R&D spend dominates BresaGen half-year

Australian biotechnology company BresaGen's (ASX:BGN) half-year results to December 2001 show an increase in revenue by 15 per cent, to $3,661,000, over the same period a year ago.

The Adelaide-based company reported a loss of $3,949,000 for the period, largely due to research and development costs of $5,171,000, which rose by 43 per cent.

The company's US subsidiary, based in Georgia, accounted for 78 per cent of the R&D increase. The US operation, which has operated for just over a year, was set up to allow the company to move ahead with its stem cell research, which is prohibited in South Australia.

"We had the foresight to see an exploding area in the US and we moved there to be part of the action and form alliances and collaborations with those in the field," said BresaGen's business development manager, James Anderson.

"We are currently talking to an number of other biotechnology companies and research institutes, but it's too early for pharmaceutical companies to be involved yet."

Burdett Buckeridge Young analyst Andrew Goodsall said the results were in line with his expectations. "They made decent earnings from their growth hormone business and increased spending in R&D," he said.

BresaGen's cell therapy division reported a loss of $2,686,000 for the period, while the company's protein pharmaceuticals business made a profit of $239,000. Its reproductive biotechnology division posted an operating loss of $61,000.

Anderson said the company did not expect to make additional revenue generating products for at least two years.

The company had cash reserves of $22 million at the end of 2001.

Salomon Smith Barney biotech analyst Rosemary Cummins said BresaGen's cash position indicated that the company would need to raise additional funds by fiscal 2004.

"We are comfortable with that," she said. "In the next couple of months they are supposed to demonstrate that their proprietary stem cell technology works in human cells and they also have a Phase II clinical trial that will be complete in 2004."

This week (February 26), BresaGen's shares dropped five per cent when Federal cabinet revisited the contentious use of surplus IVF embryos for embryonic stem cell research, in which the company is involved.

"Unfortunately, a lot of people are reading it the wrong way," Anderson said. "Australian regulations in this area won't really affect how we operate - it has never been part of our strategy to do this part of our business in Australia, it is done out of the US."

Goodsall said any company involved in early stage development was subject to greater fluctuations in the market.

"A bit of noise about banning stem cell research, and the fact that people don't know what they're doing offshore, saw their shares drop," he said.

"The fact that they have gone offshore makes it exciting - it gives them access to stem cell lines that they would not have had access to.

"We think [the stem cell research] is most exciting, but much of the potential is in the future."

BresaGen's three main R&D divisions:

• Cell therapy: develops stem cell, catheter and imaging technology to treat neuro-degenerative diseases such as Parkinson's, stroke and Alzheimer's. It has research facilities in Australia, USA and Canada.
• Protein pharmaceuticals: manufactures and distributes growth hormone products and researches human and veterinary therapeutics, one of which is in Phase II clinical trials.
• Reproductive biotechnology: works on xenotransplant technologies in pig and cloning techniques for diabetes therapy, and is conducted in collaboration with St Vincent's Hospital in Melbourne.