Growth for GroPep in Biotech Australia buy

Cell growth factor company GroPep is expecting to record a profit within six months after finalising its purchase of Biotech Australia Group.

The South Australian company took control of all Biotech Australia's assets including land, plant and equipment, a range of business contracts and an intellectual property portfolio that is forecast to deliver net revenue of $6.7 million to June 2005.

GroPep's managing director Dr John Ballard said while the company had expected to post a $1 million loss this year, the acquisition was projected to lift its full-year bottom line to $1.9 million.

He said consolidated profits were expected to swell to $2.9 million the following year as Biotech Australia's contract manufacturing organisation (CMO) business became fully operational.

"The initial profit contribution will be revenue from the IP portfolio we're taking over and then subsequently from our manufacturing business," Ballard said.

"The portfolio covers a series of systems for delivering drugs to target organs, so we are selling off the drug delivery component and maintaining the diagnostic component for revenue royalties."

After a halt to its share trading on Wednesday, GroPep told the market it had paid $11 million for Biotech Australia and taken on $6.1 million of its debt.

It also announced a capital raising of $6.84 million through the placement of 3.8 million new ordinary shares at $1.80 per share to assist in funding the investment.

Since 2001, Biotech Australia has been repositioning itself as a contract manufacturing organisation to provide expertise, equipment and facilities for developing and manufacturing protein drugs.

While the facilities at Roseville, NSW, are not yet fully operational, GroPep plans to spend $6 million to September 2003 to bring all three manufacturing lines up to Good Manufacturing Practice (GMP) standard.

Underlying the acquisition was market research identifying future shortages in production capacity as the number of drugs under investigation in clinical trials rapidly expands.

A company statement said GroPep needed to expand manufacturing capacity in order to meet market requirements for its existing products, to scale up production should its clinical trial drugs prove successful and to compete in the global market for the manufacture of protein drugs.

Ballard said the purchase handed GroPep the contract with the Bill and Melinda Gates anti-malarial initiative PATH, negotiated with Biotech Australia last year.

He said contracts with a number of Australian companies would be finalised within three months, with the new facilities expected to accommodate manufacturing for up to 10 contracts at any one time.

At the recent Beyond The Human Genome conference in Melbourne, Ballard pre-empted questions about the company's bottom line telling the audience GroPep was prepared to lose money because its clinical program - comprising four clinical trials and three pre-clinical projects - was at its most expensive stage.

Tollhurst Noall analyst George Semerdjian said the purchase was likely to complement GroPep's existing facilities and expand its manufacturing potential into other forms of medicine.

GroPep shares closed 3.6 per cent higher at $2 after reaching a peak of $2.03.