The late 2010 Chairman's address doesn't ramble on too long and an interesting overview of the collaborative commercial lab work that Phylogica gets paid for by it's project partners.
Nick Wolf, Phylogica's Chief Financial Officer, is extremely upbeat about the cash flow situation. In the November AGM meeting these figures were presented re. one of their collaborative partners:
MedImmune (biologics unit of AstraZeneca) ? Signed in August 2010 ? Discovery of novel antibiotic candidates against the hospital-acquired infection ? Upfront payment of US$750k; additional US$750k in committed funding ? Development and commercial milestone payments of up to US$98M ? Royalties on worldwide sales
It's the $750,000 committed funding that is important in the short term. That's the 'fee for service' work that is going on in Perth. Phylogica have specialised teams that can focus on partner's need to identify candidates for further research by that company which hopefully show up star candidates that are considered for clinical trials.
Phylogica have similar deals in place with other partners and the level of faith and money committed by these companies is increasing as their peptide research lab gains an international reputation.
There rough financial position is summarised below from the AGM:
Capital structure ‣ 283M Ordinary shares, 64M options ‣ 1.3M convertible notes - convert to 27M shares Net cash burn in FY2010 of approximately AU$3.8M* Cash at hand November 30th of AU$2.6M Objective to achieve cash sustainability in 18 Months
The structure of their deals is as follows: (From AGM)
Structure of Discovery Partnerships(eg: MedImmune/AstraZeneca deal)
Expressed as value Per Drug Target (US$)
Upfront license fee $750-$1M (FOR ONE YEAR)
Contract revenue for screening (1 yr) $750K- $1M
Cumulative milestone payments Up to $100M
Royalties single digit % (long term if developed to commercialisation)
A couple of deals like this are already in the bag. The annual cash burn is covered. Phylogica expect and are receiving 1.5 million dollars per drug candidate as contracted research fees. They mention the trend in Big Pharmaceutical's to outsource initial drug candidate research.
Phylogica can advance this outsourced licensed work on several drug candidates at once. ie 1.5 million plus 1.5 million + 1.5 million etc per annum. That's their business model PRE-ROYALTIES that they have been trumpeting for a while now. It's called the 'Drug Discovery Alliance Model' and large pharmaceutical companies have tripled their expenditure of outsourcing this work over the last three years. (See AGM preso)
Phylogica's world class lab in Perth, which is a leader in it's field is the key revenue earner for the company. As the robotics upgrade (recent cap raise 2.3 million) comes on stream it is clearly expected (ie no-brainer) to be cash flow positive for the company going into 2011.
There is so much good news on Phylogica and the multi-potential medical bio-chemistry is outstanding if your appreciate such things. I really don't want to rave on here, save to say, even if the micro-biology leaves you be-fuddled their business model is sound.
Tuck a few of these in your bottom drawer and forget them and your Christmas 2011 or better still 2012, will be very merry indeed!
(Positive thinking can change your world)
PatrickM
(FYI Keen on unloved Goldie Digger VML and 'Iron Island' PLV)
PYC Price at posting:
7.1¢ Sentiment: LT Buy Disclosure: Held
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