RecommendationPatrys has completed a large scale manufacturing...

Recommendation

Patrys has completed a large scale manufacturing run for PAT-SM6 antibody and
should commence expanded clinical studies mid-year. The pilot trial is recruiting
well and we expect to see first data around April. Primary trial purpose is safety
but we also expect to see some biopsy/tumour data emerge. Patrys may extend
PAT-SM6 into other cancer indications this year. More publications linking cellsurface
GRP78 (the PAT-SM6 target) and cancer have emerged in early 2011
(prostate, leukemia). Pfizer?s recent deal with private company Theraclone, signed
in January for infectious diseases and oncology, confirms the emerging role of
natural antibodies in drug development. Patrys? programmes are tracking to
expectations. Speculative Buy rating with price target of 31 cps.

Key Points

�� Patrys has completed a 250L manufacturing run for PAT-SM6 antibody. Yields were
high, and should be sufficient to support an expanded series of clinical studies midyear,
as planned. The pilot phase of the trial has progressed to higher doses and
might complete recruitment this quarter. The primary purpose of the study is safety,
but we are also expecting some biopsy/tumour data to provide further validation of
the therapeutic target (GRP78). Cell-surface GRP78 and its associated biology
continues to attract attention in the scientific literature ? in January we saw new
studies linking to prostate and acute myelogenous leukaemia. Patrys has not ruled
out extending PAT-SM6 into other cancer indications this year. The decision will
depend on the melanoma trial data and on final PAT-SM6 purification yields.

�� The PAT-SC1 programme is on schedule to complete PER.C6 cell line development
in June and could be ready for manufacturing and further clinical trials by 2012,
subject to financing and/or partnering outcomes.

�� There are no specific updates on the CSL programmes at this time, following the
year-end break. Patrys expects some reportable results this half.

�� Pfizer?s recent deal with private company Theraclone provides welcome validation of
the emerging role of natural antibodies in drug development. Theraclone has a
similar offering to that of Patrys from a discovery perspective ? ?panning? natural
antibody samples to discover new potential therapies. The Pfizer deal will see
Theraclone work on up to four pre-determined targets in the infectious disease and
oncology fields. Theraclone will receive royalties and up to US$632M in research
and milestone payments if successful products are developed. We interpret the
?biobucks? figure as spread across the four programmes ? ie milestones c.$75-100M
per programme. We do not know the financials behind the Patrys/CSL deal ? but
would expect to find similar numbers for these ?discovery deals?.

�� Patrys? natural antibody platform is distinct from that of Theraclone. The Theraclone
approach follows a more traditional approach to discovery, starting with a known
target and isolating antibodies that bind to that target. Patrys offers the reverse ?
beginning with known cancer-specific natural antibodies but tracing their activities
back to identify the targets, and by so doing, uncovering new cancer biology.

�� Patrys? development programmes are tracking with expectations. We expect the
company to attract more Pharma/Biotech partnering attention as some of the pioneer
programmes (PAT-SM6, PAT-SC1) pass cGMP manufacturing and safety testing.

�� The key risk in owning the stock is that share price performance is only likely to
increase on Patrys signing new deals and by reaching progress milestones in the
CSL collaboration. We cannot offer any reliable estimate on timing ? only an
assurance that the technology and its promotion/management are sound. The
market is not likely to reward early stage clinical progress to the same degree. We
maintain our Speculative Buy rating. Target price is 31 cps.