New Peptech CEO excited by Australian opportunities

John Chiplin, the new CEO of Sydney biopharma Peptech (ASX:PTD), sees strong similarities between the state of Australia's biotechnology industry and California's nascent biotechnology industry in San Diego in the mid-1980s.

Chiplin, who succeeded executive chairman Mel Bridges at the helm of the cashed-up Sydney biotech this month, said that when he was working in San Diego, companies like Biogen Idec were struggling to stay afloat, and venture capitalists had little interest in the new industry.

"In the 1980s, the biotech industry was in the early stages of development, but like Australia, there were some very high-quality investment opportunities around. I actually had to persuade venture capitalists to get onto a plane and fly south to San Diego," Chiplin said.

Today, Biogen Idec is the world's third largest pharmaceutical company, the US biotechnology industry is booming, and California has become the biotechnology venture capital Mecca to the world.

"After studying the Australian biotechnology industry for the past few months, I'm impressed with the way the public markets have responded to the lack of local venture capital," Chiplin said. "But the venture capitalists will soon come in, and it will get much easier."

Aggressive growth

Chiplin this week announced his intention to take Peptech into an aggressive growth phase, that would very likely end up with the company establishing a base in the US through a merger or acquisition.

"It's been said before, that if you're not based between Seattle and San Diego, or Boston and Baltimore, you're going to have problems," he said. "Peptech sees the US as its major market, and we see ourselves having a very international future, encompassing activity in Europe as the US."

Chiplin said the company's expansion phase would probably be triggered when UK domain antibody (dAb) specialist Domantis, in which Peptech has a 33.6 equity holding, becomes a publicly listed company.

Despite its healthy cash position, Peptech does not yet have a human therapeutic in clinical trials, but Chiplin said that would happen late this year or early next year, when the company's Domantis-developed anti-TNF dAB goes into phase I, after showing outstanding promise in preclinical studies. A conventional anti-TNF monoclonal antibody will follow soon after.

"We are building two franchises, on in the autoimmune, anti-inflammatory area, and the other in oncology, through our relationship with [Peptech's joint venture partner] Biosceptre," Chiplin said. "We hope to have our cancer diagnostic on the market in 2007, but all our cancer therapeutics are still in preclinical testing."

Peptech Biosceptre have developed a monoclonal antibody that can detect, and discriminate between, malignant and non-malignant prostate tumours with a very high level of accuracy. Current diagnostics tests for prostate-specific antigen (PSA) are unreliable in detecting early-stage prostate cancer.

Royalty stream

Chiplin said that, in addition to its two valuable core assets in the anti-inflammatory and oncology areas, Peptech had strong revenue streams from three sources. It is receiving royalty payments from Johnson and Johnson subsidiary Centocor and Europe's Abbott laboratories for use of its patents on anti-TNF monoclonal antibodies. Contactor's Remicade and Abbott's Humira are the world's most lucrative treatments for rheumatoid arthritis and other autoimmune disorders,

Peptech is already garnering revenues of around AUD$1.3 million a year (up from $0.7 million the previous year) from local sales of its animal-health products Suprelorin and Ovuplant, for extended suppression of fertility in livestock and companion animals.

"The more exciting statistic is that we've penetrated only 1 to 2 per cent of the potential global market, and when we get approval to launch these products in the US and Europe, we're going to see a really dramatic uplift in sales over the next few years," Chiplin said.

He said eventual revenues from these products alone could reach $100 million a year.

Peptech has already developed its anti-TNF domain antibody for the anti-inflammatory market, and has four still to come, under its agreement to take substantial equity in the British company. Peptech already has a prospective target for another dAB, but has yet to nominate targets for the remainder.

"We think, and the rest of the world thinks, that fourth-generation technology is going to dominate the antibody market," Chiplin said.

M&A opportunities

One of Chiplin's first actions after taking over as CEO was to rescind last year's share buyback decision -- he said the company will now apply its royalty stream from licensees, its revenues from our animal products, and profits from the impending Domantis float, to further develop and accelerate its core assets in autoimmune and oncology therapeutics and diagnostics.

Peptech and Brisbane-based Agenix excited the market in 2004 with high-profile merger talks. There was commensurate disappointment when those talks collapsed, but Chiplin promised that Peptech was again looking at M&A opportunities.

"Historically, Peptech looked within Australia, but we'll look for someone with a phase IIa product in the US or the UK, and we're also looking at in-licensing opportunities around the world, including Asia," he said.

"We'll also be turning up the heat on partnering opportunities, because we think we've got some very valuable assets in autoimmunity and oncology."

Asked whether Peptech would try to maintain its 33.6 per cent holding in Domantis when the company floats, Chiplin said, "We don't mind if the percentage share goes down, as long as the value goes up.

"If you look at the 17 companies that listed on the Nasdaq last year, the minimum valuation was US$71 million, and the maximum was US$1.2 billion. Even if Domantis comes out in the middle of the range, we'll still have a valuiable stake and a significant cash asset."