Hearts and minds the stakes as Biota-BigShop clash looms

A battle for the hearts and minds of Biota Holdings shareholders is intensifying on the eve of a confrontation between the board of the embattled biotech and its largest stakeholder.

But any chances of a clear result emerging at a special general meeting of the drug development company are being undercut by the release of conflicting proxy forms and advice from the two opposing camps.

The meeting, scheduled for March 28, is being forced by Perth entrepreneur Farooq Khan, who holds nearly 10 per cent of the drug developer through his listed shell BigShop.com.au.

Khan recently seized on Biota's weak first-half results to step up his six-month campaign for a board seat. He cited steepening losses and dwindling cash reserves as proof of his claims that the company needs a drastic shake-up.

Six-month losses to December 31 rose to $AUD5.5 million from $3.5 million, while cash reserves over the period sank from $30 million to $24.5 million and, according to Khan's projections, will tumble to $19 million by June.

Biota's CEO Peter Molloy defended the results as not abnormal for an R&D-oriented biotech at Biota's stage of development.

"We can easily become cash-flow positive and turn a profit by shutting down our R&D," Molloy said. "We have $9 million in revenue and it is not difficult to make that cash-flow positive, but that is not what our 17,000 shareholders have invested in."

He attacked Khan's campaign as counter-productive because it diverted management time and energy "from focusing on our business instead of defending it against a corporate raider."

Khan wants shareholders to vote on five resolutions at the March 28 general meeting, including one that would seat him on the board. The other resolutions deal with limiting board salaries, bonus option issues and re-orienting the company.

BigShop has sent out reply-paid proxy papers to shareholders listing its five resolutions and Khan claims to have won support from an "overwhelming majority" of the 1800 shareholders who have returned their proxies to date via BigShop or a Western Australian share registry acting for it.

However, the Biota board believes three of the resolutions are invalid and describes some of the advice contained on the BigShop proxies as deceptive.

Biota has issued its own proxy papers listing only two resolutions -- one dealing with Khan's appointment to the board and the other related to reducing the salaries of non-executive directors. It has long made clear its reluctance to placing Khan on the board and will oppose the salary reduction move at the meeting.

It has also initiated legal action because it claims Khan has failed to forward all the proxies received so far by BigShop.

Khan conceded the barrage of conflicting proxy papers and instructions may cause most shareholders to "throw up their hands" and was likely to create a "reasonably murky" environment at the general meeting.

However, he served notice that BigShop plans to continue its campaign if it fails to win shareholder approval at the general meeting.

"This isn't the end game. If we lose we would feel we only lost because of the massive confusion Biota has created for shareholders. We are not just going to go away... we will step back and start again."

He ridiculed Biota's portrait of himself as corporate raider and insisted his ambitions for board representation were based on lifting Biota's performance for all shareholders.

"If my intention was to strip the company or transfer assets [to BigShop], moving inside the company would give me access to insider information and restrict my ability to act because I would breach all sorts of laws.

"So if my interest was in [Biota's cash reserves], why would I handcuff my ability to act by asking for a seat on the board?"

Biota shareholders who have been waiting for an uptick in Biota's fortunes don't necessarily disagree with Khan's criticisms of the company, but neither are they convinced he can solve its problems.

"Many of his points are valid," says veteran Biota shareholder Prof Peter Andrews. "But so far I haven't seen a shred of evidence that he can do any better."