the former Biotech Australia's manufacturing facility in Sydney, purchased by GroPep in February.

"These moves make GroPep a much more focused, more capital efficient company with a very strong emphasis on rebuilding and growing shareholder value," Goddard said.

He said that once the additional costs associated with the closure of the Biotech Australia site were taken into account in the current financial year, the whole business should be close to break-even in 2002/03.

"Continued growth in the pharmaceutical cell culture business will then ensure GroPep achieves profitability from 2003/4," he said.

"By limiting net expenditure on Pharmaceutical Drug Development to a maximum of $2.5 million per year in the medium-term and concentrating resources on fewer, high quality, high value products, GroPep can both increase profit and provide the long-term shareholder benefit associated with successful product development in a biotechnology company."

He said that manufacturing contracts, contributing in excess of $1 million revenue would be completed at the Sydney facility of relocated to GroPep's Adelaide site before its sale.

More than $1 million worth of manufacturing equipment belonging to the facility would also be relocated to Adelaide to allow future expansion of the company's manufacturing capacity and technical marketing support.

News of the operational changes helped lift the company's share price more than 10 per cent to 85 cents at the time of writing.

In its efforts to build on its cell culture business, Goddard said GroPep and its joint venture partner CSL had agreed to extend the minimum revenues period for another two years to the end of financial year 2005/6.

Under the agreement, CSL, through its wholly owned subsidiary JRH Biosciences, has exclusive rights to sell GroPep's growth factors for the manufacture of biopharmaceuticals.

Goddard said the review would also see major changes to GroPep's drug development program, where R&D expenditure was set to decrease by 40 per cent to $3 million in 2002/3.

He said the company would no longer invest in early stage research and would ultimately limit its drug development investment to $2.5 million a year.

The company planned to drop its donor site wounds, tendon repair, short bowel syndrome and end-stage liver disease projects, with intellectual property out-licensed or sold where possible.