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Bio Technology : October 2009
10 Australasian BioTechnology Volume 19 • Number 3 • October 2009 AusBioFEATURE --- AusBiotech 2009 Changing business models and new fnancial opportunities Sirtex who have both attracted a growing number of investors to their registers. While companies that are close to having products on the market, like Alchemia and ChemGenex, are also coming onto the radar screens of a greater number of institutions and retail investors. That said, we would suggest that while the economic environment has affected companies' ability to raise funds, in some instances resulting in programs being reprioritised, fundamental business models have not dramatically changed: ChemGenex was able to raise AUD$18m in April this • year to fund its lead compound, omacetaxine, through to approval in the US, expected in early 2009. Choosing not to return to capital markets, Alchemia • prudently reduced spend on its earlier-stage programs, focusing instead on its lead program, fondaparinux. To that end, Alchemia's marketing partner Dr Reddy's submitted an Abbreviated New Drug Application (ANDA) in March 2009 for its generic synthetic heparin product, in the US and approval by the FDA is expected before year end. Assuming this timeline is achieved first product sales are expected in first half of 2010. In summary, business models have not dramatically changed over the last 12 months, in our view. In some instances, business plans have had to respond to funding constraints by becoming more focused, but we believe this can result in a healthy review of priorities. Looking forward, investor appetite for risk has improved from July, with investors prepared to take on more risk in order to outperform. It will always be difficult to attract investment into higher risk sectors; however, a relevant and clearly communicated strategy will go a long way to attracting and retaining investment in your company. Disclosures -- ABN AMRO Morgans Limited was the Lead Manager to the Chemgenex Pharmaceuticals Limited share placement in April 2009 and received fees in this regard. ABN AMRO Morgans Corporate Limited was the Underwriter to the Chemgenex Pharmaceuticals Limited rights issue and received fees in this regard. The analyst owns shares in ChemGenex Pharmaceuticals Limited and Biota Holdings. The global fnancial crisis stymied access to capital across the board. This resulted in a ‘two tier economy’ emerging within the life science sector. Companies with suffcient cash for 12 to 24 months were treated more favourably by the stock market. While companies requiring additional capital had to either raise funds at significant discounts, cut spending by reprioritising core programs, or in some instances enter into administration. How has this impacted business models and the strategic direction of life science companies? To answer this question, let's set the scene in terms of investor sentiment towards the sector. Firstly, despite the crisis, investors' requirements for investing in life science companies have remained broadly the same, with a majority of institutions investing in the sector preferring companies that are close to or generating revenues and preferably profits. Other attributes considered favourably include: A drug/device/diagnostic with a clear market • requirement; Experienced, accountable management, with 'skin' • in the game; A realistic plan to get the product to market or have • the business attractively positioned for a trade sale; and Pricing that justifies the risk being taken. • Secondly, while in the majority of cases it has been existing shareholders anchoring recent fund-raising efforts, overseas investors are becoming more attracted to the Australian life science sector, although few to date have made firm commitments. Recent examples include Cephalon's takeover of Arana Therapeutics, Alta Partners from US provided follow on investment into ChemGenex, and Height Capital recently made its first investment into Australia by participating in the Avexa placement. Finally, as investor confidence grows, we have noticed that over the last few months the risk appetite of investors has increased. As demonstrated by companies like Biota and By Scott Power, ABN AMRO Morgans Presenter at AusBiotech 2009 11.30am – 1.00pm, Thursday 29 October Changing Business Models & New Financial Opportunities Scott Power, ABN AMRO Morgans