Proteome Systems chairman sets out company's new course

Proteome Systems (ASX:PXL), once the great hope of the Australian biotech sector, has set a new course towards drug discovery and diagnostics, and away from its traditional identity as an instrument manufacturer -- and is considering selling sections of its business, as well as buying into a drug discovery play, as it changes focus.

"Some investors have expressed the view that... Proteome Systems is trying to do too much in too many different arenas, and risks losing focus," said non-executive chairman Graeme Bradley in his address to shareholders at the company's annual general meeting this week.

He confirmed that selling sections of the business was a possibility for Proteome. "We realise we have to conserve our cash resources," he said -- which he explained meant working out which of the instrument development programs should take priority, and narrowing the focus of the instruments business.

Proteome, which listed on the ASX in September, has already announced it will be reducing staff numbers, mainly in the manufacturing side of the business, as part of a bid to lower the company's cash burn to AUD$1.2 million per month.

"On drug discovery and diagnostics, those programs that don't attract partner funding will be reviewed," Bradley said. "I would say that the instruments side of the business has generated about two thirds or more of our revenues in the past two years, compared to the discovery side -- and taken up 75 per cent of staff resources," said Bradley. "In our IPO we indicated we would be investing our proceeds more like 50-50."

Bradley said Proteome's instruments products had reached full commercial development and were "mature", and that the company would not be investing as much in further R&D. Instead, it would focus on marketing the products, possibly with the assistance of global partners, which include Shimadzu and IBM. Instrument sales revenue in the 2003/04 financial year was $5.2 million, less than half of the $14.3 million of the previous year. No major platform sales were made in the four months from July to October. Sales of instruments and consumables amounted to $300,000.

But Proteome says it has made sales to sophisticated and knowledgeable organisations that are already active in the proteomics space, and now faces the task of tackling the larger market of less sophisticated potential customers.

"We have been building up our marketing capabilities both in Australia and elsewhere, appointing sales agents for various territories including Korea," said Bradley. "We are very close to appointing an agent for Europe and exploring possible agents for India and China. We've also relocated [company co-founder] Dr Andrew Gooley to Japan to work more closely with our strategic partners in developing the market for our products.

"The board focus is on getting the business potential proven by actual sales and significant collaborative research programs."

Bradley, a former CEO of financial services giant Perpetual Trustees and law firm Blake Dawson Waldron, lamented the fact that a protracted IPO process had dominated the agenda of Proteome's management and board, and taken attention away from the company's commercial prospects.

Partnership blossoms

Meanwhile, a partnership struck in 2001 between Massachusetts-based, privately-held company Eukarion and Proteome has blossomed into a merger under which Proteome will acquire a bank of synthetic small molecule compounds with potential as therapeutics against disease caused by oxidative stress.

The compounds -- one of which is already being marketed by a cosmetics company -- have applications in skin-care and other effects of ageing, including neurological degeneration.

Bradley said Proteome was very close to consummating the merger, and expected it to be complete by the end of 2004. Although it is touted as a scrip-based acquisition, he said Proteome would be paying up to $150,0000 in up-front consideration. Eukarion will also be due milestone payments. "There are cash payments subject to Phase III," said Bradley.

"Because we are initially talking about cosmetic and topical applications it is a significantly shorter time frame to achieve Phase III approvals," he continued. "In general, we will be looking for collaborative research programs, but if any of the products [turn out to be] injectable or oral, then clearly we're talking about much larger research, and chances are we will need to partner."