US patent will soak up the red ink at Peptech: Kwik

Australian biotech hopeful Peptech got the green light from the US patents office for its Tumour Necrosis Factor Antibodies technique this week.

Managing director Stephen Kwik told Australian Biotechnology News on Wednesday that the good news should pave the way for the company to end the red ink that has coloured its books to date.

"We have indicated that this year we would be in the red, but coming into the black for the coming 2003 year," he said, adding: "If all goes well this will be the last year we expect to be in the red."

The much-anticipated approval represents a major milestone for the Australian company, and validates its work on TNF which has proved widely successful in treating diseases such as rheumatoid arthritis and Crohn's disease.

US patent approval for the technique has been widely anticipated in the Australian market following repeated assurances by the company that pending licensing revenues would be key in steering the company towards profitability in the next 12 months.

Of prime concern to Peptech is the Johnson & Johnson Laboratories' TNF-based drug Remicade which was recently named the fastest-growing drug in the US.

Following an 80 per cent jump in second-quarter 2002 sales for Remicade to $US298 million, next year's sales are expected to exceed $US1 billion, a proportion of which Peptech is now entitled to, under the terms of a privately negotiated licensing deal.

The importance of the US patent is further emphasised by the fact that the ratio of Johnson & Johnson's North American operations to those outside of the US is about 8:1.

Revenue streams anticipated from other high-profile drugs such as Abbott Laboratories' D2E7 are also expected to have an impact on Peptech's bottom line.

Peptech currently has TNF patents in Australia, Canada, six European countries including the UK and Germany with a Japanese patent pending.

Kwik said that the TNF licensing revenues out of the US would greatly boost Peptech's already strong cash position, which stood at $22 million as of March, and would likely increase the company's resolve to seek new products streams, and/or rival companies.

"The situation is that it's a very old cliché -- that cash is king -- especially in the bleak environment we are in at the moment, but cash in the bank is going to give us a lot of options," Kwik said. "We are obviously in the market for new products."

The challenge for the company now, he said, was finding appropriate avenues of investment to grow the business which may include certain early-stage research projects still under wraps.

"We must find appropriate pigeonholes in terms of what to do with the cash," Kwik said.

Nevertheless, market reaction to Tuesday's announcement was reasonably subdued, with Peptech shares up 8 cents at their peak, closing up 5 cents to $2.55 with profit-taking pushing the stock back down to close at $2.48 on Wednesday.

Brokers said that Tuesday's announcement had already been largely priced in and that the the stock would not be expected to do anything exciting until it is clear that more licensing deals are in the offing.

Peptech posted a net loss of $4.6 million for the half-year ended March 31, 2002, down 90 per cent on the previous corresponding period during which the company recorded a number of significant one-off transactions, delivering a profit of $26 million.