US company acquires Pharmanet subsidiary

Molecular Pharmacology, a US company which recently backdoor-listed on Nasdaq through former exploration mining firm Blue Hawk Ventures, has acquired Perth-based Pharmanet Group's (ASX:PNO) wholly-owned subsidiary Molecular Pharmacology (MPL Australia).

Under the share sale and purchase agreement signed by the two companies, assuming shareholders back the plan, MPL USA will issue 88 million restricted trading shares of its common stock to Pharmanet in exchange for 100 per cent of the issued capital of MPL Australia.

"At the moment MPL Australia is a subsidiary of Pharmanet. By this transaction MPL Australia becomes a subsidiary of MPL USA, and MPL USA, the listed entity, will be a subsidiary of Pharmanet," said Pharmanet chairman and company secretary John Palermo.

MPL USA currently has about 45 million shares on issue. "Pharmanet will control approximately 80 per cent of the US entity," said Palermo.

There is no cash component to the transaction. "No one is going to pay cash for this sort of thing," said Palermo. "If they do, it's like in a mining sense -- you farm-in and buy the tenement. This has a better return to the Pharmanet shareholders than just a cash payment, which would be relatively small."

MPL Australia is developing an anti-inflammatory analgesic compound called Tripeptofen. In October, MPL USA acquired the USA marketing and distribution rights for the product. MPL Australia currently holds the licensing rights from Cambridge Scientific, another wholly-owned subsidiary of Pharmanet and the holder of the intellectual property over Tripeptofen.

"Initially we granted them the rights to market and distribute a product when it became available in the US," said Palermo. "Then they came back to us to say they wanted a bigger stake in the company because it was a little small for the US market."

As a result of this agreement, MPL USA will hold the exclusive world-wide rights to commercialise the topical anti-inflammatory and analgesics applications of Tripeptofen in humans, other than in cosmetic and dermatology applications. Through Cambridge Scientific, Pharmanet will retain ownership of the underlying intellectual property and royalty stream and Pharmanet will also retain all other rights to Tripeptofen.

"The US company has acquired an advanced R&D program with a drug development platform, operations and research across three continents, intellectual property and a unique compound in one go," said MPL USA director Jeffrey Edwards.

The president, CEO, CFO and secretary of MPL USA is Ian Downs. He replaced US president and CEO Bryon Cox, who held 50 per cent of the former exploration mining firm Blue Hawk Ventures. Brian Doutaz also resigned as a director of the company earlier this year.

Stringent IP

Edwards, who is also an independent consultant for Pharmanet and a director of Perth-based OBJ, a company that shares offices with Pharmanet, said that because Tripeptofen is subject to "quite stringent IP" he could not reveal is molecular structure.

"It's a fast-acting, topical analgesic with very potent anti-inflammatory properties," said Edwards. "What makes it different to other anti-inflammatories is that it interacts at a much earlier phase of the injury cascade."

Edwards said Tripeptofen was not a prostaglandin inhibitor and the product acted four or five "levels prior to prostaglandin" -- which meant its anti-inflammatory effects could be measured in minutes. "The benefits of the molecular platform is that it's very small, it moves through the skin very easily," Edwards said.

Tripeptofen was extracted from Thermalife, a Pharmanet product which has been sold in Australia for 17 years, said Edwards. "Nobody at the time looked intensely at what the mode of action of this product was," he said.

AIM listing

Palermo said Pharmanet had initially considered listing for MPL Australia on the UK's AIM board, because the company had been looking for a market where capital was more readily available for its research and development.

"We got shareholder approval in about January to do that," said Palermo. However, by April the "rules in London in relation to companies being listed changed" which had a "tendency of dampening the market enthusiasm for new floats or capital raising," he said.

"Basically, we did the same transaction that we were contemplating undertaking in the UK, except that we requested that we had to have approximately 80 per cent of the new entity in the US," said Palermo, while in the UK this would have been about 65 per cent. "It was a better deal for us to go into the US market," he said.

Medical Products Group

Meanwhile, Pharmanet has had difficulties with the disposal of its medical distribution business, Medical Products Group (MPG), a subsidiary it sold to another Perth-based company Advance Healthcare Group (ASX:AHG) earlier this year for over AUD$2 million.

"MPG was costing us approximately $150,000 in cash," said Palermo. "We were of the view as a company that the money could be better utilised in the research and development in progress of Tripeptofen and we decided to sell it."

Pharmanet settled the sale transaction of MPG on June 23 but administrators were appointed to Medical Products in November. "It was not a subsidiary of ours when it went into administration," said Palermo.

However, MPG defaulted on its financing arrangements in relation to facilities with the National Australia Bank which were guaranteed by Pharmanet, facilities which were to be taken over by Advance Healthcare following the sale of MPG.

Following the default, the National Australia Bank exercised its rights against Pharmanet's $150,000 fixed deposit securing the MPG overdraft facilities. "The bank took our money, which we weren't too happy about," said Palermo.

"We reserve rights," Palermo added. "We got an assignment of all the securities that the bank had and duly appointed a receiver over the top of the administrator to preserve our funds so that we had a priority over all the other creditors.

"AHG is negotiating to take us out and agreements will be signed very shortly in relation to that," he said.