Moses says Amrad undervalued; receives $3m from Merck

Amrad (ASX: AML) chairman Bob Moses told shareholders at the company's AGM that the company remained significantly undervalued, even though it had successfully restructured and refocused its portfolio to concentrate on inflammation and cancer, and spinning out the anti-infectives projects into Avexa.

Amrad also announced it would receive its third US$3 million payment from Merck after reaching another preclinical milestone in the development of new asthma therapies based on the IL-13 receptor.

The payment will bring the total received by Amrad from the collaboration to date to US$14 million, out of a possible US$112 million.

But despite the company's efforts to elucidate its strategy to the capital market, Amrad's share price was still languishing, Moses said. At the time of writing, the shares were trading at AUD$0.465.

"If Amrad was a Nasdaq-listed company or listed on the London Stock Exchange, there is no doubt in my mind at all that it would attract a much higher portion of sophisticated long term genuine investors, and accordingly could be expected to command a much higher share price," Moses said.

Moses blamed the downward influence of day traders for the disconnect between Amrad's share price and the underlying value of the company.

"There is compelling evidence that short term trading in biotech stocks like Amrad is more likely to produce a loss on investment, rather than a gain even though the long term price of the shares may well exhibit very substantial appreciation," he said.

Moses noted that around 79 per cent of Amrad's market capitalisation could be attributed to its cash backing, and a mere nine per cent to its portfolio of technology, in comparison to the top 50 Australian healthcare companies which on average could attribute 71 per cent of their market capitalisation to their technology.

"Essentially the share market is valuing the licence with Merck, which contains over US$100 million of yet to be realised milestone payments and a significant royalty stream, the high quality intellectual property portfolio of more than 160 patents, a pipeline of research projects which is world class and includes a couple of research projects which might well dwarf the commercial value of the Merck licence, and a world class skill base of research scientists ... all valued at a total of just $5 million," he said.

"By any measure, Amrad is substantially undervalued. The challenge for the board and management is to rebuild credibility with the investment community and we are committed to doing this."

CEO Pete Smith said the company had largely completed its restructuring with the recent demerger of Avexa, which will develop a portfolio of anti-infective small molecule drugs targeting HIV, Hepatitis B and antibiotic-resistant bacteria.

"Stage one, the refocusing of the portfolio is now complete," he said. "Stage two is to focus on growth."

The company is in a healthy position cash-wise, with $48 million remaining in the bank after the demerger. Last year, zero cash burn was recorded, with the R&D expenses and other expenditure offset by the milestone payments received from Merck.

Smith said Amrad would this year devote its resources both to advancing its portfolio of products toward the clinic, and to augmenting the existing portfolio with new projects through in-licensing and possibly through M&A activity.

"We are going to be actively looking at companies," he said.

The company's strong cash position would also be leveraged to optimise the timing of licensing deals and partnerships to maximise the value added to projects, Smith said.

During the 2004-2005 financial year, the company would continue to advance its IL-13R asthma project with Merck, commence pre-clinical testing of its lead anti-GM-CSF receptor antibody candidate in preparation for clinical trials in late 2005, and continue early studies on the VEGF-B and SOCS projects.