Introductory Research on Prana Biotechnology(PBT -...

Introductory Research on Prana Biotechnology
(PBT - $0.65)
Speculative Buy (for knowledgeable professional investors)
Tuesday 16 December 2003
Analyst: Stuart Roberts ([email protected])
Director: Rex Adams ([email protected])
Prana makes progress in tackling
Alzheimer’s
Prana Biotechnology is one of only a few listed companies in the world
with the technical capacity and intellectual property base to be able to
pursue its goal of developing a prescription drug for the treatment of
Alzheimer’s Disease. The company has evolved its Harvard-developed
Metal Protein Attenuating Compound technology to the point where a drug
called PBT-2 - which in our view stands ahead of many competitor
compounds envisaged as future Alzheimer’s drugs – is expected to enter
Phase I clinical trials around October 2004. While the technology competes
with a variety of other theoretical approaches for the treatment of
Alzheimer’s, the data gathered on Prana’s approach to date as well as the
people involved and the huge markets available for successful drugs - in
the order or US$5-10bn p.a. - suggest that Prana’s technology is
significantly underpriced at present. Prana Biotechnology rates a
SPECULATIVE BUY for knowledgeable professional investors, with a
target price of $2.00 a share based on our probability-weighted optimistic
case valuation of $2.34.
Analyst disclosure: Stuart Roberts owns 3,000 Prana Biotechnology shares as at the
date of this report.
Previous Southern Cross Equities coverage: This is an introductory note on Prana
Biotechnology. We are commencing coverage.
Southern Cross Equities disclosure: Southern Cross Equities has an advisory
relationship with Prana. See page 23 of this note.
Location: Melbourne
Business: Developing drugs to combat neurodegenerative
disorders such as Alzheimer's
Lead compound: PBT-2 for the treatment of Alzheimer’s, in
Phase I clinical trials from late 2004.
Leadership: Geoffrey Kempler (Executive Chairman and
23% shareholder), Dr Ross Murdoch (Chief Operating
Officer), Dianne Angus (VP, IP and Business Development),
Professor Colin Masters (Executive Director), the Liberman
family of Melbourne (19% shareholders), and Drs Ashley
Bush and Rudy Tanzi (Harvard scientists closely involved in
Prana’s technology development).
Share Price (Australian Stock Exchange, PBT): 65 cents
Market Cap. of tradeable shares: $48m
Twelve Month Range (c): 149 - 43.5
All time high: $2.50 (March 2002)
No. of shares tradeable: 73.5m
Average weekly volume: 0.4m
Average weekly value: $0.28m
% below 12 month high: 56%
Main strengths: Powerful animal model and proof-of -
concept-in-man data related to an Alzheimer’s disease
treatment.
Main risks: Early-stage nature of the company.
Most comparable listed company: The Montreal-based
Neurochem (Toronto Stock Exchange, NRM)
Prana stock has more or less discounted the upside since 2002
20
70
120
170
220
Mar-00
May-00
Jul-00
Sep-00
Nov-00
Jan-01
Mar-01
May-01
Jul-01
Sep-01
Nov-01
Jan-02
Mar-02
May-02
Jul-02
Sep-02
Nov-02
Jan-03
Mar-03
May-03
Favourable proof-ofconcept
in man news
allows Prana’s stock to
spike to $2.42 - April
2002
Announcement
of PBT-2 clinical
plans on 5
August 2003
allows Prana
stock to recover
to stock closes at
73 cents
Biotechnology research
First day
close of
$1.02, at
the tail end
of the ‘tech
boom of
1999/2000 Nasdaq listing
– September
2002
Ashley Bush
presents at Cold
Spring Harbor –
December 2002
Introductory Research on
Prana Biotechnology
PAGE 2 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
Prana makes progress in tackling Alzheimer’s
Friday 5 April 2002 was a landmark day in the history of biotechnology as a sector of Australia’s capital market.
Prana Biotechnology, which had floated in 2000 in order to develop a potential treatment for Alzheimer’s Disease,
had announced to the market the previous afternoon some reasonably favourable news from its pilot Phase II clinical
trial of a compound called PBT-1. Prana reported that PBT-1 had been able to reduce the amount of a protein called
amyloid circulating in the blood of the subjects receiving the drug in the 36-patient trial. Since amyloid is strongly
linked with Alzheimer's, it was no surprise to learn that there was a slowing down of the progression of the disease
in the treated patients. To casual observers it looked like Prana was on the road to introducing a new drug for the
treatment of a feared disease that not only afflicted perhaps 1 and 2% of the population of the western world, but
represented the fate of perhaps one in ten people over the age of 65. No wonder, then, as well, that Prana stock
leaped 72% to $2.42 a share that Friday. Such leaps, however, are difficult to sustain. By May 2003 Prana stock was
plumbing the depths, closing one day that month at a mere 43.5 cents, and the stock has yet to get much higher than
that level. In this note we argue that the welcome reception accorded the PBT-1 pilot trial news in April last year
represented a more appropriate valuation than the share price malaise of 2003, particularly in the light of the pilot
trial results, which have now been published in a peer-review journal. While Prana still has some way to go before a
drug to treat Alzheimer’s makes its way onto the market, the company has made progress to that end which has yet
to be factored into the stock price.
Contents
Rust in the brain – The Prana story 1997-2003 .............................................................................................................3
At last - The long-awaited clioquinol paper ..................................................................................................................7
Where to from here? – Prana and its very exciting pipeline........................................................................................10
Valuing Prana – Buy PBT-2, get PBT-3 and an Alzheimer’s vaccine for free............................................................12
Conclusion – Big markets, good science, and a well managed company....................................................................13
Appendix I – Listed companies working on Alzheimer’s drugs..................................................................................13
Appendix II – A Prana Biotechnology glossary ..........................................................................................................14
Appendix III - A Prana Biotechnology timeline..........................................................................................................19
Appendix IV – Southern Cross Equities’ valuations of PBT-2 ...................................................................................21
Summary – The investment case for Prana
Prana is commercialising powerful technology developed at the renowned Massachusetts
General Hospital (associated with Harvard Medical School) for the treatment of
neurodegenerative disorders including Alzheimer’s Disease.
The payoff for any success in terms of drug development is huge given the size of the
markets involved – perhaps US$5-10bn a year – and the fact that, for Alzheimer’s patients,
existing drugs are woefully inadequate;
The people involved in Prana include some of the leading lights in Alzheimer’s research
today, with the company’s scientific advisory board featuring four of the 35 recipients to date of
the prestigious Potamkin Prize;
Prana’s theories on metal-protein interaction as a key to Alzheimer’s treatment have now
been validated in a published peer-reviewed paper related to a proof-of-concept trial completed
Introductory Research on
Prana Biotechnology
PAGE 3 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
in early 2002; this has given a credibility boost to Prana’s scientific approach, and taken some of
the risk out of owning Prana stock;
Prana is now preparing a ‘rationally designed’ anti-Alzheimer’s compound called PBT-2 for
a formal clinical trial from late 2004. In our view PBT-2 stands ahead of many competitor
compounds envisaged as future Alzheimer’s drugs;
With the company planning a drug to treat Parkinson’s Disease as well as a potential
Alzheimer’s immunotherapeutic, Prana has now built some redundancy into its pipeline and can
no longer be considered a ‘one shot’ company;
Our probability-weighted valuation of Prana is $2.34 per share, a significant premium to the
current share price. Our target price is $2.00 per share.
Rust in the brain – The Prana story 1997-2003
Why Prana’s technology is potentially so valuable
Alzheimer’s Disease is a disorder in which parts of the brain that control memory are damaged in some way,
progressively disabling the patient mentally and then physically until death ultimately results from a loss of brain
function so great that vital body functions are unable to occur. As we noted above, Alzheimer’s has in recent years
come to be recognised as a serious and costly health problem in western society. The United States, which is far and
away the most efficient collector of health statistics in the world, has something like four million Alzheimer’s
patients in its population – one of whom used to occupy the Oval Office – those millions representing 1.4% of that
country’s population1. Possibly $100bn a year is spent on caring for American Alzheimer’s patients, but that figure
is likely to be eclipsed in the coming decade – remember that the first of the Baby Boomers turn 65 just eight years
from now. Worldwide there could be 14 million Alzheimer’s patients alive today, representing a potential US$5bn
market. Worst of all from the point of view of the clinicians, there’s little in the way of drugs to help slow the
progress of the disease, because as we’ll see below serious understanding of the disease only started building some
twenty years ago. There are now four drugs to choose from - Pfizer's Aricept, Novartis' Exelon, Johnson &
Johnson's Reminyl, and the newly approved Namenda from Forest Laboratories. These drugs are far from
satisfactory as treatments. There is improved memory for patients taking the drugs for only a short period before
Alzheimer's resumes its inevitably destructive course. But that hasn't stopped Aricept sales moving close to a billion
US dollars annually. As even the casual observer can appreciate, Alzheimer’s Disease represents a drug developer’s
dream market. What we’ve noticed, however, is that Alzheimer’s has yet to get some momentum behind it in terms
of drug development, presumably because the central nervous system is
such a new frontier of biomedical research that not enough ‘druggable’
targets have yet to be validated for drug development to proceed.
Prana, however, has moved beyond validated target, to animal model
and pilot human studies. Its lead candidate drug enters the clinic next
year. Prana is therefore on track, so long as its science is sound, to
become a rising star of Alzheimer’s pharmacology in the second half of
the current decade, helped by the fact that Prana’s backers are fairly
prominent in the field.
1 Check out http://www.namenda.com/pdf/Key_Stats_with_references_9-23-03.pdf for some of the horrifying statistics of Alzheimer’s
Prana is commercialising
Harvard-developed
science that seeks to treat
neurodegenerative
diseases by interfering
with metal-protein
interaction in the brain
Introductory Research on
Prana Biotechnology
PAGE 4 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
From Alzheimer to Bush – the passing of the amyloid baton
The characteristic feature of Alzheimer’s, which we’ve known about since the German neurologist Dr Alois
Alzheimer did his pioneering work on the disease in the early 20th Century, is the presence in autopsied brain tissue
of ‘plaques’ of a starch-like protein called amyloid. Around 1984 three groups, one of which was headed by the
University of Melbourne pathologist Colin Masters and another by a molecular biologist at the University of
Heidelberg, Konrad Beyreuther, were able to unravel the amino acid sequence of the protein. It was found that there
were two amyloids, one of which, amyloid beta, was the amyloid in the plaques. By 1987 researchers had found
another protein called APP, short for Amyloid-beta Protein Precursor, which, when
acted on by certain enzymes, was shortened to amyloid beta. The enzymes, called
secretases, were envisaged as something like biochemical scissors, which created
amyloid beta by snipping APP at certain locations in the latter protein. It was further
postulated that too much amyloid beta resulted in clumping of the amyloid protein
and the creation of plaques, and that the process of plaque formation was highly
toxic to the neurons (nerve cells) that made up the brain and were responsible for
memory and brain function.
Around 1994 the Australian-born Harvard neuroscientist Dr Ashley Bush, who had
studied under Colin Masters in Melbourne, took this ‘amyloid hypothesis’ on the origins of Alzheimer’s a step
further. At the time Bush was working in the Genetics and Aging Unit at Massachusetts General Hospital in Boston,
a large teaching hospital associated with Harvard Medical School. That Unit, headed by Dr Rudy Tanzi, has as its
main focus research on the genetics of Alzheimer’s Disease. Since arriving in Boston Bush had began to gather
evidence that the real villain in Alzheimer’s disease wasn’t so much the
secretases or the plaques, but the inappropriate interaction between
amyloid beta and certain metals that we all carry around in our bodies
in trace quantities. So, for instance, zinc was demonstrated to be able to
cause soluble amyloid beta (the kind that easily removed itself from the
brain) to turn into an insoluble form of amyloid beta that then
aggregated into amyloid plaques. This was groundbreaking stuff,
getting Bush lead authorship of a paper in the prestigious journal
Science2 in September 1994. The metals data also suggested to Bush
that a potential Alzheimer’s treatment could be found in drugs that
bound to metals such as zinc and prevented them from binding with the
amyloid beta. Bush’s friend, a Melbourne businessman named
Geoffrey Kempler, put together Prana Biotechnology in 1997 with
himself as Executive Chairman in order to develop anti-Alzheimer’s
drugs that had this mechanism of action. Bush, Tanzi, Masters and
Beyreuther, all recognised luminaries of the Alzheimer’s research
world, agreed to serve on Prana’s ‘brains trust’ (see Inset box this
page). The following year Bush got to head his own shop within the
Genetics and Aging Unit, setting up the Laboratory for Oxidation
Biology. And by 2000, when Prana went public, the Bush lab was able
to build a significant body of knowledge on the metal-protein interaction thesis.
A 1999 in vitro study had found, for example, that positively charged iron and copper ions, when interacting with
amyloid beta, caused the protein to become a catalyst for the production of hydrogen peroxide (chemical symbol H2
2 The paper was Rapid induction of Alzheimer Aß amyloid formation by zinc (Science. 1994; 265, 1464-1467) – visit
http://dem0nmac.mgh.harvard.edu/newsletter/Sept1994/zinc.html for a summary of the work.
On Prana’s ‘brains trust’ - One of
the highest honours an Alzheimer’s
researcher can aspire to is the
Potamkin Prize for Research in Pick’s,
Alzheimer’s and Related Diseases
(Pick’s is a little-known
neurodegenerative disease which
causes changes in personality and
behaviour long before memory is
affected). The scientific advisory
board Prana has assembled has four
Potamkin winners out of the 35 who
have been so-honoured since 1988.
Colin Masters and Konrad Beyreuther
were co-winners in 1990, Rudy Tanzi
won in 1996 and Ashley Bush took
out the prize in 2003.
Prana’s
scientific base
has been at
least a decade
in the making
Introductory Research on
Prana Biotechnology
PAGE 5 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
O2 – it’s one of the active ingredients in bleaches for the alteration of hair colour), which proved to be poisonous to
brain cells3. By this stage Bush and his colleagues had identified a drug that would combat the effect of metals in the
brain in the form of a discontinued antibiotic called clioquinol, whose chemistry was known to be able to bind to
copper and zinc. When that drug was tested in transgenic mouse models of Alzheimer’s disease, the result was a
marked reduction in ‘Alzheimer brain pathology within nine weeks’ and beta-amyloid accumulation was 50% lower
than that of controls. The publishing of the results of this study in the journal Neuron4, when announced on 22 June
2001, resulted in Prana’s share price leaping from $1.00 to $1.27 on public confirmation that clioquionol worked as
an Alzheimer’s treatment in mice. The next logical step was a proof of concept trial of
the drug in man. This had started in Melbourne in August 2000, with clioquinol
rebranded as ‘PBT-1’. It was the announcement in April 2002 that the trial seemed to
have demonstrated an ability of clioquinol to have something of an effect on
Alzheimer’s that led to all the share price excitement we referred to at the start of this
note.
The amyloid hypothesis in action – how Prana’s drug candidates work
In 2000 Rudy Tanzi published (with co-author Ann Parson) a book about his
experiences as an Alzheimer’s researcher entitled Decoding Darkness - The Search for
the Genetic Causes of Alzheimer's Disease (Cambridge, Massachusetts: Perseus Books,
2000, 247 pages). Among the points the book drives home is how there is no consensus
on the cause of Alzheimer’s although proponents of various theories are almost religious in their views. The
Alzheimer's research community has, moreover, divided into two main 'faiths' - 'BAPtists' who maintain that Beta
Amyloid Protein and amyloid plaques are the main villains, and 'Tauists' who are focused on Tau, a protein inside
neurons which, when it goes wrong, produces so-called 'tangles' in the brain alongside the plaques. One is advised to
keep the diversity of scientific views of Alzheimer’s in mind when looking at the way Prana intends to tackle the
disease.
As we hinted above, Prana’s approach comes broadly from the BAPtist viewpoint. APP, the Amyloid-beta Protein
Precursor, can be visualised as a string of protein straddling the membrane of a neuron, that is, a nerve cell, with
much of the string lying outside the membrane wall. It’s been postulated that the beta secretase ‘scissors’ cut the top
off the APP string outside the neuron while gamma secretase works within the membrane itself to release it from its
membrane moorings. The normal physiological role for amyloid beta, if any, is unclear to the experts at this time.
However, what is known about the protein is that when it comes into contact with Cu2+ , a positively charged copper
ion, or Zn2+, which is (you guessed it), a positively charged zinc ion5, the result is a change in the conformation, that
is, ‘shape’ of amyloid beta, so that it can bind to other conformationally changed amyloid beta molecules and
become the insoluble clumps we know as plaques. With amyloid beta, figuratively speaking, ‘wrapped’ around the
metal, the protein-metal molecules become quite neurotoxic in a number of ways, with the clumping of the
conformed amyloid beta in amyloid plaques just the beginning of neuronal troubles. For one thing, when a proteinmetal
molecule attempts to re-enter a neuron, the changed conformation can cause a puncture in the neuron’s cell
wall. Next, there’s what we call ‘the bleach problem’. The Cu2+ ions are ‘redox active’, that is, capable of
undergoing ‘reduction-oxidation’ where they accept an electron and are ‘reduced’ to Cu1+ ions by a process of
oxidation. In effect, the copper is prone to ‘rusting’ inside the brain. More technically, what the copper-amyloid
interaction produces is hydrogen peroxide, which is a ‘reactive oxygen species’, or ROS. If you’ve ever heard
3 This work was published in the journal Biochemistry in June 1999 – see The Aß Peptide of Alzheimer's Disease Directly Produces Hydrogen
Peroxide Through Metal Ion Reduction (Biochemistry 1999; 38, 7609-7616)
4 Treatment with a Copper-Zinc Chelator Markedly and Rapidly Inhibits ß-Amyloid Accumulation in Alzheimer’s Disease Transgenic Mice.
Neuron 2001;30:665-676
5 The ‘2+’ refers to the fact that the atom of the metal has lost two electrons
Prana’s drugs
work by acting
against metals
in the brain
interacting with
the protein
amyloid beta
Introductory Research on
Prana Biotechnology
PAGE 6 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
proponents of complementary medicine urge their listeners to take anti-oxidants to tackle a variety of health
maladies, you’ll appreciate the potential harm that reactive oxygen species can do. What has been created is a ‘free
radical’, that is, a substance with an oxygen component where there are unpaired electrons. A free radical has to
combine with a complementary molecule to achieve chemical stability. If it bonds with a positively charged
molecule, its charge is neutralised. If not, the oxygen component of the free radical can damage cells in the body in a
process called oxidative stress, and that’s what the O2 part of the copper/amyloid created H2 O2 is doing in the brain
of an Alzheimer’s patent, in that the neuronal cell walls are damaged by being oxidised, leading to punctures
different to those being achieved by conformed amyloid beta. Now, if all that wasn’t enough, hydrogen peroxide
may also act back on the metal-protein complexes that caused its production, leading
to the creation of metal-protein dimers that are toxic to nerve cells (a dimer is simply
a molecule composed of two identical simpler molecules). And completing this
litany of copper-induced cellular havoc, peroxide can also damage cell signaling,
affecting the way that neurons send a nerve signal from one part of the brain to
another.
One solution to Alzheimer’s would appear to be either create less amyloid beta by
restraining the power of the secretases to snip. So, for instance, Myriad Genetics’
MPC-7869 drug, which has finished Phase II, is understood to interfere with gamma
secretase, and a lot of other research programmes have aimed to go after the
secretases. Ashley Bush and his colleagues, however, recognising that amyloid beta
may also have other useful roles, took the view that a drug to restrain the metal ions would be more appropriate,
since such a drug would have less impact on whatever appropriate roles nature had intended amyloid beta to
perform. Investigating various drugs that would bind metals such as copper and zinc, they settled on one that had
been removed from the market due to some safety concerns decades ago.
It was not from any desire to create controversy that clioquinol was selected to become PBT-1, simply that it was
suitable for Prana’s purposes6. Clioquinol is a drug pharmacologists know a fair bit about, it having been introduced
by the Swiss pharmaceutical giant Ciba-Geigy7 way back in 1934 as a treatment for amoebic dysentery. The drug
had became infamous in the 1960s because of a nervous system disorder particularly associated with Japanese
people called Sub-acute myelo-optic neuropathy, or SMON for short. SMON is a disease of nerve degeneration,
which can lead to blindness or other serious optic disorders. Back in the ‘60s Japanese people suffering
gastrointestinal disturbances had been taking much higher than recommended doses of clioquinol. In the case of
patients who were also deficient in vitamin B12, which helps maintain the health of nerve cells, the result was
SMON. Without the benefit of the B12 insight at the time (it came later) the Japanese government banned clioquinol
in 1970, by which time some 10,000 Japanese had the condition. And although clioquinol-associated SMON was
extremely rare outside of Japan, the Japanese experience, combined with the development of better antiamoebics,
led to Ciba-Geigy eventually removing the oral form of the product from sale in the rest of the world.
So why was Prana attempting to resurrect such a villainous compound? As we’ll see below, it wasn’t clioquinol that
Prana was interested in so much as any compound that had a demonstrated ability to bind metals and that could be
rapidly moved to the clinic to treat the huge unmet need Prana hoped to create for metal-binding drugs with which to
combat neurodegeneration. What Prana wanted was, in the parlance the company prefers to use, a Metal Protein-
Attenuating Compound, or MPAC that would reduce the chances of metals assisting amyloid beta to clump into
plaques or produce hydrogen peroxide. Clioquinol fitted the bill because it was able to cross the blood-brain barrier
– the Berlin Wall that separates the brain from the circulatory system – and also had greater affinity for the metals
6 The rehabilitation of disgraced drugs occasionally happens. A cancer drug developer called Celgene, of Warren, NJ, is in the process of doing so
with thalidomide, which lives on in the popular imagination as the morning sickness drug that caused all those birth defects in the early 1960s.
7 Which merged with Sandoz in 1997 to form Novartis
Prana sought
proof-ofconcept
validation using
the old
antibiotic drug
clioquinol
Introductory Research on
Prana Biotechnology
PAGE 7 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
Bush and his colleagues were out to get, zinc and copper, than for calcium and magnesium, which were relatively
harmless in Alzheimer’s patients. As for clioquinol’s past, the Prana team took the view that the real villain in the
emergence of SMON was not clioquinol but excessive overdose combined with vitamin B12 deficiency, which
would have been a not uncommon situation in postwar Japan due to the meat-poor diet of most Japanese in that era.
That said, when PBT-1 was tried out in people in a ‘proof of concept’ trial, it was arranged as a precaution for the
subjects to receive not only clioquinol but also B12 (a.k.a. cyanocobalamin) to ward off any SMON-like effects.
Which brings us to that proof of concept trial, the results of which have finally been published in a peer-reviewed
paper entitled Metal-protein attenuation with iodochlorhydroxyquin (clioquinol) targeting A Β amyloid deposition
and toxicity in Alzheimer’s Disease, with Dr Craig Ritchie, a British pathologist and behavioural psychologist based
at University College London, as the lead author. The paper, in the December 2003 edition of the Archives of
Neurology (Arch Neurol. 2003;60:1685-1691, see http://archneur.ama-assn.org/current.dtl), may have taken twenty
months to see the light of day, but it goes some way towards removing a credibility issue over Prana
Biotechnology’s scientific base. For one thing, the journal is a respected one. The Archives of Neurology is a
publication of the American Medical Association, making it a sister publication of the prestigious JAMA, the
Journal of the American Medical Association. For another, the data itself hints at big things ahead for the MPAC
approach to treating Alzheimer’s. Let’s take a look at what Ritchie et al. reported.
At last - The long-awaited clioquinol paper
For the proof of concept trial of clioquinol (or iodochlorhydroxyquin as the
compound is less euphoniously referred to in the title of Prana’s paper) as an
Alzheimer’s therapeutic Prana recruited 36 Alzheimer’s patients in Melbourne
already on donepezil, that is, the abovementioned Pfizer drug Aricept. The mental
state of these patients was gauged by two sets of cognition tests, one called ADAScog
and the other called MMSE. ADAS-cog, short for the Alzheimer's Disease
Assessment Scale-Cognitive Subscale, measures cognition by a battery of
individual tests looking at things like ability at word recall, capacity to recall test
instructions and so on. At the end of an ADAS-cog test a patient has a score of
between 0 and 70, with greater cognitive impairment being given by a higher score.
Elderly normal adults may score as low as 0. In Prana’s proof of concept trial the
subjects had ADAS cog scores of between 20 and 45. MMSE, short for Mini-
Mental State Examination, is not dissimilar to ADAS-cog in that it also involves a
battery of cognition tests, although in this instance the lower scores (out of 30)
indicate the greater levels of cognitive impairment - in Prana’s pilot trial the subjects had MMSE scores ranging
from 10 to 24. The reason for conducting two sets of tests is that MMSE tends to predominate in the clinic although
it’s not as sensitive a measure of cognitive decline as ADAS-cog, which is the approach Alzheimer’s researchers
and regulatory authorities such as the FDA tend to favour. The Prana proof of concept trial was randomised (that is,
the subject’s selection to go on the drug or on placebo was done at random) and doubled-blinded (that is, it was set
up so that neither the investigators nor the patients knew who was on what). Initially the 36 subjects were divided
into 18 taking clioquinol and 18 taking the placebo, however by the end of the trial non-compliance, illness and
death had reduced the numbers to 15 on clioquinol and 16 on placebo.
So how did it go? By the last week of the trial covered in the Archives of Neurology paper, week 36, clioquinol
seemed to be having some effect on slowing down the cognitive decline in Alzheimer’s. In Figure 2 of the paper we
see a chart with a 36-week timeline on the horizontal axis and on the vertical axis a number representing change in
ADAS-cog scores. Two lines extend out from zero at ‘baseline’, that is, week zero of the trial. The upper of the two
lines, showing the clioquinol group, demonstrate that by week 36 the average patient had dropped 4 ‘units’, that is,
points on the ADAS-cog score. The lower of the two lines shows the control group, where by week 36 the average
If the sample size
had been large
enough clioquinol
would have been
as powerful as
Aricept as an
Alzheimer’s
treatment
Introductory Research on
Prana Biotechnology
PAGE 8 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
ADAS-cog score had dropped 7 units. The difference between the two lines – 3 ADAS-cog units – were worth
paying some attention to because the number suggested the possibility that clioquinol was about as good as Aricept.
When the latter drug, which as we noted above is now a ‘billion dollar molecule’ was trialed in a 30-week study in
473 patients, the patients on the drug ‘were 2.8 and 3.1 units for the 5 mg/day and 10 mg/day treatments,
respectively’ better off than the placebo group8. The different, of course, between the clioquinol trial and this
particular Aricept trial lay in ‘statistical significance’, that is, p values below 0.05, which is what the Aricept trial
had achieved at week 24. For the clioquinol trial the p value was 0.08, meaning that for this trial the result came in a
little short of statistical significance due to the small sample size.
What was significant, however, was the difference between more severely affected Alzheimer’s patients and
placebo. The investigators took the baseline ADAS-cog scores of the two groups, and established what the median
score was in each case. For the clioquinol group the figure was 25. When the eight subjects in the trial receiving
clioquinol who had an ADAS-cog score of greater than 25 at the start of the trial were compared with the nine more
severely affected patients in the placebo group, by week 24 the difference in ADAS-cog scores was a massive 6.63
units, which had some serious statistical significance - a p value of 0.016. It was this result that allowed Colin
Masters, when presenting at the 7th International Geneva/Springfield Symposium on Advances in Alzheimer
Therapy9 in Geneva at the time Prana made its April 2002 announcement, to comment that ‘the progression of the
disease was slowed down in the more severely affected patients in the treatment group compared to the placebo
group. The initial findings of the study indicate the rate of cognitive deterioration, as measured by the ADAS-Cog
assessment scale, was slowed in these patients’10
So clioquinol seemed to be working. The question was whether or not less amyloid
beta in the brain had anything to do with it. To this end the investigators were
regularly taking blood samples from their patients and assaying those samples for
amyloid beta. The working hypothesis of the investigators was that changes in
amyloid levels in blood plasma would give an indication as to changes in amyloid
levels in the brain. Consequently the finding that from week 20 onwards levels of
amyloid beta 42 (the kind 42 amino acids long which tends to aggregate into
plaques more easily) in the plasma taken from the subjects was falling in the case
of the clioquinol group but rising in the case of the control group could be taken as
an encouraging sign. Asterisks over the data points in the relevant chart at weeks 24 onwards indicate that the p
values involved are less than 0.05. It was this outcome that enabled Colin Masters to comment in Geneva that ‘The
Alzheimer's amyloid protein, which was the target of the drug's activity, was significantly reduced in the blood of
patients in the treatment group compared to an increase in the placebo group’. The data was, however, complicated
by the fact that the ‘lower amyloid effect’ observed by the investigators was all attributable to the less severely
affected group of patients, that is, those with ADAS-cog scores less than 25. For these trial subjects, the
investigators observed a rise in amyloid beta levels of the placebo group and a fall in the clioquinol group with p
values less than 0.05 at weeks 20 and 24, then getting below the 0.001 level on the p value scale for weeks 28 and 32
– which is seriously significant - before tearing back to p values of less than 0.01 at week 36. For the more severely
affected group there was no statistical significance in changed amyloid levels. That, however, doesn’t greatly
concern Ritchie et. al. A possible explanation, the paper suggests, is that when a patient’s Alzheimer’s becomes
severe enough, plasma levels of amyloid beta have peaked and are dropping anyway regardless of any clinical
intervention. It would seem that the science of late stage Alzheimer’s is still being grappled with, but it could be, to
8 See http://www.aricept.com/pi/aricept_pi.htm
9 So called because the symposium’s two organisers were the Geneva University Hospitals in Switzerland and the Southern Illinois University
School of Medicine in Springfield, Illinois.
10 This and the following Masters quote is taken from the Prana release to the market of 4 April 2002 headlined Prana Biotechnology Announces
Successful Clinical Findings
Clioquinol seems
to be work best in
Alzheimer’s
patients only in the
early stages of the
disease
Introductory Research on
Prana Biotechnology
PAGE 9 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
quote the paper, that ‘the brain acts as an amyloid sink’. Ritchie et. al. cite work from the lab of Tobias Hartmann, a
colleague of Konrad Beyreuther at the University of Heidelberg’s Center for Molecular Biology11, which found, in
late stage Alzheimer’s patients the lab studied, that brain amyloid levels were rising at a time when amyloid levels in
the cerebrospinal fluid, the fluid that surrounds the central nervous system, were falling. In the late stage, it would
seem, MPACs are going to be less effective in keeping amyloid levels down than previously. But at least in the less
severely affected trial patients, a slowed decline in cognition could be associated with a lowering of plasma levels of
amyloid beta. From a commercial perspective, this is actually good for Prana. What it means is that a clioquinol-like
drug is more effective the earlier a patient is placed on it, significantly enlarging the prospective market for Prana’s
offering.
But back to the Ritchie et. al. paper. The question that remained for the investigators was whether it was the
purported mechanism of action of clioquinol – the binding zinc and copper - that was doing the trick in terms of
ameliorating Alzheimer’s. The clue that it was working as expected came with data on rising levels of zinc in the
plasma. At week 16 in the study the subjects on clioquinol had markedly more zinc in their plasma than the placebo
group, with a reading showing a p value of less than 0.01. At week 28 zinc levels in the clioquinol group had eased
back slightly relative to the placebo group but the difference still had a p value below 0.05, and by week 32 there
was so much more zinc in the plasma of the clioquinol group that the p value was down to less than 0.001. Here, the
investigators took more zinc in plasma to mean less zinc in the brain, an indication that clioquinol was able to
remove zinc from the brain.
Not covered in the Ritchie et. al. paper was what happened after the 36 weeks were up. The patients were invited to
continue an extension trial of PBT-1 to see if anything unexpected showed up in subsequent months. That trial was
completed in the second quarter of calendar 2003, taking the patient up to week 84. As with the first 36 weeks, the
extension trial found clioquinol to be ‘well tolerated’ and no symptoms of SMON showed up. What was remarkable,
in Prana’s view, about the extension was that the less affected group of patients seemed to experience something like
‘zero decline’ in terms of their ADAS-cog scores from week 37 to week 84. Indeed, many
seemed to experience zero decline for the entire 84 weeks, suggesting something of an
inhibition of Alzheimer’s in these patients. The more affected patients continued to decline,
but, ‘at a slower rate than predicted’, which hinted that even this group benefited from the
drug. So by and large it would seem that Prana’s experience with clioquinol has been a
success.
The sample size was small, but what Prana’s Archives of Neurology suggests that the MPAC
approach to dealing with metal levels in the brain may provide the basis for a successful
treatment of Alzheimer’s disease. The investigators concluded that, ‘The safety profile and
biochemical efficacy of clioquinol in [the trial] population are sufficiently encouraging to allow for future trials to
take this investigation of a novel therapeutic intervention (clioquinol itself or a pharmacologically improved
backup) targeting A Β amyloid to the next phase’. The fact that researchers associated with America’s governmentfunded
National Institutes of Health are considering their own Phase II trial of the drug adds some credibility to the
work Prana has done. However it’s been the latter approach – of developing a pharmacologically improved backup –
that Prana has been working on for the last twenty months.
11 Jensen et. al. Cerebrospinal fluid A Β42 is increased early in sporadic Alzheimer's disease and declines with disease progression in a 1999
edition of the Annals of Neurology (Volume 45, Issue 4 , Pages 504 – 511)
You thought
PBT-1 was
good? You
ain’t seen
nothing yet.
Introductory Research on
Prana Biotechnology
PAGE 10 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
Where to from here? – Prana and its very exciting
pipeline
In the 1970s the pharmaceutical industry started to develop a technique now known
as ‘rational drug design’, where the known three-dimensional structure of a target
molecule was used to design a drug molecule that would bind to it. Rational drug
design represented a marked change from the usual way of developing drugs, which
was to screen countless numbers of molecules looking for biological activity and then synthesize the active agent
from those molecules that worked best12. Over the last eighteen months Prana’s scientists have been working on a
library of rationally designed compounds with MPAC activity. By mid-2003 they had designed and synthesized in
excess of 300 such compounds, with strategic patent protection in the form at least of international and provisional
patent applications. The best of the best of those compounds has now been selected for further development work to
take them rapidly to the clinic.
The ‘son of clioquinol’ trial
Prana announced in August 2003 that it intended to take the best volume in its MPAC molecule library, a compound
called PBT-2, into a formal clinical trial setting. By eight different accounts studies both in vitro and in vivo have
shown PBT-2 to be better than PBT-1. Probably the most important measures are ‘brain amyloid solubility’, which
shows PBT-2 to be 2.5 times better at reducing amyloid plaques than PBT-1, and ‘inhibition of peroxide’, where
PBT-2 is 1.6 times better at holding back H202 production than its predecessor compound. These two measures
indicate that PBT-2 works against ‘mechanistic targets’, that is, targets at work in what Prana believes is the
underlying mechanism of action in Alzheimer’s Disease. In terms of its ability as a drug to treat a central nervous
system disorder, PBT-2 also scores more highly than PBT-1. The new drug is over ten times more soluble than PBT-
1, which makes it a much easier drug to work with. PBT-2 has four times the ‘neuroprotective’ ability of PBT-1,
meaning that the amyloid beta killed markedly fewer neurons when PBT-2 was used. The ability of PBT-2 to get
through the blood-brain barrier is much higher than PBT-1. And finally, in transgenic mice that had been engineered
to suffer Alzheimer’s there was a 29% reduction in insoluble amyloid beta still in the brain and a 37% fall in soluble
amyloid beta in the brain as a result of PBT-2. By contrast PBT-1 could cut insoluble amyloid levels by nearly half
but make no dent in soluble amyloid still in the brain. In short, PBT-2 is a more powerful drug.
It probably won’t be until October 2004 that the formal clinical trial of PBT-2 begins. Toxicology studies are
currently being undertaken and the drug will have to be produced ahead of the start of the trial. However if the
results of Phase I yield some good results like the proof of concept trial, Prana should be a more appreciated stock as
we approach Christmas 2005 and if all goes to plan the drug could be approaching approval by around Christmas
2008. As we’ll see below, PBT-2 alone can be responsible for some serious shareholder value well in excess of the
current share price.
Prana introduces Plans B and C
A feature of 2003 is the way in which Prana has worked on not just being a ‘one shot’ company, as it effectively was
when the company floated in 2000. Effectively, Prana now has two other strings to its bow.
12 For a taste of what rational drug design involves, check out Barry Werth’s highly readable The Billion Dollar Molecule – One Company’s
Quest for the Perfect Drug (New York: Simon & Schuster, 1994)
PBT-2 may be
nearing approval
perhaps five
years from now.
Introductory Research on
Prana Biotechnology
PAGE 11 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
A potential drug for the treatment of Parkinson’s Disease - The exciting part of Prana’s scientific base is that it
isn’t restricted just to Alzheimer’s. That disease is one of many whose central feature is neurodegeneration – the
progressive destruction of brain function. Prana may ultimately be a player in five particular diseases. Probably the
best known of these is Parkinson’s Disease, where a serious drop in the level of dopamine in the brain leads
gradually to tremors, speech impediments, movement difficulties, and in many cases dementia. Lovers of folk music
will know about the inherited neurodegenerative disorder Huntingdon’s Disease, a condition characterized by
intellectual decline and involuntary limb movement that first came to public attention in the late 1960s when it
claimed Woodie Guthrie as one of its more prominent victims. Then there’s Amyotrophic Lateral Sclerosis, or
ALS13, which cripples its patient by destroying nerve cells associated with muscle action but leaves the mind and
senses intact, which is one reason why the British physicist Stephen Hawking is still intellectually active. And don’t
forget the chilling Creutzfeldt-Jakob Disease, the human form of Mad Cow Disease, where little understood
infectious proteins known as prions cause wholesale neuron
destruction, leading to serious memory failure and behavioral
changes. What all these diseases have in common is that one
can make a case that they all involve an interaction between
proteins and metals14. For Alzheimer’s the proteins are APP
and amyloid beta; for Parkinson’s the protein which goes
wrong is alpha-synuclein; for ALS the villain is superoxide
dismutase; Huntingdon’s is caused by the Huntingtin protein;
and in CJD the damage is caused by prions, which, unlike the
other four substances, are solely proteins, there being no
detectable nucleic acid within the protein. If the interaction of
metals with these proteins lies at the heart of the disease
condition, then Prana’s MPAC approach to the treatment of
neurodegeneration casts a wider net than just Alzheimer’s and
positions Prana in a drug market estimated by Prana at
US$10bn a year. Parkinson’s Disease is a good place to start.
The disease is high profile due in part to some of its more
prominent victims (such as Pope John Paul II, Muhammad
Ali, and the actor Michael J. Fox), and it’s believed that the
disease strikes perhaps one in 300 people. The U.S. alone is
believed to have more than a million Parkinson’s victims, with
the total health care cost somewhere between US$5bn and
US$6bn15. What makes Parkinson’s particularly lucrative
target for drug developers is the relatively long time a patient
will be on medication – in many instances longer than ten
years. Prana is looking to select another MPAC from its
library and expects to put it into toxicology in 2004, allowing
this compound to enter a Phase I trial for Parkinson’s Disease
in 2005.
A potential Alzheimer’s immunotherapy – In April 2003 Prana was awarded a Biotechnology Innovation Fund
grant by the Australian Federal Government of $230,000 to work on a technique for treating Alzheimer’s that makes
13 Americans will likely know this one as Lou Gehrig’s Disease after the baseball player (1903-41) who was its first prominent victim
14 The seminal paper on the metal-protein relationship was Ashley Bush’s paper Metals and Neuroscience, published several years ago in the
journal Current Opinion in Chemical Biology (2000, 4: 184-191)
15 See, for example, www.michaeljfox.org/parkinson/#whogets, and www.ec-online.net/Knowledge/Articles/parkinsons.html
Management – how Prana does it a little
differently. We have a high regard for the
management team at Prana, which approaches
the building of the company first from a
commercial, then from a scientific perspective.
Executive Chairman Geoffrey Kempler has
already built a successful business in Australia,
having been for some years the Australian
distributor of the Aveda range of cosmetic
products. In May 2002 Kempler brought in Dr
Ross Murdoch as Chief Operating Officer, a
sound choice given the role big pharma will
eventually play in Prana’s future – Murdoch
had formerly been Head of Global Clinical
Project Management for AstraZeneca and
before that Director of Cardiovascular
Therapeutics at Astra. We would argue that few
Australian biotech CEOs have Murdoch’s level
of international experience. Another interesting
part of the Prana way of doing things has
involved the company having Dianne Angus on
board as the Vice President of IP and Business
Development since August last year. With all
the shareholder value in Prana to date having
largely been encapsulated in patents, it makes
sense to have a company official for whom this
is a full-time responsibility.
Introductory Research on
Prana Biotechnology
PAGE 12 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
use of the immune system. What Prana’s scientists are interested in is the dityrosine cross-link in amyloid beta.
Tyrosine is simply one of the twenty or so amino acids that make up proteins. When amyloid becomes subject to
oxidative stress, various tyrosine molecules in the protein ‘cross-link’ in order to form dityrosine. If the immune
system can be persuaded to recognize and deal with amyloid beta containing cross-linked dityrosine, the result could
be a treatment that deals with amyloid plaques in the brain without attacking healthy tissue. Any breakthrough in
this technology could be quite significant because immunological ‘memory’ of a particular antigen would mean that
T and B cells would be on continual guard against the buildup of amyloid plaques. And the way is open for another
vaccine to step up to the breach left by the Irish biotechnology company Elan’s suspension in February last year of
development of its AN-1792 Alzheimer’s vaccine, which triggered brain reactions, believed to be encephalitis, in
twelve subjects participating in a Phase 2a trial.
Valuing Prana – Buy PBT-2, get PBT-3 and an Alzheimer’s vaccine for free
We valued Prana solely on the basis of PBT-2 and the options the company currently
has on issue. We valued PBT-2 in two parts – one part for the royalties Prana would
accrue for a commercial product, and another part for a value for licensing the drug to
a big pharma partner. We lay out the figures derived from our assumptions in
Appendix IV on page 21.
Prospective PBT-2 royalties: We postulated that PBT-2 would pass through each
phase of clinical testing in a year and that the FDA would take another year to approve
the drug, in around in late 2008 or early 2009. This would allow the drug to be
commercially available in the 2009/2010 financial year. We also assumed that the drug
builds up to 2012 sales of US$2.5bn to reflect the strong market standing which the
world’s first ever MPAC-based Alzheimer’s drug would garner as a first in its class.
By the end of the current decade it has been suggested that the American Alzheimer’s population will have grown
38%, to 5.5 million, so a US$2.5bn a year sales figure given the likely power of PBT-2 compared to drugs like
Aricept today is not unreasonable. After 2012 we allow sales to grow 5% a year through to 2022, an endpoint which
is accommodated by a patent life for PBT-2 assumed to begin in 2002, although patent applications yet to be filed
may allow a later priority date. We assumed licensing of PBT-2 to a big pharma partner either at the end of either
Phase IIa or IIb, and use a stepped royalty structure whereby less than US$1,000m in sales attract an 8% royalty,
while sales between US$1,000-US$2,000m get a 10% royalty and sales in excess of US$2,000 enjoy a 12% rate. We
then used a U.S. dollar exchange rate of 0.82, normalising the DCF of this royalty stream at a 30% tax rate, and then
backing out $20m in expenditure on PBT-2 that Prana may make up to the time of outlicensing. Based on some
estimates of the probability of failure of a drug at various stages of the trial process (25.0% in Phase I, 50.0% in
Phase II, 20.0% in Phase III and 20.0%
during the approval process)16, we then
took the resulting after-tax DCF and
attributed 24% of that value to Prana’s
shareholders today. For our optimistic
case we used a 10% discount rate for our
optimistic case and 20% for our base case.
16 Guidance can be obtained here from papers such as DiMasi, J.A. Success rates for new drugs entering clinical testing in the United States.
Clin. Pharmacol Ther (1995) 58: 1-14
Southern Cross Equities’ valuation of PBT-2
Base Optimisic
PBT-2 sign-on plus milestones (A$m) 4.7 15.1
PBT-2 royalties (A$m) 62.7 200.5
Cash from options (A$m) 11.2 11.2
Total (A$m) 78.7 226.8
Value per fully diluted share $0.81 $2.34
PBT-2 on
approval may
prove a
blockbuster due
to its being a
‘first-in-class’
drug
Introductory Research on
Prana Biotechnology
PAGE 13 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
Prospective PBT-2 sign-on and milestone payments: We took the DCF value of PBT-2’s purported US dollar
sales, and used the assumption that the big pharma partner could enjoy 50% gross margins from the product (in fact
if it’s a blockbuster margins much higher than this are realisable). We then presumed that that partner would then
need to fund PBT-2 to the tune of US$150m to take the drug through the approval and marketing stage. Backing that
US$150m out of the notional value to the partner, we presumed that the partner would pay 1.5% of that value to
Prana in various sign-on and licensing to bring PBT-2 into its pipeline. As with our royalty calculations we used an
exchange rate of 0.82, we normalized the
resulting figure for tax, and we used a 10%
discount rate for our optimistic case and 20% for
our base case.
The result of this model was a base case
valuation for PBT-2 of 81 cents and an
optimistic case valuation of $2.34 per share fully
diluted, which suggests to us a target price of
$2.00 per share.
Conclusion – Big markets, good
science, and a well managed
company
Prana Biotechnology has been a stock with a lot of ups and downs since its March 2000 listing. The high hopes held
out for PBT-1 in April 2002 led to the stock reaching $2.50 while the perceived failure of the PBT-1 story to
‘develop’ then led to speculators abandoning the stock. Which creates a great buying opportunity for those taking a
look at the Prana story now. Prana now has the necessary resources in terms of technical capacity and intellectual
property base to be able to pursue its goal of developing a prescription drug for the treatment of Alzheimer’s
Disease. The company has evolved its Metal Protein Attenuating Compound technology to the point where PBT-2
will be in the clinic next year. And it has built a decent pipeline. While Prana’s science competes with a variety of
other theoretical approaches for the treatment of Alzheimer’s, the data gathered on Prana’s approach to date as well
as the people involved and the huge markets available for successful drugs suggest that Prana’s technology is
significantly underpriced at present. Prana Biotechnology rates a SPECULATIVE BUY for knowledgeable
professional investors, with a target price of $2.00 a share.
Appendix I – Listed companies working on Alzheimer’s drugs
North America
Axonyx of New York City (www.axonyx.com, Nasdaq code AXYX) took its lead compound, an
acetylcholinesterase inhibitor called Phenserine, into a 375-patient Phase III clinical trial in mid-2003. Axonyx’s
market cap as at 15 December 2003 was US$161m.
Cortex Pharmaceuticals of Irvine, California (www.cortexpharm.com, American Stock Exchange code COR) is
working on a compound called CX-516. This drug is designed to enhance glutamate, a substance that speeds the
process of communication among brain cells. Alzheimer’s is one of a number of applications for which CX-516 has
been tested in pilot trials. Cortex’s market cap as at 15 December 2003 was US$60m.
Myriad Genetics of Salt Lake City (www.myriad.com, Nasdaq code MGEN) is a company best known for its
propriety rights over the BRCA1 and BRC2 breast cancer susceptibility genes. It does, however, have a fairly large
Prana’s capital structure
Ordinary shares 74,485,924
Options Exercisable Date
20,000,000 $0.50 1/12/2004
200,000 $0.50 20/03/2004
1,327,167 $0.50 30/06/2005
10,000 $0.50 30/06/2005
200,000 $0.50 1/10/2005
500,000 $0.70 23/04/2004
22,237,167
Fully diluted shares 96,723,091
Introductory Research on
Prana Biotechnology
PAGE 14 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
pipeline of drugs, the most prominent of which is R-flurbiprofen (MPC-7869), a drug now that has completed Phase
II clinical trials. R-flurbiprofen, similar to the anti-inflammatory ibuprofen, is understood to work by interfering
with the activity of gamma-secretase. Myriad was capitalised as at 15 December at US$338m.
Neurochem of Montreal (www.neurochem.com, Toronto Stock Exchange code NRM) has completed a Phase II
clinical trial of Alzhemed, a small molecule drug which interferes with sugar molecules called glycosaminoglycans
associating with amyloid beta. Neurochem was capitalised as at 15 December at US$604m.
Nymox of Maywood, New Jersey (www.nymox.com, Nasdaq code NYMX) is working on drugs in various stages
of pre-clinical development that target Spherons, or balls of protein, found in the brain and believed to contribute to
the formation of amyloid plaques. Nymox is currently capped at US$66m.
Praecis Pharmaceuticals of Waltham, Massachusetts (www.praecis.com, Nasdaq Code PRCS), which is
commercialising technology for more rapid drug development, used this technology to select a compound called
Apan, which seems to interfere with the aggregation of amyloid beta. Apan went into a Phase Ib trial in Alzheimer’s
patients in mid-2003. Praecis is currently capped at US$344m.
Europe
The Danish company Neurosearch (www.neurosearch.com, Copenhagen Stock Exchange code NEUS) has taken to
Phase II a compound called NS2330, which works against neurodegeneration by preventing the re-uptake of various
neurotransmitters called monoamines by brain cells.
A French company called NicOx SA, located at Sophia Antipolis near Nice (www.nicox.com, Nouveau Marche
code NICOX), has in its pipeline another ibuprofen derivative similar to that of Myriad’s called HCT 1026. While
this compound is being developed for indications such as osteoporosis there has also been a Phase I pilot trial for an
Alzheimer’s indication.
The UK company Regen Therapeutics (www.regentherapeutics.com, London Stock Exchange code RGT) is
developing an anti-Alzheimer’s drug called Colostrinin, so called because it is a peptide complex derived from
colostrums. A 106-patient pilot trial was completed in Poland in 2003 with favourable results.
Appendix II – A Prana Biotechnology glossary
8-Ohq – Short for 8-hydroxyquinoline, another name for clioquinol.
AΒ40 and AΒ42 – See amyloid beta.
A beta – Short for amyloid beta.
A beta 40 and A beta 42 – See amyloid beta.
Acetylcholine – A neurotransmitter that is the main one used by the nervous system to signal muscles to initiate or
cease movement. Levels of acetylcholine drop markedly in the Alzheimer’s patients.
AD – Short for Alzheimer’s Disease.
ADAS-cog – Short for Alzheimer's Disease Assessment Scale - Cognitive Subscale. A measure of cognition in
Alzheimer’s Disease patients. An ADAS-Cog test is a battery of individual tests of such abilities as word recall and
recall of test instructions etc. The ADAS cog score range is from 0 to 70 - the higher the score, the greater the
cognitive impairment. Elderly normal adults may score as low as 0. In Prana’s proof of concept trial the subjects
had ADAS cog scores of between 20 and 45.
Introductory Research on
Prana Biotechnology
PAGE 15 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
Alpha secretase – The first of the secretases, discovered around 1990, which cuts APP in the middle of the A beta
region.
Alpha-synuclein – A protein that plays an important role in the progress of Parkinson’s Disease.
ALS – See Amyotrophic Lateral Sclerosis.
Alzheimer’s Disease (also called presenile dementia) - A brain disorder that affects parts of the brain that control
thought, memory, and language. Alzheimer’s is understood to afflict between 1 and 2% of the population of the
Western world.
Amyloid – A starch-like protein that is found deposited in plaques in the brain tissue of people who have died from
Alzheimer’s.
Amyloid beta – An amyloid protein that results when APP is cut by the secretases. Amyloid beta can form into
plaque in brain tissue and contribute to loss of brain function. A Beta 40, an amyloid beta protein which is 40 amino
acids in length, is the more common, however a slightly longer protein called A Beta 42, which as the name suggests
is 42 amino acids long, tends to aggregate into plaques more easily.
Amyloid beta Precursor Protein – A protein found in the outer layer of brain cells which, when snipped by the
secretases, results in amyloid beta. The gene for APP was located on chromosome 21 around 1987.
Amyloid hypothesis – The hypothesis that beta amyloid protein is the primary cause of Alzheimer’s disease.
Amyloid plaque – The clumps of amyloid in the brain that indicate that a person died of Alzheimer’s disease.
Amyotrophic lateral sclerosis (ALS) – A disease also known as Lou Gehrig’s Disease because of its most famous
victim, the American baseball player Lou Gehrig. ALS destroys nerve cells associated with muscle action but leaves
the mind and senses intact.
Antioxidants – Substances that neutralise oxygen in free radicals, which can damage cells in the body. Various
vitamins have anti-oxidant properties.
APOE and APOE4 – see Apoliprotein E.
APOE4 - see Apolipoprotein.
Apolipoprotein - The protein component of a lipoprotein, which is a fatty substance found in the blood.
Apolipoprotein E - A protein whose main function is to transport cholesterol. There are three forms of APOE - E2,
E3, and E4. The last form contains a polymorphism associated with a majority of late-onset Alzheimer’s disease
cases. The gene for APOE was discovered in 1992 on chromosome 19.
APP – see Amyloid beta Precursor Protein.
Aricept – A cholinesterase inhibitor drug from Pfizer (generic name donepezil) that treats Alzheimer’s by boosting
the amount of acetylcholine in the brain.
Baseline – The beginning point of a clinical trial study.
Beta-pleated sheet – A very common protein conformation that is ‘zig-zagged’ in shape. APP, before being cut by
the secretases, has a helical shape called the ‘alpha conformation’. When formed by the secretases, amyloid beta
loses this helical shape and becomes beta-pleated, which makes it insoluble and therefore more difficult to remove
from the brain.
Beta secretase – One of three secretases hypothesized to be involved in clipping APP to form amyloid beta .
Introductory Research on
Prana Biotechnology
PAGE 16 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
Blood-brain barrier – A wall of cells which line the blood vessels in the brain so tightly that only selected
substances are permitted to pass through.
Central Nervous System – The brain and the spinal cord.
Cerebrospinal Fluid (CSF) – A fluid that surrounds the central nervous system. Physicians can check on the levels
of amyloid beta in the brain by using a lumbar puncture to assay for the fluid.
Chelating agents – (pronounced ‘kee-lay-ting’) Drugs that can bind to metals so as to facilitate their release from
the body.
Cholinesterase inhibitors – Drugs that inhibit acetylcholinesterase, the enzyme that breaks down acetylcholine.
CIBIG – short for Clinician Interview-Based Impression of Change.
CJD – Short for Creutzfeldt-Jakob disease
Clinician Interview-Based Impression of Change – An assessment of an Alzheimer’s patient’s condition which
evaluates behaviour and activities of daily living as well as cognition and is based on interviews with the patient and
his or her caregiver.
Clioquinol – An old antibiotic drug that has chelating properties. Scientists associated with Prana conducted their
proof of concept studies with Clioquinol. The drug was banned from the Japanese market in 1970 because up to
10,000 Japanese patients developed peripheral nerve damage and sometimes blindness partly as a result of taking it.
CNS – See Central Nervous System.
Conformation – The ‘shape’ of a particular protein. See beta-pleated sheet.
Creutzfeldt-Jakob disease – A brain disease in humans caused by prions in which significant numbers of brain
cells are destroyed, leading memory failure and behavioral changes. CJD has been called the human form of Mad
Cow Disease.
Cu2+ - A positively charged copper ion that has lost two electrons. Cu2+, when reacting with amyloid beta, brings
about the production of hydrogen peroxide.
CSF – See cereobrospinal fluid.
Cyanocobalamin – A form of vitamin B12.
Dementia – The group of brain disorders that seriously affects the patient’s ability to carry out daily activities.
Dimer - A molecule composed of two identical simpler molecules.
Dityrosine – A cross-linked tyrosine protein that results from oxidative stress. Prana is looking to work on an
Alzheimer’s immunotherapy that targets dityrosine in amyloid beta.
Dopamine – A neurotransmitter sometimes called the ‘happiness chemical’ because it plays a role in signaling
reward in the brain. It also plays a role in body movement, with a hallmark of Parkinson’s disease is a drop in
dopamine levels.
Donepezil – The generic name for Aricept.
E-4 variant – See Apoloprotein E.
Enzyme - A protein that helps speed up in biochemical reactions in the body. Examples are protease and
acetylcholinase.
Introductory Research on
Prana Biotechnology
PAGE 17 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
Exelon - A cholinesterase inhibitor drug from Novartis (generic name rivastigmine).
Free radicals – Molecules with unpaired electrons that therefore have to combine with complementary molecules
before they become stable. If a free radical bonds with a positive charge molecule, its charge is neutralised. Oxygen
in the free radical form can damage cells in the body in a process called oxidative stress.
mABs G210 and G211 – Monoclonal antibodies binding to AB40 and AB42 respectively.
Gamma secretase – One of three secretases hypothesized to be involved in clipping APP for form amyloid beta.
Heterozygote – Having two different versions of a gene. Some of the patients in Prana’s pilot trial were
heterozygote for ApoE4.
Homozygote – Having the same versions of a gene. Some of the patients in Prana’s pilot trial were homozygote for
ApoE4.
Huntingdon’s disease – An inherited, degenerative brain disease characterized by intellectual decline and
involuntary limb movement. Its most famous victim was the folk singer Woodie Guthrie. The disease is caused by
an errant protein called Huntingtin.
Hydrogen peroxide – A chemical (H2O2) that is often used in textiles and hair as a bleaching agent. The interaction
of redox-active copper ions and amyloid beta results in the production of hydrogen peroxide.
In Vitro – Latin for ‘in glass’, meaning ‘in the test tube’.
In Vivo – Latin for ‘in life’, an instance where a pharmaceutical idea is tried out in a living body, generally animals
such as mice.
Iodochlorhydroxyquin – Another name for clioquinol.
Late onset Alzheimer’s disease - The majority of cases of Alzheimer’s disease, being those where symptoms
present after the age of 65. One’s chances of contracting later onset Alzheimer’s are estimated at one in ten.
Lou Gehrig’s disease – see Amyotrophic Lateral Sclerosis
Lovastatin – A cholesterol-lowering drug.
Membrane – The ‘casing’ of a cell.
Metal Protein Attenuating Compound (MPAC) – A compound that can weaken the interaction between metals
and proteins. Clioquinol is an MPAC.
Microtubules – ‘Train-track’-like structures within a cell, which rout nutrients and molecules around the cell. Tau
protein forms the railway ties that hold the microtubule tracks in place.
Mini-Mental State Examination (MMES) – A study of cognitive impairment in which a patient is given a score
out of 30, with the lower numbers representing greater levels of cognitive impairment. In Prana’s pilot trial the
subjects had MMSE scores ranging from 10 to 24.
MPAC – See Metal Protein Attenuating Compound.
National Adult Reading Test – A test which is believed to indicate levels of pre-morbid intelligence in
Alzheimer’s patients, the theory being that language skills, and in particular the ability to pronounce non-obvious
words, are less affected by the disease than other mental skills.
Neurons – Nerve cells.
Introductory Research on
Prana Biotechnology
PAGE 18 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
Neurotransmitters - Chemicals that neurons use to communicate with each other.
Oxidative stress – Cell damage that results from oxygen-linked free radicals.
Parkinson’s disease – A neurodegenerative disease associated with a drop in dopamine levels and characterized by
tremors, speech impediments, movement difficulties, and often dementia.
PBT-1 – Prana’s code name for clioquinol
PBT-2 – A ‘rationally designed’ drug for the treatment of Alzheimer’s Disease. P Prana announced in August 2003
it was taking PBT-2 into the clinic in 2004.
Presenile dementia – Another term for Alzheimer’s Disease.
Prion - Pathogens composed only of protein with no detectable nucleic acid. They have been implicated in diseases
such as Creutzfeldt-Jakob disease.
Proof-of-concept – A ‘pilot’ trial of a compound on a small number of patients that is conducted so as to prove that
a particular scientific idea has merit rather than to persuade a regulator to approve the compound for commercial
use. Prana’s trial of clioquinol was a proof-of-concept trial.
Protein - A class of fairly common molecules in the human body that includes antibodies, hormones and enzymes.
Proteolytic enzymes – Enzymes that bust up proteins.
P value – A measure of statistical significance. Generally a p value below 0.05 is considered ‘statistically
significant’
Reactive oxygen species - Free radicals produced inside cells during cellular metabolism that are derived from
molecular oxygen (O2). They prove highly destructive to important cell components.
Redox – Short for ‘reduction-oxidation’, which is the potential of a substance to reduce another substance by a
process of oxidation. Prana’s MPAC compounds can inhibit redox-active copper and iron ions.
Reminyl – A drug from Johnson & Johnson (generic name galantamine) originally derived from daffodil bulbs
which functions as both an acetylcholinesterase inhibitor at the same time as it enhances the response of nicotinic
receptors to acetylcholine.
Secretase – An enzyme that cuts APP to form A Beta. There are three secretases, alpha-secretase, beta-secretase,
and gamma-secretase.
SMON – See Sub-acute myelo-optic neuropathy.
Sub-acute myelo-optic neuropathy (SMON) - A disease identified in Japan in the 1960s associated with nerve
degeneration. The blame was laid on a Ciba-Geigy drug called Clioquinol, which was banned in Japan in 1970. It is
believed that the outbreaks had to do with overdoses of the drug that was preventable by vitamin B12
supplementation.
Superoxide dismutase – A protein associated with ALS.
Tau protein – A protein named after the 19th letter of the Greek alphabet whose function is form the ‘railway ties’
that hold the microtubule ‘tracks’ in place. In some neurodegerative disorders tau is altered so that neurofibrillary
tangles result.
Thyrotropin – A hormone produced by the pituitary gland that stimulates the thyroid gland. Elevated thyrotropin
levels are often associated with Alzheimer’s like-symptoms in patients.
Introductory Research on
Prana Biotechnology
PAGE 19 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
Transgenic mouse model - A mouse whose genetic make-up has been altered so as to model a particular disease
state.
Tyrosine – One of the twenty or so amino acids that make up proteins.
Vitamin B12 – A vitamin, also called cobalamin, that helps maintain the health of nerve cells and red blood cells,
and is also important in the production of DNA. It is understood that vitamin B12 deficiency was a contributing
factor in the Sub-acute myelo-optic neuropathy outbreaks in Japan in the 1960s.
Zn2+ - A positively charged zinc ion that has lost two electrons.
Appendix III - A Prana Biotechnology timeline
28 March 2000 – Prana stock finishes its first day of trading at $1.02, as against the IPO price of 50 cents.
2 August 2000 – Prana advises that the proof of concept trial for PBT-1 has begun in Melbourne. Prana stock closes
at 44 cents.
7 November 2000 - Ashley Bush fronts the Society for Neuroscience 30th Annual Meeting in New Orleans to talk
about PBT-1. The announcement of this presentation on 3 November failed to move Prana stock, which closed at 55
cents.
19 January 2001- Prana raises $5m through the placement of 6.67 million new shares at 75 cents per share. Prana
stock ends the day at 88 cents per share.
25 June 2001 – Prana receives a ‘speeding ticket’ from the ASX concerning a rose from 90 cents on 14 June 2001
to $1.10 on 25 June. The stock ends the day at $1.11
27 July 2001 – Prana leaps 9.8% to $1.23 on news that the company has received a $1.74m START grant with
which to work on rational drug design.
28 September 2001 – Prana stock is back at 88 cents. The company has initiated legal action in the U.S. against a
Greek pharmaceutical company called Gerolymatos, seeking to name its scientists as inventors on two Gerolymatos
patents. The dispute has its origins in clioquinol work that Ashley Bush and Rudy Tanzi did with Michael Xilinas,
who subsequently became a consultant to Gerolymatos and which now disputes ownership of IP related to
clioquinol as an Alzheimer’s treatment.
22 January 2002 – Prana advises that the proof of concept trial has been completed and the results are being
compiled. Prana stock ends at 98 cents.
12 March 2002 – Speculation regarding a favourable outcome of Prana’s proof of concept trial pushes the stock to
its all-time high of $2.50.
4 April 2002 – After a three-session trading halt in Prana’s stock the company Prana announces a favourable
outcome to its proof of concept trial. Since the stock hasn’t traded since 28 March (the Easter break having
intervened) the outcome on 5 April is a massive 72% rise in Prana’s share price to $2.42 a share.
6 May 2002 – Prana suggests that a paper published in the Proceedings of the National Academy of Science by a
Korean scientist named Jae-Young Koh validates Prana’s own science. Prana stock ends at $2.05.
29 May 2002 – Prana indicates its intention to list on Nasdaq. Prana stock ends at $2.00.
24 June 2002 – Dr Ross Murdoch is named Prana’s Chief Operating Officer. Prana stock ends at $2.35.
Introductory Research on
Prana Biotechnology
PAGE 20 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
5 September 2002 – Prana stock trades on Nasdaq for the first time. The next day the stock closes in Australia at
$2.05.
6 December 2002 – In a breakthrough for Prana’s science in terms of its acceptability by the Alzheimer’s research
community, Ashley Bush presents at the Therapeutic Opportunities in Neurodegenerative Diseases Conference at
the Cold Spring Harbor Laboratory in New York State. On the announcement of this three days earlier Prana stock
had jumped in Australia from $1.35 to $1.60.
19 March 2003 – Germany’s Schering licenses some of Prana’s intellectual property. Prana stock rises 8% to 78
cents on the news.
28 March 2003 - Prana suggests that a paper in the journal Neuron entitled Genetic or Pharmacological Iron
Chelation Prevents MPTP-Induced Neurotoxicity in Vivo: A Novel Therapy for Parkinson's Disease with Ashley
Bush as co-author provides more validation for Prana science. Investors are underwhelmed and mark Prana stock
down 5 cents to 80 cents.
5 May 2003 - Prana announces that it has received a $230,000 Biotechnology Innovation Fund to look into an
immunotherapy for Alzheimer's Disease. Prana stock ends at 48 cents. Three days later Prana stock hits an all-time
low of 43.5 cents.
5 August 2003 - Prana stock rises 22% to 73 cents when the company announces its intention to take PBT-2 into
the clinic in 2004.
4 September 2003 - After the market, Prana announces a placement of 7.15 million shares at 70 cents each to raise
$5m.The next day the stock rises 4 cents to 84 cents.
16 December 2003 - Prana announces that the results of its proof of concept trial have been published in the journal
Archives of Neurology.
Introductory Research on
Prana Biotechnology
PAGE 21 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
Appendix IV – Southern Cross Equities’ valuations of PBT-2
Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
US dollar sales 334 1,250 2,500 2,625 2,756 2,894 3,039 3,191 3,350 3,518 3,694 3,878 4,072
Royalty
< US$1,000m in sales 8.0% 26.7 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0
US$1,000-US$2,000m in drug sales 10.0% 25.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
US$2,000m-plus in drug sales 12.0% 60.0 75.0 90.8 107.3 124.7 142.9 162.0 182.1 203.2 225.4 248.7
Total Royalty 26.7 105.0 240.0 255.0 270.8 287.3 304.7 322.9 342.0 362.1 383.2 405.4 428.7
Australian dollar royalty (A$m) 32.6 128.0 292.7 311.0 330.2 350.4 371.5 393.8 417.1 441.6 467.4 494.4 522.8
OPTIMISTIC CASE VALUATION 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Optimistic case present value of net royalty (A$m) - 10%
discount rate 16.7 59.7 124.1 119.9 115.7 111.6 107.6 103.7 99.9 96.1 92.5 88.9 85.5
Total DCF (A$m) 1,222.0
Tax ($m) 366.6
DCF after tax ($m) 855.4
Prana's contribution ($m) 20.0
Prana's share of net royalties ($m) 835.4
Probability value of success for Prana's shareholders
should PBT-2 arrive in the clinic ($m) - (approx 24%) 200.5
Discount rate 10.0%
Estimated license fee and milestone income
Present value of expected sales (US$) 171.3 583.1 1060.2 1012.1 966.0 922.1 880.2 840.2 802.0 765.6 730.8 697.6 665.8
Total expected revenue (US$) 10,097.1
Gross margins to big pharma (30%) 5,048.5
Funding 150.0
Gross margins to big pharma after funding 4,898.5
1.5% down (US dollars) 73.5
1.5% down probability-weighted (US dollars) 17.6
1.5% down probability-weighted (Australian dollars) 21.5
1.5% down probability-weighted (A$) normalised for tax 15.1
Total value (m) 215.5
Introductory Research on
Prana Biotechnology
PAGE 22 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
BASE CASE VALUATION 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Base case present value of net royalty (A$m) - 25% discount
rate 9.1 29.8 56.7 50.2 44.4 39.3 34.7 30.7 27.1 23.9 21.1 18.6 16.4
Total DCF (A$m) 401.9
Tax ($m) 120.6
DCF after tax ($m) 281.3
Prana's contribution ($m) 20.0
Prana's share of net royalties ($m) 261.3
Probability value of success for Prana's shareholders
should PBT-2 arrive in the clinic ($m) - (approx 24%) 62.7
Discount rate 20.0%
Estimated license fee and milestone income
Present value of expected sales (US$) 93.1 290.7 484.5 424.0 371.0 324.6 284.0 248.5 217.4 190.3 166.5 145.7 127.5
Total expected revenue (US$) 3,367.7
Gross margins to big pharma (50%) 1,683.9
Funding 150.0
Gross margins to big pharma after funding 1,533.9
1.5% down (US dollars) 23.0
1.5% down probability-weighted (US dollars) 5.5
1.5% down probability-weighted (Australian dollars) 6.7
1.5% down probability-weighted (A$) normalised for tax 4.7
Total value 67.4
Introductory Research on
Prana Biotechnology
PAGE 23 Tuesday 16/12/2003
Speculative Buy for
Knowledgeable Professional
Investors at 65 cents
MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft
DRAFT
Disclaimer
This document is intended only for the information of those persons to whom it was provided by Southern Cross Equities
Limited and should not be relied upon by any other person. Although we believe that the advice and information that this
document contains is accurate and reliable, Southern Cross Equities Limited has not independently verified information
contained in this document which is derived from publicly available sources, directors and proposed directors and
management. Southern Cross Equities assumes no responsibility for updating any advice, views, opinions or
recommendations contained in this document or for correcting any error or omission which may become apparent after the
document has been issued. Southern Cross Equities Limited does not give any warranty as to the accuracy, reliability or
completeness of advice or information which is contained in this document. Except insofar as liability under any statute
cannot be excluded, Southern Cross Equities Limited and its directors, employees and consultants do not accept any liability
(whether arising in contract, in tort or negligence or otherwise) for any error or omission in this document or for any resulting
loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this document or any other
person.
This document has not been written taking into account the particular investment objectives, financial situation, particular
needs or individual circumstances of any investor. Before making an investment decision on the basis of any information in
this document an investor should assess whether the information contained in the document is appropriate to their individual
investment objectives, financial situation and particular needs. Southern Cross Equities Limited, its employees, consultants
and its associates within the meaning of Chapter 7 of the Corporations Law may receive commissions, underwriting and
management fees, calculated at normal client rates, from transactions involving securities referred to in this document and
may hold interests in the securities referred to in this document from time to time.
Disclosure of interest
Southern Cross Equities Ltd and its associates hold 380,800 shares in Prana Biotechnology as at the date of this report.
This position is subject to change without notice.
As at the time of this report Southern Cross Equities and Prana Biotechnology are holding discussions that may lead to
Southern Cross Equities being granted securities in Prana Biotechnology, subject to shareholder approval.
Director: Rex Adams
Analyst: Stuart Roberts

MEMBER ORGANISATION OF THE AUSTRALIAN STOCK EXCHANGE
Southern Cross Equities Limited Incorporated in NSW ACN 071 935 441
Level 15, 167 Macquarie Street, SYDNEY, NSW 2000. Telephone: (612) 9231 0880 • Facsimile (612) 9231 0588
• Internet: www.sceq.com.au • Email: [email protected]
PLEASE NOTE: All amounts in Australian dollars unless otherwise indicated. This page is part of a document from Southern Cross Equities
Dated 16 December 2003 which is subject to a disclaimer and disclosure of interest notice page 23 of the document.
Any comment on this page is also subject to the said disclaimer and disclosure of interest notice.
This is a draft