GroPep revises forecast, now predicts loss

Drug discovery group GroPep (ASX: GRO) has forecast a $4 million loss this year despite predicting profits of $1.9 million for 2001-02 just two months ago.

The profit downgrade comes less than a week after the South Australian company sacked its managing director, Dr John Ballard, because of a difference of opinion over the GroPep's direction.

In its statement to the market, the biopharmaceuticals group announced it planned to undertake a major review of all of the company's operations.

Chairman Richard England said the move followed a review of profit forecasts for the current financial year.

England said the forecast profit of $1.9 million for the year made at the time of GroPep's purchase of Biotech Australia was not achievable.

He said the company's director now expected a loss for the year of about $4 million.

England said the revised result was "attributable to a change in accounting treatment for the sale of the Vitamin B12 intellectual property announced on 28 February, 2002, delays in receipt of expected manufacturing contracts and delays in out licensing of other intellectual property".

He said the board estimated that about half the amount of the profit drop would appear on the company's profit and loss statement.

"Directors are confident that GroPep has a strong future and the review is designed to provide the company with the best possible platform for long-term growth," he said.

At the time of writing GroPep shares were trading more than 20 per cent, or 30 cents, lower at $1.20.

Chief operating officer Dr Chris Goddard said the board became aware of the changed position only recently.

Goddard said that the sale of the vitamin B12 portfolio was originally intended to be included in the company's profit and loss statement, but was no longer able to be.

As a result, he said as much as $3 million of the $3.5 million that was expected to be realised as profit from the sale would not be realized, effectively reducing the purchase price of the IP.

Other situations contributing to the downgrade include delays in the receipt of manufacturing contracts that were in negotiation at the time of the Biotech Australia purchase and delays in two out licensing projects, which were previously expected to be evaluated by June.

"The end result is essentially an over-promise, that's simply what happened, and as soon as the board became aware of that, they acted," Goddard said. "That's the position as we see it."

He would not comment specifically on Ballard's departure last week.

GroPep's year: market announcements in 2002:

February 21 GroPep forecasts a record profit within six months after finalising its acquisition of Biotech Australia Group. Managing director at the time, Dr John Ballard, said that while the company had expected to post a $1 million loss the purchase would help lift it $1.9 million into the black. He said the purchase was expected to deliver revenue of $6.7 million to June 2005.

March 1 The company begins offloading some of the IP acquired in the Biotech Australia purchase. In a transaction predicted to reap an immediate $3.5 million, GroPep sells IP relating to the use of vitamin B12 in anti-cancer drug delivery to Texan company, Access Pharmaceuticals.

March 28 Research into a topical treatment for diabetic neuropathy fails to deliver a suitable transdermal formulation. GroPep announces it now hopes to license out the work or sell the IP to a more specialised company.

April 18 The board of GroPep announces it has sacked Ballard 14 months before the end of his tenure, citing "a number of strategic issues". Ballard says the move came after "strong differences of opinion" over the company's direction.