Peplin rights issue bucks the trend

Listed company Peplin Biotech is proving that requests for fresh funds by young biotechs whose products are far from market-ready aren't receiving an automatic thumbs down from investors.

The Brisbane biotech appears to have successfully carried out a $4.3 million rights issue even though its lead anti-cancer drug is not yet in Phase I trials.

Theoretically, that should have been a difficult manoeuvre in today's ultra-cautious investment market for a company which only floated in 2000.

Yet Peplin's non-founding shareholders have oversubscribed their share of the rights issue by 37 per cent, according to Peplin chief executive and MD Garry Redlich.

It will be another week or two before final acceptances are tallied on the rights issue of 6.7 million shares which was underwritten by ABN AMRO Morgans Ltd.

However, Redlich believes the company will reach its fund-raising goal and argues that even in difficult market conditions, biotechs can retain shareholder loyalties by following a few simple rules.

Rule number one is to keep talking to them, he says. "When times turn tough, you can't go back to a shareholder and say: 'Remember me? I'm the little biotech you put $5000 into three years ago and now your investment is worth three-fifths of that'."

Peplin's philosophy is to maintain a constant flow of information to its original investors at all times. It issues a quarterly newsletter and holds regular briefings along the eastern seaboard for brokers, institutions and shareholders.

In preparation for the rights issue, Peplin worked hard at putting its best foot forward by making presentations to the investment community in Sydney and Melbourne as well as Brisbane.

It also priced the issue at 65 cents per share, which was a deep discount to Peplin's price of 89 cents on the day the issue was announced. The shares, which were sitting at 99 cents on July 1, are currently trading in the mid-70s.

The funds raised by the rights issue will support further R&D and as well a negotiations with potential US licensees of Peplin's family of novel proprietary compounds for a topical drug for the $US1 billion skin cancer market.

Redlich concedes Peplin has yet to conduct a phase I study on its lead anti-cancer candidate, PEP005, although plans are to launch one this December. However shareholder risk has been mitigated by a pilot study and bridging science which indicate that PEP005 will perform well in the trial, he says.